This is reflected most fundamentally in what one might call “the three inequalities” (in the spirit of the Chinese way of presentation) – between rural and urban populations, between the south-east and the remainder of the country, and between those in the official core of the economy and those surviving in petty and ‘informal’ economic activities. The biggest danger is that the transformation of the affluent parts of the system, moving it towards the standard market model, will exacerbate the inequalities, creating a more stratified and insecure overall system.

This note reviews several crucial indicators of socio-economic security in China, at the outset of a modest work programme in the country, dealing with the seven forms of work-related security identified in the ILO’s Socio-Economic Security Programme.

In terms of labour market security, conventional statistics are misleading.[1] The unemployment rate typically mentioned is 3.1%. But, as is easy to show, this is actually a residual, and is a fiction, which cannot even be used as a proxy for unemployment or for time-series analysis, let alone for international comparisons. Given that China is the most populous country in the world, this is an extremely important point, especially for those producing global reports. The low official rate does not reflect any political concealment or even poor statistics. Rather it reflects the institutional structure of the emerging labour market and social protection system. Our forthcoming Chinese Enterprise Labour Flexibility and Security Survey (CELFS) and the complementary People’s Security Survey (CPSS) should shed light on this process. But probing available statistics also shows that the extent of labour surplus is vast, dwarfing what is found in most of the rest of the world. We also documented some of mechanisms producing this pattern of labour slack in an earlier CELFS, carried out in 1994-95.

Trying to obtain a picture of unemployment is difficult. However, it is extremely important to try to do so because mass unemployment is about to arrive, probably in the last quarter of 2001. In rural areas, where about 74% of the population is still concentrated, conventional statistics on unemployment per se are inappropriate. There are ample reports of extensive seasonal labour fluctuations, with seasonal and structural under-employment. One official report referred to 100 million of the 900 million rural workers being seasonally unemployed. Privatisation and related rural reforms are exacerbating rural under-employment and raising unemployment.[2] 

At present, the openly unemployed are concentrated in urban areas, and seem to come mainly from the downsizing or bankruptcy of state, collective or cooperative enterprises. Because many of the marginalized migrate to the towns in an unregistered way, they are likely to disappear from any official count of unemployment. Yet because China has been urbanizing more rapidly than had been anticipated – the urban share of the population rising by ten percentage points between 1990 and 2000 – the rise in open unemployment can be expected to continue for this reason alone. 

In urban areas, the existing residual unemployment is essentially very long-term unemployment.[3] The reason for this is that when enterprises have labour surplus, they take long to react, and when they do, the practice has been to put them on lay off. Before 1998, most were put on a status of something like “worker without post”, so that formally at least they remained in the employed category. In 1998, the standard practice became one of putting surplus workers on prolonged lay off. In this status, they are entitled to receive a basic allowance from the enterprise for up to three years. Only if they are not re-employed or do not resign in that period do they then become classified as unemployed.       

The existing national numbers are intriguing. As of April 2001, the latest available statistics indicate that 705,760,000 people were ‘employed’ at the end of 1999, out of the ‘economically active’ population aged 16 and above of 719,830,000. The employed represented 56.1% of the total Chinese population. Women comprised 46.5% of total employment, which is high by international standards, especially bearing in mind that the Chinese Population Census of 2000 indicated that there were something like 117 females for every 100 males in the country.

There were about 5,750,000 registered urban unemployed, up from 5,710,000 at the end of 1998. But there were no registered unemployed in rural areas, which is where most people live. The number gives a registered urban unemployment rate of 2.6% if you divide the registered by the economically active, or 2.7% if you divide by the sum of the employed and registered unemployed. But since the economically active is meant to comprise the sum of the employed and unemployed, so that the difference between the economically active and the employed are the unemployed, the figures imply that actual urban unemployment was 11,640,000, which converts to an urban unemployment rate of 5.2%. Bear in mind that the draft Five Year Plan submitted to lawmakers in March 2001 set out a goal of keeping urban unemployment to under 5%.[4] 

This would certainly not be an alarming figure in a period of structural change. However, it is still concealing the reality if one were to wish to measure urban unemployment by the standard methodology used in most countries. Officially, at the end of 1999 there were 9,371,765 workers laid off. It seems these were counted as employed. But they were substantially unemployed, without jobs and merely waiting for the moment they became classified as unemployed or vaguely hoping for ‘re-employment’. If we merely deduct them from the employment count, the registered unemployment rate is 2.7%. But if they are also added to the registered unemployed the unemployment rate rises to 5.9%, while the total urban unemployment rate comes to 8.2%.   

This comes closer to our index of labour market insecurity, but to calculate an index we would need estimates of the extent of labour underutilization among those nominally holding jobs. According to anecdotal evidence, there are numerous workers who are not formally laid off but who are doing little or nothing in jobs – being “workers without posts” – while receiving no wage, beyond a basic living allowance. These are suffering from a combination of labour market and income insecurity.     

