VIII Labor Market Performance and Prospects
Author: Mr. Ray Brooks1
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund

Abstract

China’s labor market has undergone significant changes in the past twenty years. A more market-oriented labor market has emerged with the growing importance of the urban private sector, as state-owned enterprises (SOEs) are being downsized. At the same time, rural employment growth has slowed, and migrants have sought jobs in the dynamic coastal provinces. Overall employment growth has averaged just 1 percent since 1990, led mostly by urban job growth. Urban registered unemployment has risen in recent years to more than 4 percent, but alternative measures show a higher unemployment rate of 5 percent. In addition, a sizable surplus of labor still exists in the rural sector (about 150 million) and SOEs (about 10–11 million).

China’s labor market has undergone significant changes in the past twenty years. A more market-oriented labor market has emerged with the growing importance of the urban private sector, as state-owned enterprises (SOEs) are being downsized. At the same time, rural employment growth has slowed, and migrants have sought jobs in the dynamic coastal provinces. Overall employment growth has averaged just 1 percent since 1990, led mostly by urban job growth. Urban registered unemployment has risen in recent years to more than 4 percent, but alternative measures show a higher unemployment rate of 5 percent. In addition, a sizable surplus of labor still exists in the rural sector (about 150 million) and SOEs (about 10–11 million).

The main challenge facing China’s labor market in the coming years will be to absorb the surplus labor into quality jobs while adjusting to World Trade Organization (WTO) accession. The analysis in this section suggests that, even if GDP growth averages 7 percent and the elasticity of nonagricultural employment growth to output growth is one-half (in line with historical experience), the unemployment rate could nonetheless double over the next three to four years to about 10 percent, before declining as SOE reform is completed. These pressures would be limited by stronger economic growth, especially in the private sector and the more labor-intensive service industries, which have generated the most jobs in recent years.

Against this background, this section first reviews the main trends in the Chinese labor market before outlining the progress on reforms. It then presents an analysis of the medium-term outlook for employment and unemployment, and discusses the main challenges that lie ahead.

Trends in China’s Labor Market

China’s population remains predominantly rural, despite a strong trend toward urbanization. Over 60 percent of the population was classified as rural by the 2000 census, compared with 80 percent two decades ago (Table 8.1).1 While population growth slowed in the 1990s to average just under 1 percent a year, the labor force grew somewhat faster (about 1½ percent a year), owing to a rise in the working-age population. The labor force participation rate also rose to about 83 percent by the late 1990s. This is high by international standards because of the large proportion of rural workers in the labor force (two-thirds) and their very high participation rate.

Table 8.1.

Population, Labor Force, and Employment

(In millions, at end of year)

article image
Sources: China Statistical Yearbook; CEIC database; and author’s estimates.

From the labor force survey, defined as economically active persons 16 years and older, working either one hour or more in the reference week or looking for work.

Labor force as percent of working age population. Data for the working age population defined consistently with the labor force (16 years and older) are not available.

From the labor force survey, defined as those working for one hour or more in the reference week.

Defined as difference between labor force and employment.

Those xiagang remaining attached to remployment centers, at the end of the year.

Calculated as percent of the urban labor force.

Job growth since 1990 has taken place mainly in the urban areas. Overall job growth averaged just 1 percent since 1990, while jobs in urban areas increased at an average rate of 3 percent a year (or 6½ million a year) over the same period. Job growth in urban areas was achieved despite layoffs at SOEs equivalent to more than 10 percent of the urban labor force (Figure 8.1 and Table 8.2).2,3 Employment in collectives also declined sharply from 1995 onward. The job losses at SOEs and collectives were more than offset by (1) job growth in the private sector (including foreign-funded enterprises), which created 25 million jobs during the period 1995–2002, and (2) an unexplained increase of 80 million jobs over the same period. The latter appears to be attributable in part to an increase in jobs in the informal sector (such as street vending, construction, and household services), which are not well covered by the establishment survey of the National Bureau of Statistics (NBS).4

Figure 8.1.
Figure 8.1.

Employment and GDP

Source: CEIC database.
Table 8.2.

Employment by Enterprise Ownership

article image
Sources: China Statistical Yearbook; CEIC database; and author’s estimates.

September 2003.

Jointly owned, limited corporations, and shareholding units.

