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Overview of Current Labour Market Conditions in China

Submitted by:

SEPI — The Social and Economic Policy Institute


Flat A, 15/F, Wing Wong Commercial Building, 557-559 Nathan Road, Yaumatei, Kowloon,
Hong Kong
Tel: 852-23849373
Fax: 852-23849057
http://www.sepi.org/

Posted to GPN on January 14, 2002.


Overview of Current Labour Market Conditions in China
China has achieved extremely rapid economic growth throughout the 1990s in a context of
stable but low population growth. Although economic growth rates have slowed down
somewhat in recent years, they are still remarkable when compared to most developed or
developing countries.

China is increasingly linked to the global market economy and is itself becoming a market
economy. In 1991, Deng Xiaoping inspected the special economic zones in southern
China and stressed that “development is the only hard and fast principle”, thus liberating
investors from the depressing and stagnant atmosphere that had prevailed after the
Tiananmen massacre in 1989. Radical economic liberalization across the country in 1992-
1993 attracted a large quantity of international capital and boosted China’s economy, but
this also encouraged speculation in real estate and increased inflationary pressures. Yet
motivated by the implementation of a “soft landing” in the mid-1990s using macroeconomic
controls, the state decided to carry out comprehensive reforms in the direction of a market
economy. This included further reform of state-owned enterprises, social services, and
social security The result has been insufficient domestic demand.

Since 1998 the Chinese government has adopted pro-active fiscal policy to counter the
trend of reduced growth rates. The principal measures have included issuing long-term
bonds to support public construction works, increasing staff wages in administrative units
or institutional agencies, and cutting taxes to stimulate investment and consumption. Such
expansionary policies seem to have contributed to an increased growth rate in the last
year, Yet growing income inequality, increased unemployment, and a high level of
uncertainty about changes in the social security system for low-income families could limit
the viability of this approach, by constraining social demand.

Table 1: GDP and population growth rates


GDP Population GDP growth
growth growth Rate per capita
(% ) (% ) (% )
1990 3.8 1.4 2.4
1991 9.2 1.3 7.9
1992 14.2 1.2 13.0
1993 13.5 1.1 12.4
1994 12.6 1.1 11.5
1995 10.5 1.1 9.4
1996 9.6 1.0 8.6
1997 8.8 1.0 7.8
1998 7.8 1.0 6.8
1999 7.1 0.9 6.2
2000 8.0 - -
Source: National Bureau of Statistics, PRC.
A high level of urban unemployment
In China, the official figure for urban unemployment includes only registered
unemployment. These figures were rather low throughout 1990s and seem to have
significantly understated the actual level of unemployment, because they exclude jobless
workers laid-off from state-owned enterprises (SOEs) and collectively owned enterprises
as well as, unemployed rural migrant workers. Although laid-off workers still maintain some
kind of technical relationship with their work-units, they do not have in regular work.
Nevertheless, they are not included in official unemployment statistics. In addition, ongoing
developmental disparities between urban and rural areas generates an uninterrupted
supply of rural migrants, who constitute the reserve army of labour for both the state and
non-state sector in urban areas. Thus the actual unemployment rate is much higher; no
less than double the official figure according to on estimate (see Table 2).
Urban unemployment is compounded by both the size of labour force and the deficiency of
job opportunities. Due to the maturation of the baby boom generation (born in the 1960s
and early 1970s), many young people compete in the job market against tens of millions of
redundant SOEs workers and surplus rural labourers. While a high level of employment
was sustained in the past by the state’s policy of keeping surplus workers in both SOEs
and agricultural collectives, this policy was abandoned in the move toward a market
economy. At the same time China’s economy is undergoing large-scale structural
adjustments, and this reduces the capacity of the agricultural and manufacturing sectors to
absorb labourers. Facing unprecedented competition, state enterprises increasingly tend
to adopt capital-intensive technologies. This has further limited their potentials to generate
jobs.
Table 2: Registered urban unemployment rates and estimated actual unemployment
rate (in percent)
Registered rate*** Estimated actual rate***
1990 2.5 --
1991 2.3 --
1992 2.3 --
1993 2.6 3.3 - 3.7
1994 2.8 3.6 - 4.1
1995 2.9 4.4 - 5.0
1996 3.0 5.1 - 6.0
1997 3.1 6.8 - 7.8
1998 3.1 7.9 - 8.3
1999 3.1 --
2000 3.1 --
Notes: *The registered urban unemployment rate refers to the ratio of registered urban unemployment over total employment in urban
enterprise (excluding those who have agricultural residence cards, re-employed retirees, and those who are from Hong Kong, Marco,
Taiwan or other countries) **Registered urban unemployment includes people a) who have nonagricultural residence cards, (b)
working age (16-50 years for males and 16-45 years for females), (c) who are available for work, but are not working, and (d) who want
to work and have registered in the local labor exchanges. ***Estimated actual urban unemployment includes the unemployed who are
registered, the laid-off workers who are still unemployed, and the jobless who have agricultural residence cards.
Source: National Bureau of Statistics, PRC; UNDP (1999). China Human Development Report 1999; and Ministry of Labour and Social
Security, PRC.
Wage disparity persists despite rising average wages

