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The jobless: Victims of China's economic success
By Michelle Chen

SHANGHAI - New pastel-colored highrise apartments shoot upward toward the smoggy sky - the triumphant stamp of free enterprise on a formerly drab and forbidding industrial landscape. Within each patch of blooming capitalism in this congested city, however, empty shells of the socialist era remain, about to be swallowed by the onslaught of construction, commercial real estate and booming businesses. The grimy walls, crumbling roofs and massive smokestacks of shut down state factories stand as an ominous counterpoint to the bright symbols of Shanghai's mushrooming economy.

They are the reminders of the high human price of economic success and the portents of future human problems: millions of laid-off workers without work and most without prospects, known as xia gang or "off-post" workers.

Though the technical definition and the exact size of this group are disputable, the term broadly refers to at least 27 million people uprooted by the closing and restructuring of inefficient state-owned enterprises (SOEs).

The darkened, empty windows of Shanghai's Soviet-style industry graveyards are stark reminders of workers whose lives once revolved around these enterprises, but have now vanished into the crevices of a transition economy that no longer needs them. Some find real jobs, but many more do not. Whatever their prospects, the socialist "iron rice bowl", which once provided lifetime job security and made initiative unnecessary, is now empty.

The demise of the planned economy has forced both the government and the people to adjust to a dynamic labor market. The process has been one of complex trial and error, as both workers and policymakers have struggled, often chaotically, toward a durable solution with new jobs, new forms of social security and a new concept of the urban working class.

China underestimates jobless rate at 4.2 percent
The Chinese government claims its official unemployment rate is 4.2 percent - a modest admission considering that at one time it boasted virtually zero unemployment. In 1978, however at the beginning of the economic Reform Era, China finally began to acknowledge the problem of unemployment. Now it vows to keep the rate under 4.7 percent and to create 9 million jobs this year. According to the Bureau of Statistics, in 2002 the total urban workforce was 247.8 million, out of a national labor force of 737 million.

The 4.2 percent figure is misleading, however, as it only counts those officially registered as unemployed by SOEs and it does not count many because of technicalities. The calculations exclude xia gang workers, along with rural laborers, migrants seeking work in cities, among others (see Who are the unemployed?).

Not counting the surplus rural labor force of 94 million, the World Bank estimates unemployment at 10 percent nationwide (of 247.8 million), or nearly 25 million. It is higher in some places, such as Liaoning province with the highest unemployment rate of 17.6 percent. (The Bank report was released last year.) 

Another 20 million workers have given up trying to find employment and dropped out of the labor force, according to the World Bank study, and if they were counted, the urban unemployment rate would double.

Even relatively prosperous cities such as Shanghai, with a population of 16.7 million, suffer from massive layoffs. Its once-flourishing textile industry shed 44 percent of its workforce in the late 1990s, pushing more than 400,000 skilled laborers out of jobs they thought they would never lose. Over the past year, the Shanghai municipal government admitted a daunting employment rate of about 4.8 percent, far higher than the national underestimation of 4.2 percent. This rise in unemployment occurred despite the reported addition of more than 300,000 jobs. The World Bank estimates Shanhai's real unemployment rate at 11.99 percent.

Facing economic insecurity, social displacement
Since the 1990s, inefficient state-owned companies and factories, a drain on the market economy, have been shut down in huge numbers, plunging millions of laid-off workers into economic turmoil after decades of relative security. They must grapple with inflation, an unraveling social safety net, and stiffening job competition due to vast capital and population flows between rural and urban areas.

The xia gang workers exist in economic limbo. They are somewhere between employment and registered unemployment, without real work but still receiving limited benefits from reemployment centers funded jointly by public funds and state employers. Among ordinary Chinese, the term xia gang encompasses anyone who has been squeezed out of an SOE job.

The desperation of xia gang workers revealed itself in 2001 and 2002, when thousands of demonstrators took to the streets in "rust belt" industrial bastions such as Liaoning province, where almost 12 percent of the workforce was laid off in the late 1990s. The protests were swiftly crushed by authorities who feared potential massive unrest arising from unemployment caused by economic restructuring.

Provincial governments haphazardly are rushing to integrate workers into an emerging national unemployment welfare system, shifting them out of stopgap re-employment centers at state-owned factories, which for many years have doled out trifling unemployment "insurance" payments - and often racked up huge debts due to their own inefficiency.