Includes Hong Kong SAR, Macao SAR, and Taiwan Province of China funded.

The residual is the difference between the aggregate employment figure from the household survey and the detail by ownership from the establishment survey (which excludes much of the private sector).

Most of the job growth in the past five to six years appears to have taken place in the service sector and in the coastal provinces. The pace of job creation was much faster in the tertiary sector than in other sectors (Table 8.3), and was concentrated in the coastal provinces (especially Fujian, Guangdong, Shandong, and Zhejiang). In those provinces, the private sector (and foreign direct investment) has flourished since the government opened up special economic zones in the early 1980s. The development of the private sector was also helped by sound macroeconomic and structural policies that helped maintain strong economic growth (see Tseng and Rodlauer, 2003) and specific steps taken to foster the nonstate sector. These steps included formally elevating the private sector’s role to parity with the state sector (in a 1999 amendment to the Constitution), continued external and domestic liberalization, and improved access to credit.

Table 8.3.

Employment by Industry

article image
Sources: China Statistical Yearbook; and CEIC database.

The residual is the difference between the aggregate employment figure from the household survey and the detail by industry from the establishment survey (which excludes much of the private sector).

Urban registered unemployment has risen since the mid-1990s owing to job losses in the state sector. The registered unemployment rate, as measured by the Ministry of Labor and Social Services (MOLSS), was relatively constant at around 2½-3 percent in the 1990s, but rose to 4 percent by 2002.5

Alternative measures show higher unemployment rates in recent years. Taking account of xiagang (laid-off workers), the total for registered unemployed and xiagang reached 5⅓ percent of the urban labor force by the end of 2002.6 However, survey evidence suggests that a significant proportion of xiagang should not be classified as unemployed according to International Labor Organization (ILO) guidelines, as they work more than one hour a week in informal jobs.7 Although informal sector workers may want higher-quality jobs in the formal sector or may want to work longer hours, they are not strictly considered as unemployed following ILO guidelines. Instead, they are considered to be underemployed.

In October 2002, the National Bureau of Statistics Commissioner stated that new estimates by the NBS suggested an urban unemployment rate (measured consistent with ILO guidelines) of about 4–5 percent of the labor force. The true level of unemployment, however, remains uncertain as it is not possible to accurately calculate the scale of the layoffs at state firms or of urban unemployment given the poor quality of the data (Solinger, 2002).

Urban unemployment varies considerably by region, with the highest rates in the northeastern provinces (see Brooks and Ran, 2003, for detailed data). At the end of 2002, the registered unemployment rate ranged from a low of 1.4 percent in Beijing to a high of 6.5 percent in the northeastern province of Heilongjiang. The regional variation is even greater for unemployment, including xiagang, with the northeastern region (or China’s “rust-belt” concentration of SOEs in declining industries) facing the largest unemployment pressures with a rate of almost 8 percent by the end of 2002—one and a half times the national average.

Rural employment growth was rapid in the late 1980s and early 1990s, as town and village enterprises (TVEs) evolved quickly to meet a pent-up demand for consumer goods and take advantage of a pool of cheap rural labor. By the mid-1990s, however, TVEs began to face financial problems brought on by poor management and growing competition from the private sector, and employment in these enterprises has declined slightly from a peak of 135 million in 1996. Most rural workers, however, are employed on farms. Growth of farm employment also rose sharply in the 1980s, putting added pressure on already small farm sizes, before declining by 20 million since 1990 as rural-to-urban migration picked up. Migrants have tended to move first to TVEs in rural areas, then further afield to the faster-growing eastern provinces (Cai, Dewen, and Yang, 2001). Migrants have been attracted to the Pearl River Delta (Guangdong) and Yangtze River Delta (Shanghai and Jiangsu) in particular, where job growth and incomes are relatively high (with GDP per capita 4 to 10 times that in poorer rural provinces such as Gansu and Guizhou). Estimates of the migrant population vary, ranging between 80 million and 150 million.8

The level of urban unemployment in China is similar to that of other countries in the region, but rural underemployment appears to be higher. Unemployment rates in most other Asian countries rose to about 3–6 percent following the 1997–98 financial crisis, similar to China’s urban registered rate of 4 percent (excluding xiagang). In the rural sector, however, the low productivity of China’s farmers compared with those in other Asian countries suggests a higher level of underemployment than elsewhere in Asia (Table 8.4).