Despite economic reforms, the employment experiences of urban workers is still largely
structured by enterprises that are defined by form of ownership, economic sectors and
administrative statutes. While the gap between the various levels of average wages in
state-owned units and collectively-owned units has remained large, the difference in
average wages between state-owned enterprises and enterprises having other forms of
ownership (joint ownership, stock ownership, limited-liability corporations, foreign
investment etc.) has been reduced. This is largely the result of policy to raise staff wages
in administrative units and institutional agencies as mentioned above. Proponents of
reform argue that this reflects the improved performance of production workers in state-
owned enterprises induced by wage reform. However, an increased proportion of total
‘wages’ in the form of bonuses and subsidies (which has taken place since the
government’s delegation of control and responsibility to managers) has disproportionately
benefited administrative personnel in state–owned enterprises.

On the other hand, the average wage levels in emerging industries such as
telecommunications, banking and insurance, and real estate have increased significantly in
recent years. Meanwhile the government’s recent attempts to stimulate domestic
consumption have raised average wage levels in state-owned industries such as health
care, sports, education, culture, scientific research and in government agencies. However,
wage levels in more traditional manufacturing industries, where older state-owned
enterprises are concentrated, have stagnated throughout the decade relative to other
industries. This is partly due to the difficulties these enterprises have had in providing
adequate income to their workers once the government ceased to bear direct financial
responsibility for these enterprises.
Table 3: Average wages of administrative staff and workers with and related indices
Indices of
Average money wage (in
average real
yuan) (1 yaun = $.12)
wage
Enterprise Enterprises
Year State- Urban State- Urban
s with with
collective
owned Other owned collectively other
ly
-owned
Enterp Enterp
enterpris types of -owned types of
rises rises
es
Ownership Enterprises wnership

1990 2284 1681 2987 159.8 149.6 153.9


1.00 0.74 1.31
1991 2477 1866 3468 164.6 157.9 170.0
1.00 0.75 1.40
1992 2878 2109 3966 176.2 164.3 179.0
1.00 0.73 1.38
1993 3532 2592 4966 186.2 173.9 193.0
1.00 0.73 1.41
1994 4797 3245 6303 202.3 174.3 196.0
1.00 0.68 1.31
1995 5625 3931 7463 203.1 180.8 198.7
1.00 0.70 1.33
1996 6280 4302 8261 208.4 181.8 202.1
1.00 0.69 1.32
1997 6747 4512 8789 217.1 185.0 208.6
1.00 0.67 1.30
1998 7668 5331 8972 231.6 190.7 205.1
1.00 0.70 1.17
1999 8543 5774 9829 261.4 209.2 227.8
1.00 0.68 1.15
2000 6518 4203 7409 - - -
(Jan-Sept) 1.00 0.64 1.14
2000 9552 6262 10984 - - -
1.00 0.66 1.15
Note: Figures in the second rows for each year denote the ratios to average money wages in state-owned
enterprises. Source: National Bureau of Statistics, PRC.
Average Wage of Staff and Workers by Sector
Transport,

Storage, Wholesale Banking Real Social Health Education, Scientific Government

Year Farming, Mining and Manufac- Production Construc- Geological Post & and Retail and Estate Services Care, Culture and Research Agencies,
And Supply
Forestry, Quarrying turing tion Prospecting Telecommu- Trade Insurance Trade Sports & Art, Radio, and Party
of
Total Animal Electricity and Water Nications & Catering Social Film and Polytech- Agencies

Husbandry Gas and Conservancy Services Welfare Television nical and Social

and Fishery Water Services Organizations

1990 2140 1541 2718 2073 2656 2384 2465 2426 1818 2097 2243 2170 2209 2117 2403 2113
1.00 0.72 1.27 0.97 1.24 1.11 1.15 1.13 0.85 0.98 1.05 1.01 1.03 0.99 1.12 0.99