Urban workers: A disappearing act
State-owned enterprises, in a race for survival to keep up with the transitioning economy and improve efficiency, continue to push workers off the payrolls. They encourage employees to withdraw from the workforce, either through early retirement or a semi-legal process known as "buying up working years" - lump-sum severance pay in exchange for leaving one's post.

As local governments reform their unemployment-insurance systems, different provinces follow different timetables for removing xia gang workers from SOE payrolls with a combination of meager payments and limited employment assistance programs.

To supplement the inadequate aid provided by the state, many laid-off workers have taken jobs in the informal sector, but do not report the income and continue to receive benefits from their old work units or unemployment insurance.

"Speaking only in terms of statistics," said Lu Ming, an economics professor at Shanghai's Fudan University, "you can say that the problem is not very serious, but you can also say that it is very serious." He estimates that about 60 percent of the millions of so-called unemployed participate in China's underground or "hidden" economy, which may be a major reason outbursts of labor unrest, such as those in northern industrial centers, have been relatively sporadic.

In general, however, unemployment rates are swelling because the government's recent efforts to integrate xia gang workers into a new basic unemployment-benefits system has decreased the xia gang rate while expanding the category of unemployed. Boldly - and somewhat disingenuously - the Ministry of Labor and Social Security has announced plans to "solve the problem of xia gang by 2005". Earlier, in 2002, vice minister of labor and social security Zhang Xiaojian had proclaimed that in Shanghai "there are no laid-off workers any more, and the re-employment centers have been shut down". This is, however, largely a matter of semantics. Having been "defined away" on paper, xia gang workers may simply vanish into the nebulous ranks of the urban unemployed.

Many refuse to vanish
Those who have struggled personally with unemployment provide a more desperate picture than even the most liberal statistical estimates. Jiang Meng Chang, a middle-aged Shanghai native, recalls that in recent years collapsing state factories here resorted to providing severance pay in products; a last paycheck might be in steel basins if that's what the factory produced.

"The more a society progresses, the greater technological progress, the greater the xia gang problem," Jiang said with the gravity of a survivor of economic "readjustment". He was a driver for a state-owned transportation company, but now runs a curtain shop with his wife.

The central government has acknowledged the problem and taken steps toward a remedy, notably a pledge in 2002 to establish three levels of protection for laid-off workers:
  • First, temporary income support for freshly laid-off workers.
  • Second, unemployment insurance for laid-off workers who enter the official unemployment category.
  • Third, a Minimum Living Standard Guarantee for those who cannot find adequate re-employment. Coverage has been extended to urban private as well as public enterprises.

    Although on paper well over 100 million people are covered by the new unemployment-insurance system, the implementation is uneven and inadequate. Only 40 percent of eligible laid-off state workers have participated nationwide and only one in five receives benefits.

    While the benefit period - as long as two years - depends on length of employment for an SOE, the amount is not directly based on earnings. Provincial governments have the discretion to set benefit levels for unemployment insurance so that it is just above the minimum living standard but lower than minimum wage - a tactic meant to provide incentive for finding work.

    To ensure that there is actual work to be found, some municipal governments, such as Shanghai's, have stepped up job training and provided tax breaks for businesses started by xia gang workers. The government also hopes that accession to the World Trade Organization (WTO) and the anticipated influx of foreign direct investment will salve the wounds of socialism's decline. But in recent years, the correlation between unemployment rates and economic growth has declined to a mere 0.10 percent. And it is difficult to predict whether the temporary benefits given to xia gang workers re-entering the workforce will be sustainable in a more competitive economy, especially when China fully opens up to more foreign investment in 2006 as required by WTO membership.

    Won't stoop low, can't reach high
    Critics say China's policymakers avoid confronting fundamental problems endemic to the nation's economic transition. One of these is a general lack of morale and flexibility among workers. Some former factory workers, whose jobs were once the most coveted, look down upon service jobs such as custodial work, which are seen as fit only for "lowly" migrant workers from the countryside.

    The Shanghai Labor and Social Security Bureau was recently flooded with job applications for managerial and administrative position, but virtually none for entry-level service jobs. Since many xia gang workers are underqualified for higher-wage jobs yet unwilling to take low-paying service jobs, they are stuck in an occupational vacuum, a phenomenon the Chinese describe as di bu lai, gao bu qu or "won't stoop low, can't reach high".

    For former state workers, too many years of living off the bottomless rice bowl have done irreparable damage. "There are a lot of lazy people in Shanghai," remarked Jiang, sipping tea in his small highrise apartment in Shanghai's Baoshan District, which he purchased with a state subsidy inherited from his mother-in-law's work unit.