Table 8.4.

Selected Asian Economies: Labor Productivity, 20001

article image
Sources: CEIC database; and author’s estimates.

Defined as value added divided by the number of employees.

Labor Market Reforms

Progress on Reforms

The labor market has undergone significant changes since the opening up of the economy in the late 1970s. The prereform labor market was characterized by direct allocation of jobs and administrative control of wages. Employers had very little control over their workforce or the wage bill, and employees had little say in where they worked. China has gradually moved toward marketization of the labor market, particularly in the nonstate sector, including greater flexibility in hiring and firing of labor (Box 8.1).

Following the initiation of reforms in the early 1980s, a “dual-track transition” of the labor market took place with the development of the state sector. Employment in foreign-funded enterprises (FFEs) and collectives rose rapidly in the 1980s due to labor market reforms and the opening of the economy to private and foreign investors. SOE employment also increased in the 1980s and early 1990s but at a more moderate pace.

As SOE reform gained pace in the late 1990s, about 24 million SOE and collective employees were laid off in 1998–2002 as part of a reemployment program (xiagang) that provided laid-off workers with a safety net. Such employees could enter reemployment centers (RECs) where they could stay until they found a job or for up to three years. As long as they stayed in the REC they remained officially employed by the SOE, but received a lower monthly benefit then their previous wage.9 Although most of the xiagang are middle-aged workers with few skills and poor education, more than two-thirds were reported to have found jobs, while others have retired. The number of xiagang remaining in RECs has declined from a peak of about 9½ million at end-1999 to about 6.2 million by end-2002, as workers have found jobs, transferred to the registered unemployed, or dropped out of the workforce.

During the central planning period, control on population movement was achieved through a combination of household registration requirements (hukou), rural commune controls, and food rationing. The elimination of communes and the emergence of a free market for grain and essential food items in the 1980s reduced obstacles to rural-urban migration. Hukou reforms were initiated in the 1990s, but more significant steps were only taken in 2003 (Box 8.2). However, other barriers to internal migration still exist, such as fees and charges on rural migrants, a prohibition on rural migrants working in certain sectors, and uncertainties about the portability of pensions and health insurance across regions.

Steps Toward Labor Market Flexibility

In 1980, China’s first national work conference on labor market issues adopted a strategy for fostering a more flexible labor market. Urban job seekers were allowed to find work in the state, collective, or newly recognized private sectors, and enterprises were granted more autonomy in hiring decisions. The authorities, however, continued to formulate a labor plan, but instead of unilaterally allocating workers to enterprises, labor bureaus began to match job seekers with work units that wanted additional labor.

Wage flexibility has been increased gradually. From 1978, firms were allowed to reinstitute bonuses (subject to ceilings) and piece wages. In 1994, the introduction of a new Labor Law also gave management more discretion over wage determination. As a result of these reforms, the share of bonuses in total wages for all enterprises rose from 2 percent of the wage bill at the start of the reforms in 1978 to about 16 percent in 1997.

A labor contracting system was introduced in the mid-1980s. This signaled a marked shift away from the system of lifetime tenures with its potentially distorted work incentives. The initial steps were modest and resulted in only moderate growth in the share of employees under contract, but further reforms in 1994 gave new impetus to labor contracting. As a result, the share of workers on contracts almost doubled between 1994 and 1997, to about one-third of urban workers. Restrictions on movements of workers across firms were also removed, in an attempt to reduce the scale of the mismatch of labor inherent in the pre-reform system.

SOEs gained the right to lay off permanent workers. Those employees without contracts had lifetime tenure with SOEs, but in the mid-1990s, this presumption of tenure was eroded. SOEs, however, were required to established so-called reemployment centers (RECs) for laid-off workers (xiagang), which provide retraining and job search assistance and pay unemployment benefits. If the laid-off worker remained unemployed for more than three years, the employer could sever the relationship. From 2002, newly laid-off workers receive only unemployment benefits, and the RECs will be phased out by 2004.

