Based on government data and expert estimates, 10m migrant labourers lost their jobs last year. In addition, 1.5m of the 5.6m university graduates in 2008 have not been able to find jobs. If anything, the employment situation is likely to deteriorate in 2009. Economic growth will slow further because of the decline in exports and the bursting of the real estate bubble.

For good reason, the Chinese government has candidly admitted that the rising unemployment of migrant labourers and graduates poses the most direct threat to social stability. To be sure, an unemployment crisis struck China a decade ago in the aftermath of the east Asian financial crisis. The government was forced to cut roughly 40m jobs in state-owned enterprises to stop the financial haemorrhaging of the banking system, which had been used to prop up unprofitable SOEs. Despite large-scale labour unrest, concentrated in the north-east, China managed to weather the storm.

This time, however, high unemployment of migrant labourers and university graduates could pose a more deadly threat to social stability. Based on surveys by Chinese sociologists, only about half of the jobless migrant labourers have returned to their native villages, leaving roughly 5m unemployed, mainly young, migrants in urban areas (the number is expected to rise significantly this year). Chinese graduates, most of them the only child of their family, are among relatively privileged members of Chinese society. Unlike the proletariat in moribund SOEs, Chinese graduates harbour powerful individual ambitions, possess strong organisational skills and have a tradition of challenging government authorities.