1991 2340 1652 2942 2289 2922 2649 2707 2686 1981 2255 2507 2431 2370 2243 2573 2275

1.00 0.71 1.26 0.98 1.25 1.13 1.16 1.15 0.85 0.96 1.07 1.04 1.01 0.96 1.10 0.97

1992 2711 1828 3209 2635 3392 3066 3222 3114 2204 2829 3106 2844 2812 2715 3115 2768

1.00 0.67 1.18 0.97 1.25 1.13 1.19 1.15 0.81 1.04 1.15 1.05 1.04 1.00 1.15 1.02

1993 3371 2042 3711 3348 4319 3779 3717 4273 2679 3740 4320 3588 3413 3278 3904 3505

1.00 0.61 1.10 0.99 1.28 1.12 1.10 1.27 0.79 1.11 1.28 1.06 1.01 0.97 1.16 1.04

1994 4538 2819 4679 4283 6155 4894 5450 5690 3537 6712 6288 5026 5126 4923 6162 4962

1.00 0.62 1.03 0.94 1.36 1.08 1.20 1.25 0.78 1.48 1.39 1.11 1.13 1.08 1.36 1.09

1995 5500 3522 5757 5169 7843 5785 5962 6948 4248 7376 7330 5982 5860 5435 6846 5526

1.00 0.64 1.05 0.94 1.43 1.05 1.08 1.26 0.77 1.34 1.33 1.09 1.07 0.99 1.24 1.00

1996 6210 4050 6482 5642 8816 6249 6581 7870 4661 8406 8337 6778 6790 6144 8048 6340

1.00 0.65 1.04 0.91 1.42 1.01 1.06 1.27 0.75 1.35 1.34 1.09 1.09 0.99 1.30 1.02

1997 6470 4311 6833 5933 9649 6655 7160 8600 4845 9734 9190 7553 7599 6759 9049 6981

1.00 0.67 1.06 0.92 1.49 1.03 1.11 1.33 0.75 1.50 1.42 1.17 1.17 1.04 1.40 1.08

1998 7479 4528 7242 7064 10478 7456 7951 9808 5865 10633 10302 8333 8493 7474 10241 7773

1.00 0.61 0.97 0.94 1.40 1.00 1.06 1.31 0.78 1.42 1.38 1.11 1.14 1.00 1.37 1.04

1999 8346 4832 7521 7794 11513 7982 8821 10991 6417 12046 11505 9263 9664 8510 11601 8978

1.00 0.58 0.90 0.93 1.38 0.96 1.06 1.32 0.77 1.44 1.38 1.11 1.16 1.02 1.39 1.08
Note: Figures in second rows denote the ratios to overall average money wages. Source: National Bureau of Statistics, PRC.
Falling poverty in rural areas; rising poverty in urban areas
Official statistics reveal that the Chinese government has been highly
successful in reducing the incidence of poverty in past decades. While this is
one of China’s great accomplishments in human development, interpretations
should be made cautiously. Estimates of the population in poverty covers only
those counties concentrated mainly in the central and western parts of the
country as defined by the central government. Estimates do not include those
people residing in more developed rural areas who, nevertheless, are living in
absolute poverty according to provincial standards. The emergence of urban
poverty also makes official measurements problematic given that official
figures normally include only residents in rural areas and people with chronic
illnesses. The urban population is defined as people who have an urban
hukou or household registration. Urban people who actually do live in poverty
include, the unemployed, (laid-off and, under-employed workers in state-
owned enterprises, pensioners who have not received their pensions, and the
dependents of all these workers. Moreover, people belonging to the “floating
population” are statistically invisible. This population is made up of – the rural
migrants to urban areas, who fill the worst jobs in the private sector and
foreign-owned enterprises – but who are not eligible for public services and
legal protections at a time when they need them most because of their rural
hukou status.

Table 5: Rural population below the poverty line

Year Poverty rate (%)


1990 9.4
1992 8.8
1993 8.2
1994 7.6
1995 7.1
1996 6.3
1997 5.4
1998 4.6
1999 3.7

Source: National Bureau of Statistics, PRC.

