While China endures the painful process of developing a comprehensive unemployment insurance system, experts have begun to question whether the insurance system will be able to sustain the large number of expected jobless people.

"The current insurance system, introduced from the richer West,may not be able to collect enough money to support China's expected huge jobless population," said Ge Yanfeng, a senior researcher with the Development Research Centre under the State Council.

According to a study led by Ge, China's factual unemployment rate in urban areas could remain around 10 per cent for a long period.

The situation will be further complicated by the 3 million unemployed that are set to leave re-employment centres - institutes which pay laid-off workers from State-owned enterprise's (SOE) to maintain their basic standard of living - in the latter half of this year.

Though the current unemployment insurance system can support a jobless population newly released from the re-employment centres, employment pressure will be largely increased, said Zhang Libing, a researcher with the Institute of Labour Science under the Ministry of Labour and Social Security.

She was echoed by Ge.

"The problem is how we sustain the expected high unemployment rate in the long term?"

Research has revealed that all employees in China will have to pay nearly 8 per cent of their average salary towards the insurance system if it is to support the high unemployment rate.

"This percentage is obviously beyond people's capabilities," Ge said.

According to the labour ministry's statistics, in 2000, China's registered unemployment rate in urban areas was 3.1 per cent. But it has been widely estimated that China's factual jobless rate will greatly surpass the announced figure when hidden unemployment and State laid-offs - in 2000, they numbered 6.57 million - are counted.

Ge told Business Weekly that due to low administration levels and the complicated employment situation in China, the cost of the insurance system will be very high.

The complexity arises from the fact that insurance money must be paid out to the insured, but at the same time much work has to be done to prevent those who are re-employed swindling insurance money.

By the end of last year, 104 million people nationwide had joined the unemployment insurance system, and the total revenue for the insurance fund was 16 billion yuan (US$1.9 billion), 28 per cent higher than the previous year.

Ge said that when all the unemployed are counted, the money is far from enough.

"In my opinion, the unemployment insurance policy should be abandoned, and the State should adopt a new unemployment security system which combines employer compensation for fired workers and government employment training," Ge said.

As compensation will be focused on smaller groups of unemployed people, the system will be able to reduce its administration costs, and help curb job-cuts.

But Zhang argued that this scheme is unworkable in China because employers who cut jobs generally do not have enough money for compensation.

"Unemployment insurance should not be abandoned merely because it is in short supply," said Zhang, who hinted that the government would not adopt an employer compensation system in the near future.

"Unemployment insurance is a developing system, which will cover different groups at different levels, but as a whole, it will not go bankrupt because of large number of unemployed people," Zhang said.

Last year, 3.3 million people who had lost their jobs were being aided by the unemployment insurance fund, whose amount had accumulated to 19.6 billion yuan (US$2.4 billion).