It’s so much more enjoyable posting good news, even if that news only indicates a turnaround in China at some distant point in the future.

So I’m going to do it again.

The latest teeny, tiny glimmer of hope is the Layoff Tracker from Forbes. Apparently, last week it counted ‘only’ 6,000 redundancies announced at Fortune 500 companies in the US (but Forbes don’t call them Fortune 500 companies for obvious reasons). In previous weeks the range of redundancies was from 20,000 to 90,000 so it’s a big drop.

The cooling indicates that there may be an end to this trend line. Or it could be an outlier.

I am always one for optimism but we still have to be very cautious here in China because we are at the end of the supply chain. We may not have hit peak layoffs yet. So the implied demand coming from increased US consumer confidence, coming off a reduction of the fear of job-loss, is a very tenuous relationship. This is going to take time.

The results of the survey suggest that companies that needed to layoff have probably already done so. Luckily, the same is true in China. Most of the GMs that I talk to are ‘confident‘ that things will turn around in the second half. Few are quite certain why but the confidence is there.

We need to look at the export figures for February, which will be out soon, and then we can decide if the China cuts were the first round, or the final round.

A Small Proviso

Unfortunately, there is an additional complication in China. The Chinese government’s approach to the issue of information dissemination is the polar opposite of the US. We all know that the situation is bad in China but no one is allowed to say. Shhhh!, don’t mention the word recession; let alone the D word.

Forbes note that businesses prefer to deliver all their bad news at once, and they base these decisions on projections into the future. So if there are bad times coming in China, and no one is talking about it, all this Shushhhing is doing is delaying the inevitable. And increasing the likelihood that the response will be disproportionate, and panicky.

The current round of cuts in China have been calmer and milder than in the US, and have involved flexing rather than specific planning:

Reducing the number of full time staff, and replacing them with part-time and contingent staff

Replacing high-cost, senior staff with less-experienced, less-expensive junior staff

Bringing on board batches of new graduates that will work as interns, or as part of a government-paid employment scheme

Reducing work hours and work weeks

Sending staff off on mandatory holidays

Closing factories for periods of time to allow inventories to empty

Doing ‘maintenance’ in factories for a week or two, or adding a little to Chinese New Year holidays

Re-adjustments to salaries, such as employers no longer paying the staff portion of the 4 Funds (social insurance)

Cancellation of the Chinese New Year bonus

Actual redundancies, but often hidden, and done in small bite-sized pieces

Serious staff reductions in low-technology industries, largely for production staff, and largely those from the countryside

Little of this is discussed in China and there have been few big redundancy announcements, even while companies quietly make job cuts. The media mantra is that 20 million peasants have lost their jobs, but this is purely a distraction. The middle classes are losing jobs too, and professional staff are sitting tight to wait out the downturn.

Part of the reason for the lack of discussion is that international companies genuinely have not needed to let go so many people go in China; in comparison to the cuts they have made in other countries. So they have not wanted to make such a big fuss. But the second reason is that they have not wanted to appear to be letting people go lest local government support is suddenly taken away.

If the information that companies need to make a decision on redundancies is held back, one Black Swan scenario that may occur is that companies will be more brazen, or panicked about making cuts later on. There will be nothing to hold them back, not even a visit from the State Administration for Industry & Commerce, or the taxman.

Downward spirals seem to consist of multiple crises of confidence, leading to multiple rounds of job cuts. We just don’t know where we are in the cycle.