In terms of employment security, there has been a considerable erosion in recent years. Early in the 1990s, the then Minister of Labour said that China must break the iron bowl, but admitted that he could not say this in the ILO. The reason was that breaking the iron bowl means removing total employment security, and that this was the main purpose of recent labour reforms. As one specialist put it recently, “There is no such thing as permanent employment anymore.”

An indicator of employment insecurity is the share of employees in state-owned enterprises who are on temporary contract status. This is defined as having a labour contract of less than one year. The official statistics imply that 4.3% of workers were in that status. However, according to officials in the Ministry of Labour, the reality is more flexible than this implies.    

In terms of job security, the conventional opinion is that many workers are in jobs that allow them some opportunity for upward mobility, but that cadres (white-collar workers) have rather little internal mobility. In terms of work security and skills reproduction security, we should obtain a reasonable picture from the two surveys. The impact of the 1996 employment injury insurance scheme should be one aspect of those; it has been estimated that about 40 million workers have been covered by that. In terms of representation security, the surface statistics and position of officialdom may be changing. Officially, although China exempted itself from the article of the International Covenant on Economic, Social and Cultural Rights enshrining the right to form independent trade unions, most workers still belong to the official trade unions.[5] But there are numerous reports that in the vast majority of private firms there has been effective resistance to unions, so that unionization is fairly low. The emerging pattern of representation deserves to be analysed with care. The exhortation by the government to workers to negotiate collective agreements may be relatively ineffective, even though millions of workers are covered by registered agreements. These will be analysed in the CELFS, as will be the impact of the enterprise labour dispute reconciliation committees.   

In terms of income security, the crucial development is the ongoing restructuring of the country’s social protection system. The Prime Minister, Zhu Rongji, told the National People’s Assembly on March 6, 2001, “We need to accelerate the formation of a social security system that is independent of enterprises or institutions and supported by funds from diversified sources.” The three most important contextual challenges are the restructuring of enterprises, effectively eroding the old enterprise-based ‘cradle-to-grave’ system of social transfers and services, the ageing of the population, and the loosening of ties to the soil and to traditional communities. The latter is reflected in the rapid urbanization and the estimate of more than 100 million rural-urban migrants, many of whom spend much of their lives avoiding authorities and taking informal or ‘black’ labour activities.

The ageing of the Chinese population is also going to be dramatic in the near future. Already, about 7% of the population is aged over 65, and by 2050 over 400 million people will be over that age. This is why it is desperately important for the country to build a sound social protection system. The ‘one-child’ population control policy has had some success on its own terms slowing population growth, but it is contributing to the demographic ageing process, so that old-age ‘dependency’ is looming remarkably early in the industrialization-development process.

So, the demographics are contributing to the challenges of social protection reform. The ILO will be seeking to help the authorities in addressing these challenges, along with the Asian Development Bank and other international bodies. The pension reforms, which began in the 1980s and which have been modified by a series of legislative initiatives over the past decade, are creating a hybrid system, with the introduction of individual accounts alongside a social insurance system, and with a nascent private savings scheme being encouraged. The authorities fully realize the need to clarify the reform process, especially bearing in mind that various reports have claimed that one-third of the provinces have had difficulty in compensating pensioners. The debate between the various schools of thought can be expected to be one of the most important economic and social dilemmas in the coming decade, shaping not only Chinese society but having a significant impact on the general direction of social protection policy globally.

Healthcare insurance is also being extended in the same multi-tier way, although the medical insurance system introduced in the 1950s has continued. As multi-tierism spreads, the lessons of international experience should be taken into account, and be brought to the attention of those working on the details of the reforms.

The income security of the unemployed and those losing their jobs is determined in large part by entitlement to severance pay and to unemployment benefits. Severance pay does exist for workers in public enterprises and is regulated. A worker can only receive one month’s compensation if he or she has been employed for less than one year, and then one extra for each extra year employed up to twelve. However, it is the impending effects of the introduction of unemployment benefits that is going to be the centre of attention in 2002.

Since the beginning of 2001, state-owned enterprises have not been required to set up Re-Employment Service Centres, which have been the avenue by which most of them have placed their laid-off workers without putting them into open unemployment. Laid-off workers have been in these Centres for three years, but as from September 2002 the first group of workers who will have used up their three years will emerge into unemployment and will hope to be entitled to unemployment benefits. Although the number of workers covered by unemployment insurance contributions has been growing steadily since 1996, and although the size of the designated unemployment insurance fund increased by 27% in 2000, the new “Three-One-Third-System” has yet to be put to a full test. It is too early to say what proportion of the unemployed will actually receive benefits. It will be a major phenomenon to follow.