Remaining Challenges

Despite the considerable progress made on reforms in the past two decades, surplus labor remains in SOEs and on farms. Labor productivity of SOEs still lags behind the nonstate sector, suggesting that, if SOE labor productivity could be raised to nonstate levels, about 10–11 million SOE workers could be considered redundant (Table 8.5).10

Table 8.5.

Industrial Employment and Output

article image
Sources: China Industrial Statistical Yearbook; and author’s estimates.

Hukou Reform

The household registration (hukou) system was set up in the mid-1950s to control the movement of the population and effectively constrained the development of a national labor market. An urban hukou was needed to stay in cities and gain preferential access to city services such as education, health, and social security. Moreover, urban enterprises were restricted from recruiting labor from another province unless labor could not be found locally.

Since the mid-1990s, reforms to the hukou system have been initiated. In 1997, the authorities experimented with relaxation of household registration regulations in some small towns and cities, allowing migrants who had either a stable income (from a job or business) or owned a house to obtain an “urban hukou.” These reforms, however, were not very far-reaching, and, by end-2000, only 540,000 people had applied for a hukou in small towns and cities.

The reform gained momentum in 2001. Since October 2001, a person with stable work and a residence should be able to obtain a hukou in more than 20,000 small towns and cities, while retaining land use rights in the countryside. In addition, the State Planning Commission stipulated that charges levied by localities on migrants, such as “temporary residence fees” and “birth control fees,” must be removed by early 2002. These charges could amount to several hundred renminbi, a sizable portion of migrant earnings. Guangdong province led the way by abolishing the division between agricultural and nonagricultural categories of hukou. A further loosening of the hukou system was announced in August 2003 by the Ministry of Public Security to encourage the movement of labor to less-developed regions. Professionals who work in small towns or rural areas or who migrate to invest or work in undeveloped western regions may retain their original urban household registration.

While the new reforms are a significant step toward establishing a national labor market, a number of barriers remain. First, a hukou in small towns and cities is not as attractive to rural migrants as a hukou in large and medium-sized cities (that provide better services), where reforms have not been as far reaching. Second, the ownership of a residence is a demanding condition for most rural migrants to meet, given their relatively low income. Third, access to social services, such as education, welfare, and pensions, remains a problem for migrants as they are generally required to return to their place of permanent residence to receive these services, or face sizable fees for services in their adopted home city. Fourth, localities will likely resist removing fees applied to migrants, given the potential loss of revenue. Fifth, those who obtain an urban hukou can give birth to only one child, while in many rural areas, two children are permitted.

A large labor surplus also persists on the farms, despite the already sizable flow of migrants from the farms to the cities. The Organization for Economic Cooperation and Development (OECD, 2002b) estimates that, if the average GDP contribution per worker in nonagricultural jobs is used as a benchmark, rural hidden unemployment can be estimated to represent around 275 million (where hidden unemployment is defined as low-productive employment regardless of working time). If the benchmark is set more modestly at one-third of the productivity of nonagricultural workers (in line with other Asian countries), rural hidden unemployment would be around 150 million.

Labor market pressures are also coming from accession to WTO. Li and Zhai (1999) estimate that gross job losses as a result of WTO accession could amount to about 14½ million, comprising 13 million workers in rural areas and 1½ million in urban areas (mainly in the automobile and machinery industries). On the other hand, the textile and clothing industry, in particular, will get a boost from 2005 onward with the elimination of quotas, and its strong cost competitiveness may lead to a sizable increase in China’s world market share (see Martin and others, 1999). Job growth, therefore, could be enhanced by facilitating a shift of resources from less competitive capital-intensive industries, such as transport and heavy machinery, toward more labor-intensive sectors, such as textiles and clothing, and services.11

The relatively low skill levels of rural labor and the urban unemployed make it more difficult for them to find quality jobs. Illiteracy rates are much higher among the rural population, with relatively few rural residents having completed secondary school or college.12 Skill levels are also low in the northeastern provinces of Heilongjiang, Jilin, and Liaoning where there is a higher-than-average concentration of unemployed and xiagang. In these provinces, only about one in five people have education beyond junior-middle school.

The authorities are moving to improve training and education of the largely unskilled xiagang and migrants. The World Bank (2001) notes that a variety of government programs have increased the poor’s access to education in the 1990s, including an effort to achieve nine-year universal basic education by 2010. However, funding is inadequate in many poorer regions.

