China's paradox: Growth and unemployment
By Sam Ng
HONG KONG - Over the past two decades, China has been the fastest-growing big economy in the world, with annual economic growth since 1989 averaging 9.3 percent compared with average global growth of 2.5 percent in the 1990s, when a large part of the world's commerce started to cool off.
China has had to grow that fast to keep ahead of constantly growing unemployment, which at first may sound like a contradiction. But unemployment is an inevitable byproduct of the country's evolution from a command economy to a market one, and as the iron rice bowl that was viewed as every citizen's birthright continues to crack. The rate will inevitably go up, especially when international competition becomes fiercer in the wake of China's 2001 entry to the World Trade Organization.
According to the National Bureau of Statistics, the registered unemployment rate in urban areas has risen to 4.2 percent from 3.1 percent at the end of 2001 despite the economy's momentum. That figure is almost certainly bogus. The urban unemployment rate is closer to 10 percent, according to the Department of Society Development, the development research center under the State Council.
In the 1980s, a 1-percentage-point increase in China's gross domestic product (GDP) translated into an average increase of 2.4 million jobs. That figure has shrunk to 700,000 since the 1990s. Why, in China, are things the wrong way around?
According to Lu Zhongyuan, director of the Macroeconomic Research at the Development Research Center of the State Council, writing in Study Times, a newspaper sponsored by the Central Party School of the Communist Party in Beijing, the fundamental reasons lie in the reform of state-owned enterprises (SOEs) and economic restructuring.
The planned economy allowed many SOEs to keep huge numbers of redundant workers on the job. They have been getting the boot ever since former prime minister Zhu Rongji began the process of reforming the SOEs in the mid-1990s.
Furthermore, China is also undergoing significant economic restructuring and trying to raise the share of service-sector jobs in the state economy. Great effort has been made to revitalize the industry sector, and many non-performing SOEs have been ordered to stop operations, leading to an ever-increasing number of laid-off workers.
Some 26 million workers were laid off between 1998 and the end of 2002. According to statistics, which might actually be on the low side, the current number of the jobless plus laid-off workers waiting re-employment exceeds 10 million. This large number is offsetting the increase in jobs that growth in the new economy is creating.
For the development research center's Lu, the problems will remain prominent in China's economy for years to come, adding up to a hindrance on sustained economic development and straining social stability as well.
Meanwhile, China's GDP per capita has climbed to US$1,000, which, according to international experience, will lead to tremendous structural changes in the national economy. Thus, a huge number of the labor force is transferring out of agriculture, the primary industry, to secondary industries as the latter evolve and their capital-intensive levels and related technologies start to move forward.
However, these secondary industries cannot absorb all the increase despite domestic consumer demand and growing export needs, since the available workers are either unqualified or unprofessional, which is a major structural conflict in the job market.
Furthermore, the oversupply can be expected to last indefinitely. The labor supply has peaked in recent years with an annual increase in 2003 of 2 million new workers. The Chinese government is attempting to create 8 million new jobs this year, hardly enough to cover newly increased job-seekers, let alone make inroads on the unemployed left over from the collapsing SOEs.
Despite China's draconian birth-control policy, it is estimated that it will take another generation to mitigate the population boom. People born during the baby boom of the 1960s and 1970s are now at their optimum age in fertility and employment. In the upcoming five to 10 years, the annual growth of the workforce is expected to top 10 million based on China's huge population. Unemployment pressure does not appear likely to abate in the short run. Lowering unemployment and increasing jobs will inevitably become a long-term challenge.
Other problems are arising from problems of urbanization and sluggish tertiary industries such as services, transport and communications and wholesale and retail trade such as restaurants. Compared with countries at a similar economic level, China is lagging other countries in producing productive urbanized jobs and is lagging other developed countries. As statistics from the World Bank show, China's urbanization level in 2000 was 31 percent, 14 percent below the world average, 18 percent down from the average among middle-income countries and 45 percent down from that of high-income countries.
With the pace of urbanization falling behind industrialization, that has slowed structural changes in tertiary and fourth-level industries. In the two decades since the reform and opening-up of China, the shift of every 10 workers from agriculture to secondary industries only brought seven rural workers to the next step up the employment ladder, in contrast to other countries which are seeing a much higher level of synchronous urbanization and industrialization.
Fast-rising secondary industries have not effectively driven tertiary industries, another hindrance to relieving unemployment pressure. China cannot afford to slow its economic expansion.
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