-- No.3 Study Report on the Overall Strategy and Policies for the Transitional Period after China’s Entry into the WTO

Ge Yanfeng

Various contradictions in China’s employment sector have become extremely dominant in recent years and have seriously affected the country’s economic and social life. Undoubtedly, how China’s employment will be influenced by its entry into the WTO draws our close attention. In the long run, China's entry into the WTO will bring about lasting prosperity of its economy and facilitate the perfection of its market economic system, which will in turn boost the growth of employment and the development of labor markets. In the early years and for even quite a longer period of time, however, the situation would not be so optimistic.

I. Possible Intensification of Employment Contradiction in the Early Years after China's Entry into the WTO

1. Possible increase in total unemployment

According to forecasts commonly accepted at present, China's entry into the WTO will help raise its GDP growth by about 1 or 2 percentage points by the year of 2005. Although an accelerated GDP growth may spur an increase of employment, China’s employment situation in the transitional period after its entry into the WTO does not allow much optimism when the country's actual conditions are taken into consideration. On the one hand, with the gradual breaking down of trade barriers, China will enter a stage of economic development that is more open and involves fiercer competition, and a tremendous change will take place in the mode of its economic growth, and on the other hand, technical advancement will gradually become a major force driving up economic growth and play an increasingly important role in the substitution for labor forces. For this reason, the role of GDP growth in stimulating employment would not appear to be so prominent as it did in the mid-1990s. What deserves our greater attention is that a fairly big part of the country’s hidden employment will surface and become visible due to the intensification of external competition.

Surplus rural labor forces always pose an eye-catching problem. After China’s entry into the WTO, domestic market prices will further drop as a result of increased import of agricultural produce in bulk. Since there is no much room for further readjustment of the internal structure of agriculture, decline in the prices of farm produce will affect the income of farmers, which would then compel more rural surplus laborers to flow into the cities.

In China's urban areas where enterprise reform has resulted in a drastic cut of surplus laborers, yet such surplus personnel in state-owned enterprises and collectively-owned township enterprises still remain at 20% or more according to a conservative estimate in consequence of numerous problems left over from the old system. After China’s entry into the WTO and with the intensification of competition, enterprises will inevitably further cut their redundant employees. The step for a large-scale personnel cut will be taken in sectors and enterprises exposed to heavier pressure from import competition, and those with relatively big development potentials may tend to decrease demand for labor forces. It goes beyond doubt that in the early years after China’s entry into the WTO, the number of employees to be cut by enterprises will exceed the number of job opportunities available.

China’s employment pressure and contradiction will find themselves in urban areas. As indicated in the result of a rather strict sample survey conducted in a number of big cities in 1997, and the analysis of the relevant data and indexes of 1997 and 1998, the real unemployment rate in urban areas was between 13% and 15% in 1997 and 1998 when the numbers of the jobless and laid-off workers were included.* The speed of China's economic growth has noticeably picked up since 1999, and the employment situation has turned for the better. Even so, the real unemployment rate still stands around 10% at present. During the transitional period after China's entry into the WTO, unemployment will turn from hidden to visible to a large extent, and it will be most possible to see China’s unemployment rate surpass 15% despite a high-speed economic growth.

2. The contradiction of the employment structure will become prominent.

In the early years after China's entry into the WTO, its economy will inevitably undergo a structural readjustment on an even larger scale. The contradiction of the employment structure resulted from unbalanced supply and demand of labor forces in different sectors will become particularly prominent throughout the process.

Among various sectors, swift development will be registered in such sectors as finance, insurance, telecommunications, and distribution as well as some hi-tech enterprises, and will spur a noticeable growth of employment. Labor-intensive sectors including textiles, clothing, construction and building materials may also create more job opportunities. Facing the increase of imported foreign products, a great many capital and technology-intensive industries that have been developed to boost production of import substitutes, such as metallurgy, automobile, machine-building, pharmaceutics, and chemicals, may inevitably suffer and have to cut employees in large numbers in consequence of their low competitiveness on the international market.

Disparity of employment between different regions will also become more dominant. Coastal areas and central cities with a comparatively solid economic and technical foundation, a higher degree of openness, and obvious regional superiority may expect to see relatively faster development which will in turn stimulate employment growth to some extent. As for the old industrial the cities, small and medium-sized cities in the central and western regions, where small and medium-sized enterprises with backward technology and equipment are concentrated, they will meet even greater difficulties in development and come under heavier employment pressure.

Among enterprises of different ownerships, state-owned enterprises will have a more thorny burden of redundant employees and face a heavier task of structural readjustment and diverting redundant workers after China's entry into the WTO. In comparison, the non-state sector will have more room for development and may likely become a major creator of new job opportunities.

All in all, for several years after its entry into the WTO, China will be encountered with a very tough contradiction of structural employment, and unemployment would be extraordinarily severe in special industries, old industrial bases, small and medium-sized cities in central and western regions as well as state-owned sectors that have long relied upon government protection. Large amounts of low quality labor forces may be repelled from the labor market and become unemployed for long period of time.

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