Given the pressures on the labor market, the government has been strengthening the social safety net outside of RECs for urban workers. An unemployment insurance fund has been established, separate from the RECs, and now covers more than 100 million urban workers (about 40 percent of the urban workforce). It is a defined-benefit system funded by mandatory contributions from employers (2 percent of payroll) and employees (1 percent of salary), with benefits lasting 12–24 months.13 However, actual contribution rates vary depending on the local unemployment situation, which has amplified regional disparities as firms and workers in areas with weaker economic growth have to contribute more. National pooling of the unemployment fund would help reduce such disparities. Minimum wage legislation was also introduced with the new Labor Law in 1993. Minimum wage standards have been established in all provinces, but the government has faced difficulties in enforcing compliance, especially for migrant workers.

Some Illustrative Projections

Looking ahead, the capacity of the labor market to absorb the 160 million or so surplus workers in the rural and SOE sectors can be assessed by analyzing a range of projections for labor supply and demand. Econometric estimates based on provincial level data suggest that a 1 percent increase in GDP is correlated with a 0.4 percent increase in nonagricultural employment in the past two decades (Table 8.6).14 The elasticity appears to be somewhat higher in the eastern provinces (about 0.43), where there is a greater concentration of private sector firms. The elasticity was lower in the late 1990s (about 0.3), as SOEs moved to cut labor and lift productivity.

Table 8.6.

Estimates of Elasticity of Nonagricultural Employment Growth to Output Growth1

(Dependent variable: Δ log (provincial employment)

article image
Sources: Author’s estimates.

A panel regression was undertaken, including provincial dummies and time dummies to control for unobservable effects, using the following specification (with absolute t-statistics in parentheses):

Δ log (Employmentit) = α Δ log (GDPit) + β Δ log (wagesit) + province dummies + time dummies + εit, where Employmentit is total employment in nonagricultural sectors of the province i in year t; GDP is nonagricultural GDP (deflated by the GDP deflator) of province i in year t; wages is the nominal wage index deflated by the CPI of the province in year t, and Δ is the first difference operator.

Specifically, a central scenario assumes the following:

  • (1) The working age population grows by 11–12 million annually through 2006, before slowing thereafter, based on projections by Wang (2001).

  • (2) The labor force participation rate stays at the 2002 level of 83 percent.

  • (3) All new entrants to the labor force seek jobs in the nonagricultural sector.

  • (4) Nonagricultural GDP grows by 7½ percent annually through 2010 (implying overall GDP growth of about 7 percent).

  • (5) The elasticity of employment growth to output growth is 0.45 percent.

  • (6) The impact of wage growth on employment is relatively minor.

Projections for the central scenario of nonagricultural growth of 7½ percent suggest that unemployment could rise in the coming years (Table 8.7). New job growth is projected at about 12–13 million annually in 2004–2006, before taking account of future SOE downsizing. This is somewhat higher than the 8 million average annual increase in 1995–2002, which was held down by SOE job losses. Most of the new jobs are assumed to be taken by new entrants to the labor force (9–10 million annually). This implies that the labor market can absorb about 3–4 million surplus rural and SOE workers annually in 2004–2006, without increasing the explicit urban unemployment rate. However, if most of the SOE downsizing takes place in the next three years, and about 6 million rural migrants15 move to urban areas annually, the unemployment rate (survey based) could more than double to a peak of over 10 percent by 2005. The unemployment rate would then decline to below 10 percent by 2010, as the natural increase in the labor force slows and SOE downsizing is completed.

Table 8.7.

Labor Force and Employment Projections1

(In millions)

article image
Sources: Author’s estimates.

Assuming 7 percent GDP growth, 7½ percent nonagricultural GDP growth, and 0.45 employment elasticity.

End-2002 employment is reduced by 11 million to take account of remaining redundant SOE workers.

Defined as surplus labor seeking jobs less new jobs less increase in labor force.

The urban unemployment rate for 2002 is based on the survey data referred to by the NBS Commissioner in October 2002.

