China Power

Why Isn’t China’s COVID-19 Stimulus Going Directly to Workers?

Recent Features

China Power | Economy | East Asia

Why Isn’t China’s COVID-19 Stimulus Going Directly to Workers?

The rationale (and danger) of China’s lack of direct financial support to the people during the pandemic.

Why Isn’t China’s COVID-19 Stimulus Going Directly to Workers?
Credit: Pixabay

The COVID-19 pandemic has been devastating for the economic livelihood of workers around the world. The World Bank and the International Monetary Fund both estimated that in 2020, global GDP contracted by more than 4 percent, and the International Labor Organization tallied that an additional 33 million people wound up unemployed as a direct result of COVID-19 last year, with another 81 million temporarily furloughed. This figure no doubt understates the hundreds of millions working in the informal sectors of the developing world, where foregone earnings that came with lockdowns and halting of normal economic activities were even more painful because of extra costs of purchasing masks and other personal protective equipment.

In response to the growing fear of mass unemployment, many of the world’s largest economies have prioritized direct financial support for vulnerable workers. Multiple European states, including the U.K., Germany, and France, have enacted near-universal furlough programs that pay the full salaries of workers who would otherwise be fired by their struggling employers. Other major economies, including the United States and Japan, resorted to undertaking direct cash transfers to the masses, both working and unemployed, to offset any potential losses in income due to the coronavirus-induced economic downturn.

But unique among the world’s largest economies, China has largely refrained from providing direct financial support for its citizens, rather focusing its COVID-19 relief almost exclusively on private businesses and government investment. For instance, the $500 billion stimulus package China revealed in May 2020 was overwhelmingly focused on infrastructure spending to create more jobs, as well as new loans and repayment deferrals for businesses.

China has taken a government and business-centered approach to its COVID-19 financial relief because, unlike many Western economies, its economic system retains an ability to generate employment in a top-down manner. Chinese state-owned enterprises (SOEs) contribute upwards of 30 percent of the country’s total GDP and employment. With the state as their shareholder, these firms can be directed to sacrifice their short-term profits and revenues for the sake of maintaining employment and salaries. Indeed, even before the outbreak of COVID-19, Chinese SOEs were periodically ordered by the government to hire more employees, particularly among vulnerable groups such as new university graduates and retired soldiers. This contrasts with the private sector, which can only be economically incentivized to hire more for their own benefits.

And China is not alone in leveraging the ability of the government and SOEs to prevent high levels of unemployment during the COVID-19 era. Vietnam, for instance, has also been very business-focused in its financial support, notably through deferment of corporate tax payments and provision of financial assistance to employers. Such a strategy is undertaken partly because Vietnamese SOEs contribute upwards of 40 percent of the country’s total GDP and employment.

Yet, as the economic fortunes of workers in different states diverge through the different financial support programs, China may become more prone to popular disgruntlement than its Western counterparts. As Chinese workers look with envy to their peers elsewhere getting direct government payments during the COVID-19 crisis, they may demand the same treatment. To be fair, China has delayed social insurance contributions obligated by employers and handed out time-limited consumption vouchers to get the masses to spend more money on products to incentivize employers to continue production. While these measures may prevent further increases in unemployment, they do little to assist those who need help the most, the low-income earners already unemployed or struggling to make ends meet in the informal sector.

The struggle of Chinese workers from a lack of direct financial support may, in the long term, pose an ideological dilemma for the Chinese government. The Chinese Communist Party may be reminded that one of the key assumptions of Marxism is that the capitalist system prioritizes the interest of the bourgeoisie at the expense of the proletariat, leading to protracted class struggles when workers have little left to lose economically. Some Chinese workers may wonder that during COVID-19, “socialism with Chinese characteristics” seemed even more capitalist than Western systems. As the capitalist West, in the words of Habermas, pacified the proletariat by creating a “welfare state,” the Chinese government may need to ponder whether it would be wise to go the same direction.

Xiaochen Su is a Ph.D. candidate at the University of Tokyo specializing in immigration issues. He previously worked in East Africa, Taiwan, South Korea, and Southeast Asia.