Unemployment in China

Economy, Human Resources and Labour Markets

Grace O.M. Lee, Malcolm Warner

• Publisher: Routledge
• Year: 2006
• Print ISBN: 9780415371711
• eBook ISBN: 9781134195268
• Edition: 1
• Topic: Economics
• Subtopic: Business General
• Index: Economics

Unemployment in China offers a new and invaluable insight into the Chinese economy, keenly analyzing the new directions the world's next superpower is now taking.

Successfully bringing together a wide range of research and evidence from leading scholars in the field, this book shows how unemployment is one of the key issues facing the Chinese economy. China's market-oriented economic reform and industrial restructuring, while greatly improving efficiency, have also sharply reduced overstaffing, leading to a large increase in unemployment.

At the same time, further restructuring is predicted as the full impact of the accession to the WTO is felt throughout China. A further problem is that new jobs in China's growth industries are more likely to be secured by younger, better-qualified workers than by older, poorly educated and unskilled workers who have been laid off. This book discusses a wide range of issues related to the growing unemployment problem in China and examines the problems in particular cities, appraises the government response, and assesses the prospects going forward.

Part I

General

1 Setting the scene

Unemployment in China

Malcolm Warner and Grace O. M. Lee

Introduction

In this chapter, we hope to briefly set the scene for the discussion of the problem of unemployment (shiye)¹ in the People’s Republic of China (hence-forth to be referred to as China). This issue has great importance not only for its economy but also for the rest of the world; one in five of people living on this planet, over 1.3 billion, are Chinese. Its economy now accounts for close to one-eighth of world output, in purchasing power parity (PPP) terms (see The Economist 2004: 4).

By 2005, the Chinese economy had grown to historically high levels of economic performance. Entry into the WTO in 2001 (see Bhalla and Qiu 2004) was accompanied by an upsurge in key economic indicators. The new millennium saw very high annual rates of growth in Gross Domestic Product (GDP), culminating in 2004, when it rose to nearly 10 per cent in the official statistics and industrial production grew over half as much again. Foreign Direct Investment (FDI) poured into the economy² (Huang 2003). Chinese exports have blossomed; foreign exchange reserves have burgeoned, approaching US$600 billion by the start of 2005. Over 30 per cent of world GDP growth (in PPP terms) was attributed to its economy. But China was also increasingly perceived as an ‘unfair competitor’ and as a threat to jobs not only in North America but also in Europe and elsewhere, mainly because it was a ‘low-wage economy’ and had large reserves of cheap labour.

The pace of rapid growth was also achieved at a high cost internally, with rising job losses, especially in the state-owned sector, letting go over 10 per cent of the urban labour force (chengzhen laodongli). Income inequality rose to a Gini coefficient of 44.7, one of the highest in Asia³ (see Sato and Li 2006; Khan and Riskin 2005: 358). Unemployment jumped to over 4.5 per cent officially (see Table 1.1), but probably was a multiple of this in reality, mainly due to economic restructuring (see Giles et al. 2006) and consequent downsizing, as we shall soon see in the overview of chapter contributions we set out below.

Table 1.1 Urban registered unemployment and unemployment rate in China

Year	Urban unemployment (10,000 persons)	Unemployment rate (%)
1980	541.5	4.9
1981	439.5	3.8
1982	379.4	3.2
1983	271.4	2.3
1984	235.7	1.9
1985	238.5	1.8
1986	264.4	2.0
1987	276.6	2.0
1988	296.2	2.0
1989	377.9	2.6
1990	383.2	2.5
1991	352.2	2.3
1992	363.9	2.3
1993	420.1	2.6
1994	476.4	2.8
1995	519.6	2.9
1996	552.8	3.0
1997	576.8	3.1
1998	571.0	3.1
1999	575.0	3.1
2000	595.0	3.1
2001	681.0	3.6
2002	770.0	4.0
2003	800.0	4.3
2004	827.0	4.2

Sources: State Statistical Bureau, China Labour Statistical Yearbook 2003 (Beijing: China Statistics Press, 2003), p.128; National Bureau of Statistics of China, Statistical Communiqué of the People’s Republic of China on Labour and Social Security in 2004 (www.stats.gov.cn, 31 May 2005).

Content of the book: an overview

In Chapter 2, Webber and Zhu cover the historical dimension of unemploy-ment in China. That joblessness has emerged as a serious problem there, is indisputable. However, the problem is not simply that the magnitude of unemployment has increased; it is also that the category of ‘unemployment’ (shiye) has become relevant in that economy. In other words, the history of unemployment in China is not only a matter of numbers, although numbers are important for humanitarian, social and political reasons; it is rather a question of the emergence of a form of society in which unemployment as such and referred to as such, can occur, that was not previously de rigueur before the early 1980s. Webber and Zhu use these ideas to provide a ‘theorized’ introduction to the history of unemployment in China since the late 1970s.

