Communists Can’t Outspend Capitalists as China Jobless Increase

(Bloomberg) -- Over bowls of chili tofu and mushrooms at a restaurant in Shenzhen in China’s humid Pearl River Delta, Terence Yap says he’s not alarmed that U.S. investors drove his company’s share price down 58 percent over the past year.

“We are in the right business in the right place at the right time,” Yap, 38, says as he gestures toward a gray industrial landscape that disappears into a pollution-blurred horizon. His occupation: selling surveillance equipment to a Chinese government that’s stepping up security spending as the economy slows, unemployment rises and the population grows restless. “We are in the business of providing peace of mind,” he says.

Peace of mind is getting harder to find for China’s leaders. Premier Wen Jiabao has pledged to ensure “social stability” as the government estimates that as many as 30 million rural migrants -- those Chinese who work in factories or seek urban construction jobs -- may have no income.

“We will launch intensive campaigns to ensure public security and maintain law and order,” Wen told the National People’s Congress in Beijing on March 5. China’s unemployment rate is about 9.4 percent, according to an estimate by the Chinese Academy of Social Sciences -- more than double the government’s March figure of 4.3 percent for the registered urban unemployed it officially tracks. Adding to the burden are a record 6 million Chinese college graduates who are entering the job market this year.

Jobs Jostle

Demand for work is so high that 5,000 students jostled at a Shanghai employment fair in March for 400 jobs available in the funeral industry. One woman with a management degree applied for a position as a mortician’s assistant to “make up the faces of the dead,” state media reported. The attraction: It paid 4,000 yuan ($585) a month, equal to what she might have earned in an office job two years ago.

By global standards, China is growing at a brisk pace; its 9 percent expansion in 2008 made it the best performer among the 10 largest economies. Gross domestic product slumped to 6.1 percent in the first quarter of this year, still a world-beating rate as the global recession cut demand for Chinese-made goods. Even as the country’s leaders assert themselves on the diplomatic stage, they are preoccupied with keeping a lid on popular discontent as the 20th anniversary of the crackdown on the democracy movement at Tiananmen Square draws near.

‘Sensitive Year’

“This is a very sensitive year,” says Jimmy Lai, chief executive officer of Hong Kong-based Next Media Ltd., who was banned by the Chinese government from the mainland in 1994 after condemning Beijing’s leaders for crushing the democracy movement. “If the economy implodes, the risk of instability is high.” Lai, 59, founder of Hong Kong-based clothing retailer Giordano International Ltd., was forced to sell his Giordano shares after China shut down mainland stores in retaliation for his criticism.

As the country’s leaders fret about unrest at home, they’ve stepped up their rhetoric about the economic policies of trading partners in the west such as the U.S., where China has invested some $1.2 trillion, which includes $744 billion in U.S. Treasury bonds. “We lent such huge amounts to the United States, and of course, we’re concerned about the security of our assets,” Wen said at a press conference in Beijing on March 13. “And to speak truthfully, I am a little bit worried.”

China now holds almost $2 trillion in foreign reserves. “The Chinese Communist Party is now the world’s most liquid financial institution,” says Andy Rothman, a Shanghai-based strategist at CLSA Ltd., the Asian brokerage unit of Credit Agricole SA.

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