Mounting unemployment as China 'reforms'

August 23, 1995

By Eva Cheng

Unemployment in China has exploded in recent years, with 170 million people, or 28% of its work force, estimated to be out of jobs. Since the 1949 revolution, the government has accepted the responsibility to provide jobs and a degree of universal basic welfare. Not any more.

Beijing is relying more and more on market forces to provide jobs. Labour protection under this new regime does not exist even on paper. The jobless and the elderly are left to fend for themselves.

The above jobless estimate, made by the sociology department head of Nanjing University earlier this year, seems credible, considering the wide coverage it received in authoritative papers such as People's Daily, Dagong Daily and Wenhui Daily. The figure includes the urban as well as rural "surplus" work force, which until the economic reform, started in 1978, were considered to be "waiting" for jobs rather than being unemployed. Most jobs then were centrally assigned.

Beijing Review estimated last year that the rural unemployed alone totalled 120 million, and were likely to exceed 140 million by 2000.

Many more urban workers will be jobless when the full effects of restructuring the ailing state sector come through. Plagued by extensive interlinked defaults, at least one third of state enterprises were running at a loss last year or were on the verge of collapse. Beijing plans to wind them down, but hasn't yet done so because the unemployment insurance system that is being installed is inadequate to cope with the anticipated social dislocation.

Unemployment has become more widespread the further China moves into economic reforms. This is "inevitable", according to officials, because of market competition under which the "superior" will thrive as the "inferior" lose out. Beijing believes, at least in official propaganda, that competition will help China's economy. It vows, without specific commitment, to maintain the dominance of state ownership.

In the countryside, the dismantling of collective production has reduced farming in many cases to a family business, often in primitive conditions. The decentralisation of administrative controls has given local bureaucrats enormous power and fostered rampant corruption. State funds for procuring grain and other staple food, for example, have been massively diverted into real estate and other speculative projects for the bureaucrats' personal gains. IOUs were extensively issued instead for procurement while tax or levies of all sorts — including illegal ones — were brutally imposed, driving some peasants to suicide, others to revolt.

Soon after a peasant revolt in Sichuan in 1993, Beijing intervened to redeem 3 billion yuan worth of IOUs. But nationally the IOUs then amounted to no less than 27 billion yuan, according to the Peasants' Daily, which revealed that only one third of the 80 billion yuan that the government had allocated for procurement in 1992 ever reached the peasants.

AS well, lots of produce remained unsold because the government lacked the funding. The director of agriculture, Henan province, Cui Aizhong, estimated in 1993 that unsold produce was twice the sold amount.

Against this background, tens of millions of peasants flooded the cities to look for jobs. There are 2 million of them in Beijing (out of a population of 9 million), 2.5 million in Shanghai and 6 million in Guangdong province.

These "blind flows", as they are called in China, started in the early 1980s. The new arrivals have taken over jobs considered undesirable by urban workers. Beijing Review commented that city residents were increasingly dependent on this cheap labour to maintain a higher standard of living.

Rural migrants are also a source of cheap labour in the special economic zones, where foreign and private investments are heaviest and labour protection minimal. There are 1 million of them in the Shenzhen zone, or 50% of the work force there. Employment conditions similarly attractive to investors are widespread in the southern and coastal regions.

The media in China have reported frequent industrial "accidents" and incidents where enterprises failed to pay wages or arbitrarily withheld part of them, dismissed workers without pay or refused to grant holidays. Many of them hired workers on illegal contracts, which reportedly accounted for 70% of workers' contracts in Shantou and 90% in Zhuhai special zones in 1993. Of the 465 private enterprises surveyed in the Futian district of Shenzhen in 1993, 240 had not paid their work accident insurance. In a nearby district, 65% of firms had not met unemployment insurance contributions.

A survey of 217 foreign-funded firms in Guangdong province in the same period revealed an average workday of 10 to 12 hours, and exceptional cases of 28 hours' work. Overtime work is often compulsory, but not always specially paid. There were repeated reports of employers absconding, leaving wages unpaid, or of grossly substandard sweatshops, workers banned from talking at work or being beaten up by the bosses. A survey of seven joint ventures in Zhuhai revealed toxic pollution levels eight to 10 times China's limits. In a Xiamen factory, 39 of its 400 employees have lost part or all of a finger!

Legislation to protect workers has been on the drawing board for 16 years and still is.

In the rest of China, state firms are still dominant, in nominal terms. At the beginning of this year, they accounted for 53% of the nation's total industrial output, 66% of the taxes paid by industrial enterprises and 75% of their fixed assets. But many of their machines were obsolete and their products unwanted. They are heavily indebted, often to one another, and are only kept afloat with government subsidies. A substantial portion of their work force was close to retirement, but their ability to meet pensions remains a question.

Beijing plans to wind up the hopeless firms, but has done so with only a handful. Just over 400 firms were declared bankrupt as of last year, five years after the bankruptcy law was put in place.

The problem, according to Bian Jingzhai, a director of the All China Federation of Trade Unions, is the lack of "auxiliary measures" to take care of the displaced workers. Jobs apart, state enterprises in China also provide extensive welfare services such as housing, medical and child-care and, sometimes, schools, banking and postal services.

Attempts at unemployment, medical and old age insurance only partially fill the gap.

Funding for new unemployment protection comes from the enterprises as well as the government. Enterprises' contribution is 1% of basic wages, but this is an amount of decreasing importance in a worker's pay packet. Even that payment can be reduced by the provincial authorities.

Schemes in 1986 had to be provincial wide, which facilitated financial scrutiny. But many counties and municipalities have since then started their own unemployment funds, and have often "borrowed" from them to meet other needs. Schemes are launched even on the basis on a single firm, calling into question the fate of the funds when the firm goes under. The Communist Party secretaries of two Lanzhou factories refused in 1993 to issue unemployment benefits because doing so might tarnish the firms' reputation.

Half of the official urban work force was covered against unemployment by 1993, at least on paper. But it is unclear what amount of real protection there is. Moreover, only a small section of the rural work force might be covered by 2000.

The new old age protection system is similarly haphazard. Base funds have been mandatory for all firms since 1991, but only a handful of regions have actually set up a scheme. Enterprises were to contribute a share but the level can be varied by local governments. Workers have to pay 3% of their basic wage or 2% of total income. Beijing wants the schemes to cover broad geographical regions but, according to the People's Daily, there is resistance from many local authorities.

As for pensions for the rural elderly, the Seek Truth magazine said, "It must remain the responsibility of the individuals".

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