Overcapacity may lead to 3m layoffs

Layoffs in industries plagued by overcapacity are expected to reach 3 million in the next one or two years, according to a Chinese investment bank.

However, this figure will only lead to a "marginal increase" in unemployment, the bank predicts.

The estimate from China International Capital Corp is based on the assumption that the five industries mired in overcapacity will shed 30 percent of their capacity.

As a result, 3 million jobs would be cut from the 10 million currently available in the coal, steel, electrolytic aluminum, cement and glass industries.

However, real job losses are expected to be much lower. During the 1997-98 downturn, 21 million workers at struggling State-owned enter-prises were sacked. Of these, 13 million found new jobs, more than 1 million were transferred internally, while a third lost their jobs.

If that ratio was applied today, one-third, or 1 million, would lose their jobs, according to the bank's estimate.

Liu Liu and Liang Hong, authors of the report, said: "China's unemployment rate has remained steady in recent years - despite the downturn - at 5.1 percent. The 1 million job losses would only be the equivalent of 0.3 percent of the entire urban employment."

The report comes as Beijing prepares to tackle increased unemployment by shedding excess capacity-a top priority for this year.

Yang Weimin, deputy director of the Office of the Central Leading Group on Financial and Economic Affairs, said if so-called zombie firms were allowed to continue operating through hefty subsidies, profitable companies would be "dragged to their deaths".

"The right approach is to tackle zombie companies resolutely. Only when excess capacity is shed, can price falls be stopped and good companies see hope," Yang said.

While declaring its resolve to tackle the problem, Beijing has vowed repeatedly to minimize the social pain.

At a meeting of top leaders in December, local governments were told to turn to mergers and acquisitions and to avoid bankruptcy and liquidation when dealing with firms that are unviable.

Li Pumin, spokesman for the National Development and Reform Commission, pledged on Tuesday to put social policies in place to ensure against layoffs.

A special fund will be set up at central government level to reward local governments that succeed in cutting overcapacity. The money will be used chiefly as compensation for layoffs.

Chen Jia contributed to this story.