The reason: Soaring unemployment and the threat of social unrest.

A recent government survey showed that slightly more than 15% of China’s 130 million migrant workers – about 20 million people – had lost their jobs and returned to the countryside by the start of the Chinese Spring Festival on Jan. 25.

That figure is double the previous estimate by the Ministry of Human Resources and Social Security, which said in December that up to 10 million migrants lost their jobs in 2008 due to the financial crisis. But analysts say the actual number of unemployed migrant workers is probably closer to 26 million.

Another 5 million to 6 million new migrants enter the workforce each year, Chen Xiwen Director of the Office of Central Rural Work Leading Group, a central government advisory body, told BusinessWeek.

“So, if we put those figures together, we have roughly 25 to 26 million rural migrant workers who are now coming under pressures for employment,” said Chen.

Other government figures suggest that as many as many as 7 million workers a year have migrated from the countryside to fill factory and service jobs. And that could just be the beginning, as weak global demand for Chinese exports is having a profound effect on the nation’s once raging economic growth.

China posted its most severe foreign-trade decline in at least a decade in December. Exports, which have contributed around 20% of China’s economic growth since 2005, fell 2.8% from a year earlier, extending the 2.2% decline in November.
With global demand stagnant, China’s gross domestic product (GDP) growth cooled to 6.8% in the fourth quarter, the weakest pace in seven years. That’s a steep decline for a country that has a strong track record of double-digit growth.

According to rough official calculations one percentage point of Chinese GDP growth creates around 1 million jobs, The Financial Times reported.  If China’s growth drops below 6%, hundreds of thousands, if not millions, of more job losses can be expected.

A recent study by China’s Tsinghua University said that up to 50 million migrant workers will lose their urban jobs in 2009 if the downturn continues.

Premier Wen Jiabao: China WiIl take ‘Preemptive’ Action

Unemployment is more than a drag on the economy in China; it’s a threat to social stability.

That’s why the government in Beijing is wasting no time, or expense, when it comes to ensuring China’s economic prosperity continues.

“It’s fair to say the Party Central Committee is taking the issue of employment of migrant workers very seriously,” said Chen Xiwen. “Ensuring job creation and job protection is to promote social stability.”

China is already at work implementing the $586 billion (4 trillion yuan) stimulus package it unveiled in November. The cost of that plan amounts to a staggering 20% of China’s GDP.

But Chinese Premier Wen Jiabao said yesterday (Monday) in an interview with The Financial Times that the government might expand the plan even further to boost growth and trigger consumer spending.

“In meeting the financial crisis, it is imperative that governments must adopt a big enough package plan to stimulate the economic development,” Wen told the FT.  “Such a plan must be comprehensive and complete. It must target both the root causes and symptoms of the issues, and also take into account both immediate difficulties and long term development.”

In the interview Wen outlined the several measures his country has already taken to stem the tide of the financial crisis, including:

• The $586 billion investment program intended to stimulate domestic demand.
• Another $88 billion (600 billion yuan) dedicated to scientific and technical innovation and upgrades.
• And $124 billion (850 billion yuan) to improve the nation’s health care system.

In addition, Wen indicated that the government remains vigilant and willing to take preemptive action to stimulate growth.

“The financial crisis has not yet hit the bottom, and we will continue to follow very closely the development of the situation,” he said. We may take further new timely and decisive measures…All these measures have to be taken preemptively before an economic recession, so as to maximise the desirable effect, otherwise our efforts will be wasted.”

The government has already made rural economic stability a priority. About $54 billion (370 billion yuan), or 11%, of the $586 billion spending package has been allocated towards rural infrastructure projects to create jobs.

In a 28-point policy outline Beijing said it would also “skew” more budget and bond revenues to villages, increase agricultural subsidies, and put more money towards schools, clinics, and roads, Reuters reported.

“We must truly enhance our sense of crisis and take full account of the hardships,” said the policy document. “Pay attention to rural social stability and appropriately address pressing conflicts and problems sparked by requisition of rural land, pollution, migration and resettlement, and handling of (village) collective assets.”

In his interview with the Financial Times, Premier Wen confirmed that the government will inject $30 billion (200 billion yuan) into the Agricultural Bank of China, an institution that lends to the country’s impoverished rural regions.

“The China Agricultural Bank is the last among five national banks which is now undertaking a banking reform,” Wen said. “Our decision for this recapitalization is around $30 billion.”

Source: China Considers Expanding Stimulus to Combat Unemployment

The bank cited a variety of reasons for the cut, including turbulent financial markets, falling commodity prices, slowing economic growth China, and the recent rash of rate cuts issued by other central banks around the world.

Specifically, Australia joins the United States, China, India, Japan and South Korea, all of which lowered borrowing costs in the past week. The European Union and United Kingdom are expected to follow suit this week.

“International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well,” Reserve Bank Governor Glenn Stevens said in a news release. “These conditions have contributed to further falls in world commodity prices.”

Also in the bank’s release, Stevens said the rate cut could hamper the central bank’s goal of reigning inflation to 2% to 3%. CPI inflation in year‑ended terms picked up to 5%, while underlying measures were just over 4.5%.

But Stevens said he expects inflation to cool by the end of the year.

“Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of the inflation rate to the target could take longer than would otherwise be the case,” he said

Possible Recession

Last month, Australia’s All Ordinaries stock index plummeted 14%. And that’s on top of falling home prices and retail sales.

The Reserve Bank hasn’t been this aggressive in cutting rates since Australia’s last recession in 1991, Bloomberg reports.

And more cuts could still be in store.

“We think the cash rate will bottom at 4% by early next year,” Stephen Halmarick, co-head market economics at Citigroup Inc. (C), told Reuters. “They are obviously very concerned about the outlook for global growth, I think that is warranted.”

The caution is warranted given the carnage around the world, but Australia’s economy could be one of the few to emerge relatively unscathed.

Housing prices haven’t fallen nearly as bad as those in the United States. Australia’s government budget is in surplus – a likely effect of soaring commodity prices earlier this year.

And by Christmas, $8.7 billion of a $10.4 billion stimulus package will arrive in mailboxes around the country – which may be the life preserver the economy needs to keep GDP from sinking into the red.

Source: Sensing Recession, Australia’s Central Bank Cuts Interest Rate 75 Basis Points