Severe inequality among regions and between urban and rural


areas

Regional disparity in income is still substantial, especially between the eastern


coastal and the western interior regions. Although China still a largely agrarian
country, existing regional disparities cannot be accounted for fully by
differences in natural resources. Fiscal decentralization introduced after 1978
has greatly diminished the ability of the central government to reduce regional
disparities. Before the reform, the central government succeeded in reducing
regional inequality through inter-regional fiscal transfers from rich to poor
provinces. Discriminatory policies that favor coastal regions over the interior
have also reinforced the rising regional disparities. Similarly, the administrative
and institutional arrangement of the urban-rural divide is responsible for
perpetuating inequality. The income gap between urban and rural residents is
still very large as shown in Table 6. Because various government price
subsidies for food and others goods consumed by urban residents have not
been included in the official calculation of incomes, the figures in Table 6
might underestimate the real urban-rural income gap. The simultaneous
development of capital markets and urban in poverty have widened income
disparity within urban areas. Likewise, while township and village enterprises
have generated many low-paying rural jobs, economic developments in China
have simultaneously created a wealthy managerial class, and this has
deepened intra-rural income inequality.

Table 6: Per capita annual income of urban and rural households

A: per capital annual B: per capital annual


Year Ratio B:A
net income of disposable income of
rural households (in
Urban households (in yuan)
yuan)

1990 686.3 1510.2 2.20


1991 708.6 1700.6 2.40
1992 784.0 2026.6 2.58
1993 921.6 2577.4 2.80
1994 1221.0 3496.2 2.86
1995 1577.7 4283.0 2.71
1996 1926.1 4838.9 2.51
1997 2090.1 5160.3 2.47
1998 2162.0 5425.1 2.51
1999 2210.3 5854.0 2.65
2000 2253.0 6280.0 2.79
Source: National Bureau of Statistics, PRC.
Table 7: Per capita annual income of urban residents and per capita net
income of rural households by selected region in 1999)
Urban residents Rural households
Disposable Net
income
income (yuan)
Ratio* (yuan) ratio*
National National
5854.02 2210.34
average 1.00 average 1.00
Region Region
Beijing 9182.76 1.57 Beijing 4226.59 1.91

4595.14 Heilongjiang 2165.93


Heilongjiang 0.78 0.98

Shanghai 10931.64 1.87 Shanghai 5409.11 2.45

Hubei 5212.82 0.89 Hubei 2217.08 1.00

Tibet 6908.67 1.18 Tibet 1309.46 0.59

Qinghai 4703.44 0.80 Qinghai 1466.67 0.66

* figures denote the ratios to the national average total. Source: National Bureau of
Statistics, PRC.

High level of union memberships without independent unions


As illustrated in Table 8, the participation rate of administrative staff and
workers in “‘grassroots unions’” has been very high throughout the past
decade. But the figures, in fact, reveal both the extent of state/party
domination in people’s lives under the slogan of “‘liberalization’”, and the low
level of basic freedoms enjoyed by citizens. The state recognizes only one
union body, the All China Federation of Trade Unions (ACFTU). The trade
union law of 1992 ensures that the ACFTU enjoys a strict legal monopoly on
organizing in the workplace, it stipulates that the formation of any new union
branch or organization requires the prior approval of the higher-level trade
union organization. This means that all trade unions must join the ACFTU, a
profoundly hierarchical and undemocratic organization which operates under
the direct leadership of the Chinese Communist Party. Throughout the 1990s,
there have been numerous cases of members and organizers in independent
unions receiving heavy prison sentences. This means that the capacity of
unions in China to provide adequate representation and protections for
members is seriously undermined. At the same time, the incidences of
industrial unrest is expected to increase. Discontent is growing because of
these factors, hidden unemployment and layoffs in state-owned enterprises,
exploitative working conditions in private enterprises (especially in those
factories subcontracted to transnational corporations where trade union
participation is extremely low and discouraged), and the WTO’s free trade
initiative This last factor has precipitated a race to the bottom in labour
standards in both developing and developed countries.

Table 9: Number of employees in grassroots unions (in tens of


thousands)

Year Unionization rate

Number of Union
employees membership

1990 14059 10135.6 72.1%


1991 14508 10389.1 71.6%
1992 14792 10322.5 69.8%
1993 14849 10176.1 68.5%
1994 14849 10202.5 68.7%
1995 14908 10399.6 69.8%
1996 14845 10211.9 68.8%
1997 14668 9131.0 62.3%
1998 12337 8913.4 72.2%
1999 11773 8689.9 73.8%

Source: National Bureau of Statistics, PRC.

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