    According to Jiang, many laid-off Shanghainese are not only unable to compete in the job market, but they are also unwilling to subject themselves to hard labor. Among xia gang workers, he said, "there is one type that looks down upon this kind of work. And there are those who just can't deal with the bitterness of this kind of work." Both types would rather leave the jobs that require one to "eat bitter" to migrants, who pick up much of the city's slack in low-wage areas. "In terms of dealing with any kind of hardship, compared to migrants, there's a huge gap," he said.

    Jiang himself, though proud that he can now earn a living through his own small business, had a similar experience when he first entered the private sector as a chauffeur, after being a cab driver for a state-owned company for several years. "Whatever my boss wanted me to do, I had to do. It was like he paid 100 kuai (about US$12) and I was sold to him ... No matter how poor I was, I still wouldn't want to be his slave. Why would I sell myself to him? Why would I want to take orders from him?"

    Striking out on their own
    Jiang finally started a curtain-making shop with his wife, who was squeezed out of her job at a state-owned metalware factory. Those without the resources or know-how to be their own boss can only rely for a short time on the meager amounts doled out to the unemployed. Jiang said disdainfully, "They don't have any drive ... no sense of responsibility at all."

    But it is difficult to assign blame for lack of motivation among laid-off workers. The xia gang generation emerged from the chaos of the Cultural Revolution and was plopped into minimally skilled factory labor in gargantuan Soviet-style factories. Some observers ask whether these people can reasonably be expected to upgrade their skills and change their mentality to adapt to the structural changes of the Chinese economy, even as their old work units gather the dust kicked up on China's new capitalist road.

    The inability of many xia gang workers to adapt to the market economy stems from another systemic issue: the built-in rigidity of an over-regulated unemployment program.

    Ran Tao, an Oxford University economist who has worked with the International Monetary Fund (IMF) to research China's labor market, says new government policies are but a tiny improvement on an outmoded unemployment/welfare system. "I think what they do best among all is to provide the social welfare function ... As to job training, I doubt their impacts, since these government-funded agencies are usually very ineffective. Not only do they lack the understanding of and the capacity to provide what markets really need, but also they have no incentive to increase laid-off workers skills and competence in job markets."

    A recent study of training programs in Wuhan in Hubei province and Shenyang in Liaoning province indicates that training programs are only marginally effective in helping people find new jobs, and that they do not increase the earnings of the participants.

    Rigorous analysis, evaluation lacking
    According to Lu Ming, economics professor at Fudan University here, "If you just look at the policy ... you'll see that whatever America is doing, whatever Europe is doing, Shanghai is also doing." But the actual effectiveness of the programs is anyone's guess, because the government has not adopted scientific methods of analyzing the results of policies. Thorough, objective policy evaluations based on econometrics, widely used in the West, would help give a clearer interpretation of the raw data, such as re-employment rates, which may be skewed by individual workers' backgrounds and qualifications, say Lu and other economists.

    "I've explained this problem to the Labor Ministry many times," said Lu, whose research group provides the Shanghai government with policy recommendations. "I told them, 'You have to do a policy evaluation,' but you know, the Chinese government just doesn't attach a lot of importance to this matter. They don't understand." Therefore, if you ask officials, they'll throw the numbers at you, but "the logic they use is too simple".

    The solution might grow out of the problem itself, if the government were to take a more systemic approach to reforming the job market. Both Lu Ming and Ran Tao, the Oxford economist, propose a "less is more" approach to government unemployment-insurance spending. Lu theorizes that by reducing funding for less effective policies, such as outmoded training programs and employment agencies that would be better run by private companies, the state could pump the demand for labor by streamlining the costs of social welfare coverage for employers. Ran argues that careful deregulation, rather than short-term preferential policies - such as tax breaks and loans for start-up businesses that will expire within a few years - will create more sustainable opportunities for the unemployed.

    On a grassroots level, Lu says, local governments should reorient labor markets and practices not only to create jobs, but also to provide the resources needed for the unemployed to become productive members of a market economy.

    Makeshift jobs could make the problem worse
    In Ran's view, the policies specifically aimed at occupying xia gang workers could actually increase the long-term burden of state-owned enterprise unemployment programs, since make-work is not a market-oriented approach and might hamper development. For instance, some fear that xia gang workers might be pushed into new job openings at the expense of surplus migrant workers who also seek work in the cities.

