China Needs to Focus on Job Creation

The Economic Observer
China Needs to Focus on Job Creation
By Editorial Staff
Published: 2008-11-25

Officials from Guangdong province have suggested recently that the government should not move in to prop up lagging productivity in certain industries. "It is the market that eliminates lagging productivity through cyclical fluctuations," they said. While true, the situation in China today is more complex, and we should not be so quick to come to this conclusion.

The officials went on to say that since none of the famous companies in Guangdong have toppled, it's clear that the market was weeding out underperforming firms. We disagree--famous companies are not always the most productive, and many nameless small and medium enterprises (SMEs) in Guangdong are not lagging behind.

The economic downturn is only aggravating China's unemployment problem. With companies are ceasing production, shutting down, or reducing staff, China is facing the biggest army of job-hunting recent graduates since it increased enrollment in 1999. Even in more plentiful times, the country's labor supply has grown only by 24 million each year on average, and half of them have difficulty finding a job.

Unfortunately, the hardest time has yet to come. According to the Ministry of Human Resources and Social Securities, 2009 will be an even worse year. In such a climate, guaranteeing employment is the basis for maintaining the people's livelihoods.

Premier Wen Jiabao has said several times that to cope with a financial crisis, confidence is more important than gold or money. And to a large extent, people's confidence comes from optimistic expectations of their future.

It's true that governments at all levels should always perform their function in social security and care for the unemployed. However, leaving aside the lack of social security for most off-farm workers today, we believe having a job brings people confidence more than other guarantees, because by working they can live with dignity and pride.

This is far more than an economic issue. Employment is the foundation both for people's livelihood and the country's governance. That is also why the Chinese central government launched a sweeping stimulus plan amid fear of economic growth sliding below 8%.

To provide 10 million jobs every year, China has to maintain its gross domestic product (GDP) growth at or above 8%, or else high unemployment will likely trigger various social problems.

The collapse and shut-down of numerous SMEs are more related to the coincidence of the Chinese economy's self-adjustment cycle and the global financial crisis more than the market's periodic fluctuations.

To help these firms, the central government has halted the yuan's fast appreciation, raised tax reimbursements for exports, suspended a raise in the minimum wage and other policies. Clearly, the central government feels a responsibility to notice their collapses, because those SMEs take in the largest portion of China's labor force.

In reality, if the collapse of SMEs does not draw attention, the midwestern provinces will face even greater employment pressure. Despite a local official's statement that the government was able to solve unemployment problems for migrant workers who have returned to their hometowns, we think the employment capacities in these areas have been limited and will suffer significantly from the country's on-going economic adjustment.

Leaving aside the unemployed in urban areas, China has over 200 miilion off-farm workers, among which 120 million are working away from their hometowns, their children, and elderly parents at home. They are the pillar income sources for their families, so if they lose their jobs, the population affected could double. This is something we must consider when talking about economic adjustment against the current bleak economic backdrop.

China does need to transform its economic growth mode from relying on external to domestic demand as soon as possible, just as businesses should focus on moving up the value chain, even though many would die during such a process. However, facing the likely sharp increase in unemployment, only guaranteeing employment can provide the necessary stable environment for China's economic adjustment. The government assume the greatest responsibility for this huge task.