Unlike the US and some countries in the Eurozone, China seems to have been spared the brunt of the global financial crisis. With its healthy foreign exchange reserve and a growth rate still pegged at 9 percent, China is being seen more as the country with the solutions rather than the problems.

But declining demand for Chinese exports has already affected thousands of ordinary workers. With factory after factory closing down, the unemployment rate in China could see an unprecedented rise.

For the past three decades, the engines of China's economic growth have been fueled by migrants. Leaving their homes in the poorer rural regions, they moved to areas like the Pearl River Delta – the heartland of China's manufacturing industry. The cheap cost of labor in the country was what attracted foreign companies to build their factories there, helping in turn provide a better standard of living for millions of ordinary workers.

A bleak scenario

Today, though, the situation looks different. An article in Time.com cited the Dongguan City Association of Enterprises with Foreign Investment which predicted that about 9,000 of the 45,000 factories in the cities of Guangzhou, Dongguan and Shenzhen are expected to close before the next Chinese New Year. The article said that this could put as many as 2.7 million workers out of work, a “conservative” estimate according to the association.

China.org.cn carried a report on November 12 about how Hunan's provincial government is bracing itself for the return of almost 2.8 million unemployed migrant workers in 2009. The worsening labor market, it seems, will not leave the province's 12 million migrant workers unaffected.

The effects of the financial crisis is evident not just in the manufacturing sector. Even white-collar workers will have to adjust, as companies strive to lower costs. According to anonymous sources contacted by Reuters, employees at CITIC Securities and Haitong Securities will face pay cuts of up to 30 percent so that the company will not have to lay off staff.

By any other standard, China's 9 percent growth rate is enviable. But in a country where 15 million new people enter the job market annually, that growth rate is close to the tipping point, Reuters said. Chen Xingdong, chief economist at BNP Paribas in Beijing, told the news agency that an economic growth below 8 percent could cause “social tension, complaints and job losses.”

In some cities, social tension is already being felt. Laid-off workers in Shenzhen, demanding back wages, staged a sit-in at the end of October, Radio Free Asia (RFA) reported. The same scenario was repeated in Dongguan, Reuters said, where about a thousand workers protested against the toy factory they had earlier worked for.

Xinhua recently published a list of thirty companies in Shenzhen that owed their workers a combined 12 million yuan (about 1.4 million euros) in backwages. The Shenzhen Labor and Social Security Bureau demanded to see these companies' executives within 30 days, the RFA report said.

A shift to the service sector?

China has maintained that its economic fundamentals remained strong. It had repeatedly said that its greatest contribution to combating the financial crisis would be to ensure its continued economic growth.

“We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment,” Premier Wen Jiabao said. His remarks were quoted by Reuters from the latest issue of Seeking Truth, an official publication of the Communist Party.

In an article published by Beijing Review, Yin Chengji, spokesman for the Ministry of Human Resources and Social Security, maintained that the global financial crisis “has had no direct impact on China's employment at present.” Yin said that China has achieved 94 percent of its target for cresting new urban jobs by September this year and that there were about 50,000 less registered unemployed in urban areas compared to the same period last year.

Yin admitted, though, that some export-oriented companies have been suffering financial difficulties and have started laying-off employees.

To boost employment, the Ministry will adopt several measures, including providing employment assistance, making full use of the unemployment insurance and encouraging the development of labor-intensive industries.

David Dollar, head of the World Bank's office in Beijing, told Time.com that finding jobs for China's unemployed is the “biggest challenge” facing China's government. However, the present crisis could be a good opportunity for China to move the economy away from manufacturing and into the service sector.

This, according to Xu Xiaonian, an economics researcher at the China Europe International Business School, could solve the country's employment problems. If China's service industry reached the same level of development as in Japan and the US, it could mean jobs for all even with very small GDP growth, Xu told Beijing Review.