The Other Specter: Labor Unrest

Even as Beijing sidesteps its growing bank crisis, another economic problem--unemployment--has gotten too big to sweep under the rug. China's jobless rate stands at 7%, Labor Minister Zhang Zouji said Nov. 11. That's nearly twice the figure previously reported. China must do "everything possible to create more jobs," President Jiang Zemin exhorted delegates at the 16th Party Congress.

There's plenty to fret about. Since 1998, some 26 million workers have been laid off from state-owned enterprises, Zhang said. That doesn't include 6 million not registered as unemployed but who draw little or no salary from their state jobs. Nor do the official figures capture the 80 million to 100 million rural migrants swarming cities in search of work, nor the 160 million jobless and underemployed still in the countryside.

The situation will worsen if bank reform forces state-owned companies--many of which are kept afloat with cheap credit--into bankruptcy. The dilemma is that economic progress will be slowed unless the banks and state enterprises are fixed, but doing so will lead to growing unemployment. China's entry into the World Trade Organization is spurring still more dislocation as foreign competition increases. And with imported grain expected to flood in, agriculture will be hit hard. "There is a big shock coming to farmers," warns Hu Angang, director of the Center for China Studies at Tsinghua University in Beijing.

Workers are angry at being deprived of the "iron rice bowl"--China's promise of lifetime employment. In the northeastern Rust Belt city of Liaoyang, where thousands of people last winter protested over unpaid pensions and corrupt local officials, industrial workers once again took to the streets during the week-long Congress.

Party leaders have no option but to turn to private enterprise. The key to reducing unemployment lies in the "promotion of the nonstate sector," says Zeng Peiyan, Minister of the State Development Planning Commission. Now, the government is pushing reforms to strengthen property rights and improve credit access for private companies.

But creating jobs isn't enough. China also needs to match older workers weaned on the state system with newly created positions--no small task. "The private-sector jobs go to those under 35, not those laid off from the state sector," says Anita Chan, a research fellow at the Contemporary China Centre at Australian National University in Canberra. What's more, China's social safety net is full of holes. Only about 15% of the jobless receive unemployment insurance. This is one challenge China's post-Congress leadership is going to have to meet head-on.

By Dexter Roberts in Beijing

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