BEIJING - CHINESE firms should cut wages if that would enable them to keep more people on the payroll, an official said on Tuesday, highlighting the government's tolerance for practices that can keep unhappy workers off the streets.

China told local governments to cap minimum wages late last year, as worries of rising unemployment grew. Many listed firms have announced pay cuts across their workforce, a practice that is spreading outside the hardest-hit coastal areas.

'Stabilising companies and stabilising employment is the most important task. To make it through the difficulties the crisis has brought, in these special circumstances companies' and workers' interests are aligned,' said Mr Yin Chengji, head of policy research at the Ministry of Human Resources and Social Security.

'Companies need to survive and develop; workers are unwilling to lose their jobs. They want to work together to make it through,' he told a news conference.

China's registered urban jobless rate reached 4.2 per cent at the end of 2008, the first rise in unemployment figures in five years, while a survey by the Chinese Academy of Social Sciences puts the actual unemployment rate at 9.4 per cent .

The registered rate, which is the only official rate, tracks those workers who have applied for benefits, Mr Yin said.

Yet lower wages, while staving off the worker unrest most feared by the stability-obsessed ruling Communist Party, will likely dampen consumption by cost-conscious Chinese, making it harder to buoy the demand Beijing hopes will boost the economy.

State-owned enterprises have been told to make sure that managers' bonuses are cut in line with falling profits, to keep the burden of cuts away from basic wage earners, said Mr Meng Haibiao, spokesman for Baosteel Group in Shanghai.

The pain is already being keenly felt on China's streets.

'We can really feel the crisis. If someone's pay is cut from 5,000 yuan to 3,000 yuan, that makes a real difference in their disposable income, and a cab is easy to cut back on,' said Beijing taxi driver Xing Haitao.

Business owners, especially in thriving export centres in southern and eastern China, had complained that rising wages made their products less competitive, even before the global crisis sharply reduced their orders.

Some had openly opposed the labour contract law introduced on Jan 1, 2008, which made it tougher to fire employees and mandated higher company contributions to pension and insurance funds.

Labour regulations are now unlikely to be enforced for the duration of the downturn, as long as there are no egregious violations, experts say.

'The government wants factories to survive and stay here, so they're turning a blind eye to a lot of problems,' Mr Jian Hui, a freelance labour organiser in the southern border city of Shenzhen, told Reuters last month.

Cuts in overtime pay could wipe out half a worker's salary, he said, but only mass dismissals were likely to trigger protests or violence.

'Most workers feel discontented but, I'd say, also helpless.

Most are scared that things will get worse, but only a few stand up for their rights.' -- REUTERS