Xiagang
Xiagang is a Chinese term first utilised in 1995 by the Government of the People's Republic of China to describe the mass layoffs of state-owned enterprise employees during the second half of the 1990s, when China was experiencing drastic transition from its socialistic planned economy centered around egalitarianism and social welfare, to a capitalistic market economy characterized by radical privatization and competition. More than a quarter of the nation's SOE employees were laid off in the span of four years. By the end of 1999, over 24.4 million workers had lost their jobs and livelihood, and been left to seek new livings by themselves, particularly in the once-prosperous industrial regions of Northeast and North China, and the numbers only continued to rise over the following years.
The sudden increase of an unemployed and underemployed labor force in the wake of xiagang has also led to the growing economic inequality between the southern coastal provinces and the inland provinces, talent exodus to the more developed first- and second-tier cities, notable increases in unregulated tradespeople and street vendors, significant rises in homelessness, extortion scams, crimes, mass incidents and social unrests, all of which contributing to the huge surge in the costs for stability maintenance by law enforcement and urban management.
Xiagang is a form of unemployment unique to China wherein workers aren't necessarily fired, but remain de jure employed while not working and thus not paid proper salary, retaining only minimal, if any benefits from their work units. While initially encompassing workers from merged, bankrupted or downsized SOEs, its meaning has gradually broadened to include those whose salary has been reduced or suspended, or who await reassignment within SOEs.
Process
Origin
Upon establishing the People's Republic of China in 1949, the ruling Chinese Communist Party transitioned the country towards a planned economy where essentially all economic activities were placed under state control, and private sector was officially non-existent. Under this economic system, SOEs were intended to be not merely an organization for production but danweis tasked with providing lifetime employment to urban populations, while guaranteeing most of basic necessities its members needed from cradle to grave. This Maoist mode of egalitarianism, combined with the traditional Chinese belief in collectivism, was therefore colloquially coined as the "Iron Rice Bowl", in which staff and workers employed in such enterprises not only enjoyed better pay and social status, but also feelings of genuine pride in their working-class identity.However, the state's commitment to providing complete social care was materialized largely at the cost of economic efficiency. By treating overstaffing as an obligation, China has managed to provide jobs to an enormous labor force about 29% of the world labor supply, and almost twice as large as the total work forces from all developing countries. Also, with all production ordered by the government, the operation of these enterprises were detached from and irresponsive to the actual demands of the consumers. Whether in state-owned or, among the very few exceptions, private enterprises, workers were not allowed to be dismissed, and there were no corresponding mechanism for bankruptcy. Some severely loss-making enterprises ended up becoming non-performing assets of the state. Enterprises lacking competition and operating without profit or loss had no incentive to develop new technologies or expand production.
The consequence was endemic stagnation, low wages, and scarcity. From 1950 to 1973, China's GDP per capita grew at a rate of 2.9% per year on average, placing it far below the rate of growth achieved by neighboring countries and regions such as Japan, South Korea, Singapore and Taiwan ruled by the rivaling Republic of China during the same period.
Start of Reform
After the Death of Mao Zedong, in order to salvage the nation's stagnant economy, the CCP leadership centered around Deng Xiaoping decided in 1979 to initiate an intense period of economic liberalisation under the policies of Reform and Opening Up.In October 1984, the Third Plenary Session of the 12th Central Committee of the Chinese Communist Party issued the "Decision on Economic System Reform", marking the beginning of urban labor reform that went in full effect in 1985. The Decision expanded the autonomy of enterprises, recalled state-appointed cadres from private enterprises, and vigorously promoted market-based employment systems to increase labour productivity and cost effectiveness within SOEs. They drew stark attention to what they framed as the inefficiencies of overstaffed workers, who made up 10% of the SOE labour force. Initially, beginning in 1982, most workers were reassigned to other units within their enterprise through labour consolidation reforms before further changes implemented a bidding system to fill positions between 1987 and 1992. These inevitably only increased the number of surplus workers.
Since the 1990s, SOEs have increasingly failed to generate revenues, and by the middle of the decade, as many as 63% of all SOEs were either operating at a deficit or incurring losses, a situation that was further worsened by the Asian financial crisis in the upcoming year. The state therefore began distancing itself from the hiring and firing process, instead diverting its attention to cutting job-training programmes, hiring agencies, and unemployment insurance.
Unfolding of Layoffs
Backed by the government's popular rhetoric and its retreat from staffing decisions, employers began mass layoffs, insisting they were necessary to boost productivity.As a result, public perception of Xiagang changed—from something driven by government policy to a consequence of market pressures that left employers with little choice. From 1993, millions of employees were subsequently laid off each year. Between the mid-1990s to early 2000s, the height of the Xiagang era, the total number of layoffs ranged from 27 to 35 million. By 1998, 67.84% of SOE employees were retrenched; by 1999, 13.2% of the urban labour force had been fired. The layoffs, combined with unemployment numbers, resulted in the urban unemployment rate reaching an average of 10.9% between 2002 and 2009, more than double official state reports.
Deceptive and coercive measures were deployed by many enterprises in order to carry out layoffs, such as China National Petroleum Corporation and Sinopec, which had laid off approximately 700,000 workers. On the other hand, there were also enterprises like the Daqing Oilfield that ruled out layoffs due to strong reprisals from the workers. After many workers lost their jobs, their former enterprises were sold off at low prices to the factory directors and party secretaries of the enterprises thereof, and workers had to continue working for the new managers for wages far lower than they had before. Not all SOE workers were at high risk of retrenchment. Men, the higher educated, CCP members and those in higher-skill jobs were less likely to be fired. Conversely, women and individuals in poor health faced greater risk of layoffs.
It is important to differentiate between Xiagang layoffs and unemployment. While the latter denotes unemployed people entitled to government support, the former refers only to the urban SOE workers who became unemployed or semi-unemployed in the 1990s who received minimal benefits: one-third from the state and two-thirds from their previous employers. This differentiation served various purposes. It lessened the burden on the welfare system and government purse, softened the connotations and impact of layoffs, concealed the real unemployment numbers, and divided the working class, preventing unified action between the unemployed.
Responses
Civil Response
In response to the mass Xiagang layoffs, many took to the streets to protest. Although there are no accurate counts of their numbers, it is estimated that thousands of demonstrations occurred, attended by millions of retrenched workers. Protests were characterised by their brevity, limited turnout, and poor communication and coordination between groups from different enterprises. Although protests were individually affected by both regional politics and economic factors, protest regulations from the central government shaped all of their demands and behaviours. Instead of directly opposing the government's market and employment reforms when they were denied the contractual, unemployment, or pension benefits they were entitled to, demonstrators petitioned the state to interfere on their behalf. Instead of voicing anger or political grievances, protesters largely expressed hunger, despair, and desires to meet basic needs. Moreover, protesters utilised their "nuisance value" to demonstrate their strength while never denouncing their allegiance with the state, consciously acting within the complainant boundaries designed by the state.Consequently, the government was pressured to respond to protests with tolerance and openness to avoid appearing repressive towards the working class and risking solidarity between protest groups. The state thus deemed the demonstrations unthreatening, ensuring the continued legality of the protests and granting their organisers the opportunity for negotiation. As a result, demonstrations occasionally won a number of small concessions that improved their everyday lives. However, no real institutional change developed.