In China, the authors argue, different forms of work imply different degrees to which labour (laodong) is subject to market controls (shichang kongzhi), ranging from subsistence farmers, independent commodity-producing peasant households, varieties of government employees, those who work for collective or state-owned enterprises, through to those workers who are employed in foreign-funded and domestic private enterprises who may have effectively given up their rights to use land for agriculture and who are hired and fired within a functioning ‘labour market’ (laodongli shichang).

The rural workforce, they argue, has been in a process of transformation since the late 1970s. The process began with Deng Xiaoping’s reforms, when the central government sanctioned the ‘de-collectivization’ of agriculture, approved the ‘household responsibility system’ and raised agricultural prices. By the mid-1980s, the key elements of the new system of management were in place. Land remained owned by the villages but was contracted to households for farming. Peasants may not sell land, but can subcontract it to others and can hire labour to help farm it.

One of the principal mechanisms of change in the rural areas, they continue, has been the transformation of township and village enterprises (TVEs). In principle, TVEs were enterprises, located in villages and town-ships and owned collectively or cooperatively by the residents of those localities. Although some TVEs were really small private enterprises in disguise, many were operated as communal assets, in which principles of equity restricted hiring and firing according to market rules, and local benefit was more important than profit.

The reform of the state-owned enterprise (SOE) system has altered the entire basis of urban livelihoods. The key reforms of labour management relations in SOEs were threefold. The consequences of SOEs’ reforms are reflected through the emergence of labour markets and human resource management (HRM) (renli ziyuan guanli) within cities. On the demand side, firms have increasing autonomy to recruit employees and governments have ceded control over job allocation for cadres (ganbu), professionals and graduate students; on the supply side, there are increasing numbers of laid-off urban workers and migrant rural workers. An emerging labour market, the authors argue, was the natural outcome of such changes.

In addition, Webber and Zhu suggest that foreign capital’s influence in China has greatly increased since the implementation of the ‘Open Door’ policy in the early 1980s. The relationship between foreign-owned enter-prises (FOEs) and the development of urban labour markets is twofold. The FOEs influenced the form of labour market regulations; but FOEs also became the major source of demand for urban and rural migrant workers.

As China has created a system in which most employment is now in the form of labour (that is, is marketized commodity labour — shangpin laogong), so the questions about the supply of and the demand for labour have emerged more starkly than ever before. ‘Primitive accumulation’ in other countries gradually revealed the need for the state to sustain markets legally and to circumvent political opposition to capitalist forms of development. The fact that markets were legalized by the state, the rapidity of the transformation of the conditions of work and the sheer size of the market for commodity labour in China’s cities have all meant that the state has quickly had to create a social security system. Perhaps, too, this is an historical legacy of the socialist principle. In any event, such developments reveal the depth of the changes in society that are brought by primitive accumulation, as commodity labour becomes the general form of work. Likewise, Webber and Zhu conclude that unemployment reveals the extent of the price that is paid by those who live through such an extensive economic and social transformation.

In Chapter 3, Hu and Sheng, covering the macroeconomic dimension of unemployment, point out that China has the largest population, and there-fore the biggest pressure on jobs and human resources, in the world. They note that it has made great achievements in job creation since the economic reform and ‘Open Door’ policies were launched. In the period 1978–2003, the country created 342.8 million jobs, of which 161.25 million were in cities (46.6 per cent). But with the progress of economic transition and adjustment of employment structure since the 1990s, China has experienced a flood of unemployment on a speed and scale never seen before in its history, accord-ing to the authors. The serious unemployment, especially in cities, they con-tinue, has had an adverse impact on economic and social development as well as political stability, posing the biggest challenge at the start of the new century. In 2002, the Chinese government for the first time made creating employment and mitigating unemployment the primary development target and development policy target. This marked, in the authors’ view, the beginning of the Chinese government’s shift from the pursuit of economic growth as the main objective, to the creation of more jobs to alleviate unemployment.

However, what has been the extent of unemployment in cities since 1995? What are the characteristics of urban unemployment? What are the consequences of urban unemployment? How serious are the consequences? What strategy and policies have the government adopted to cope with unemployment?

First, Hu and Sheng’s chapter discusses the basic conditions, characteristics, trends and implications of China’s urban unemployment and supply indi-cators to reflect the severity of urban unemployment. It also estimates the economic cost of unemployment using Okun’s (1969) model, analyses the new urban poverty due to layoffs and unemployment, discusses the impact of urban unemployment to the social security system evolved from planned economy, and presents the conflicts between labour and employers during the economic transition process. Following this, the authors review and evaluate the changes of macroeconomic policies and employment policies of the Chinese government from pursuing high economic growth to creating more employment opportunities. The authors also introduce major policies and measures taken by the Chinese government to resolve high urban unemployment and increase employment.

According to Hu and Sheng, the u...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Contents
• Tables
• Figures
• Contributors
• Preface
• Acknowledgements
• Abbreviations
• Part I General
• Part II Themes
• Part III Case studies
• Part IV Conclusion
• Glossary
• Index