    Ran believes that a flexible policy that integrates deregulation and a national unemployment-insurance system is key if China wants to maintain its economic growth. "After all," he said, "what China needs to establish is an integrated national labor market instead of a labor market for local residents including laid-off workers."

    Talking to working-class urban Chinese on the street reveals that despite policies designed to help the unemployed, self-reliance is the name of the game. Jiang, former car driver-turned entrepreneur, equates enlisting government help with over-dependence on handouts: "If I wanted the government's money, I could take it, too. But I just don't want it ... I depend on myself."

    Reflecting the fear of government interference shared by many of former xia gang entrepreneurs, he wants the state just to let him go about his business. "I don't think about any more help the government could provide. And on the other hand, if you demand more, they don't listen to you anyway," he said.

    Workers themselves may prove to be a valuable resource for government programs: training programs that are partially or fully funded by workers tend to be more effective, probably because the trainees feel invested in their training.

    The march to the market
    Should the state then let laissez-faire govern the unemployment/social-welfare system? Clearly, the enormous population and rising unemployment indicate that safeguards are still necessary as the economy charges full force into a global economy. One issue that the country will face in coming years is what kind of political or social apparatus will replace the inefficient bureaucracy. One possible remedy, say more market-oriented critics, is to devolve power to the community level and let local governments cooperate with local enterprises and organizations to strengthen the labor market.

    The government could seize this moment of high unemployment as an opportunity to "marketize" a segment of the economy that is not easily commodified or mass-produced: the urban labor force. The challenge, as always, is implementing the ideas that could revitalize the urban workforce. Some examples:
  • More comprehensive training would prepare workers, even those who were laid off at an advanced age and are deemed "redundant", for a free-market society. Programs could go beyond teaching job skills and educate people about their responsibilities and opportunities as agents in the developing economy. Education could include how to negotiate the market as a consumer and how to handle household finances. Community training programs could be expanded to increase awareness of business law (complex and vague legislation in China) as well as general local laws. Such an "active" re-employment policy would help ease the tension between increasing economic competitiveness and providing for the basic welfare of the unemployed.
  • Community-based institutions could be expanded to revitalize the local economy according to local needs - an approach yet to be tested. Long-term community institutions such as local credit unions, which would operate independent of government control, would provide a more sustainable base of capital for aspiring business owners.
  • Programs could be linked with private enterprise, developing entrepreneurial skills and civic responsibility among the unemployed, easing the pressure on the government to create welfare job openings in the service sector. Already, small and medium-sized private business accounts for about 80 percent of new jobs as increasing numbers of both urban and rural Chinese carve out niches for themselves in the developing economy.
  • The role of the informal sector - non-contract employment outside the official employment market - could be truly acknowledged and utilized. This would enable researchers and the Labor Ministry to grasp more fully how their policies are affecting workers on the ground.
  • The budding but underutilized non-profit sector could be developed. Non-governmental organization work is currently concentrated in rural poverty reduction, but the state could further expand the public service sector to provide urban service jobs that, rather than connoting subservience, represent community development and collective progress. One potential program could be the establishment of community development corporations that engage local people in the administration of businesses, schools and real estate. In the 1980s, a similar hands-off policy vastly improved the quality of life in rural regions by giving villages and townships the autonomy to develop their own industries and enterprises.

    Although many Chinese cities have not yet reached the level of economic development that forms the foundation for this type of civic engagement, the policies that strengthen community independence would be likely to foster sustainable economic opportunity. The government on all levels could promote economic advancement while controlling the widening wealth gap by shaping a new labor force that complements urban Chinese society's unprecedented structural changes.

    This concept of community engagement and empowerment is not lost among xia gang workers and entrepreneurs like Jiang. Reflecting on his own search for opportunity beyond the state payroll, he recalled, "After leaving the big rice bowl, you had to set off on your own and challenge yourself." In the end, the fate of the urban unemployed is linked to the drive for reform: "It's a matter of desire to move forward. Problems with individuals, problems facing the city, problems facing the country - it all comes down to the drive for progress."

    Michelle Chen is an American Fulbright researcher based in Shanghai.

    (Copyright 2004 Asia Times Online Co, Ltd. All rights reserved. Please contact for information on our sales and syndication policies.)

  • Apr 1, 2004

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    (Feb 13, '04)

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    (Oct 16, '03)

    Beijing unveils land reform policy (Mar 10, '03)

    China's economy rides the razor's edge (Nov 7, '03)


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