Using more optimistic assumptions of 8½ percent nonagricultural growth and an employment elasticity of 0.6 (assuming growth is led by the labor-intensive service sector) implies that the nonagricultural economy could absorb over 90 million surplus workers in 2004–10, more than half of the rural and SOE labor surplus (Table 8.8). A more pessimistic scenario of 6½ percent nonagricultural growth and an employment elasticity of 0.30 (assuming that growth is led by capital-intensive sectors) suggests that labor force growth would outstrip job growth in 2004–10 by 7 million, putting considerable upward pressure on unemployment. The unemployment projection also depends crucially on the assumption about migration, with rural migrants unlikely to come to urban areas unless jobs are available. Therefore, the urban unemployment rate may not rise significantly if migrants remain on the farms as part of the surplus rural labor.

Table 8.8.

Projections of Jobs for Migrants and Laid-Off Workers from SOEs1

article image
Source: Author’s estimates.

Defined as new jobs less the increase in the labor force due to growth in the working age population.

For the nonagricultural sector. Roughly equivalent to 6, 7, and 8 percent, respectively, for overall GDP growth.

These projections are of course only illustrative and are subject to a wide range of uncertainty. Nevertheless, they indicate the magnitude of the challenges that lie ahead in absorbing unemployed and underemployed persons into the workforce.

The Road Ahead

The labor market has become more market oriented over the past twenty years, and the main challenge now is to create quality jobs for the new entrants to the labor force as well as absorb the sizable labor surplus in the SOE and rural sectors. To address the labor market pressures, government policies have begun to focus on encouraging job growth in the private sector (especially in the service sector), which has been the main source of job growth in recent years. Indeed, the third plenum of the Sixteenth Congress of the Communist Party in late 2003 stressed the need to support private sector development to create employment. Removing the numerous hurdles to growth that are still faced by private firms is therefore a crucial priority for fostering job creation.

The government is also considering a further liberalization of the hukou system of residency permits, which would be needed to allow surplus rural workers to move to the cities and allow unemployed and xiagang in low-job-growth regions to relocate to higher-growth regions. This reform would also help to address the widening gap between urban and rural incomes. Other challenges that remain to improve the functioning of the labor market include enhancing worker skills, providing easier access to information on job opportunities and fostering the establishment of private employment agencies, and strengthening the unemployment insurance scheme and other social safety nets to help protect vulnerable groups.

1

In part, the change reflects reclassification of some rural areas as urban.

2

In the period 1998–2002, SOE employment was reduced by more than half to about 35 million. Some of these jobs were not lost, however, but simply reclassified as joint ownership firms for SOEs that were reorganized into shareholding units or formed partnerships with other entities. Separate data show layoffs of 24 million from SOEs and collectives during 1998–2002.

3

Young (2000b) points out that employment numbers are not strictly comparable over time, particularly given that the 1990 census had a wider definition of employment than the old labor force survey. This resulted in a sharp jump in employment in 1990.

4

In general, limitations in the labor market statistics make analysis of these data difficult. The aggregate labor market data are derived from the NBS labor force sample survey of almost 1 million persons, benchmarked to the 1990 and 2000 population censuses. The detail by industry sector is based on a separate establishment survey that covers 2 million work units but excludes much of the private sector—hence, there is a large difference between aggregate employment and the sum of the parts, resulting in a sizable residual. See China’s submission to the IMF’s General Data Dissemination System at http://dsbb.imf.org for a description of the labor market data.

5

The MOLSS measures unemployed persons as those in the age group from 16 to the age of retirement who are looking for work, have nonagricultural residence card (urban hukou), are able to work, want to work, and have registered in the local labor exchanges for work.

6

Xiagang refers to workers laid off from SOEs who remain registered with reemployment centers.

7

Zhao (2001) presents evidence of hidden reemployment from a 1999 survey of 6,500 xiagang and showed that about 60 percent of those still registered as laid-off workers were employed in the informal sector.

8

The National Bureau of Statistics estimates there were about 80 million permanent migrants (i.e., those living in urban areas for more than six months) between 1990 and 2000. No reliable data are available for the number of temporary migrants, with estimates in the range of 30–120 million.

9

In 2002, average payments to xiagang were around 35–40 percent of the average earnings for workers in the manufacturing sector.

10

In 2001, labor productivity of SOEs in the industrial sector was only 71 percent of nonstate enterprises, suggesting that (from a partial equilibrium perspective), if SOE labor productivity matched that of non-SOEs, almost one-third of the 15½ million SOE workers in this sector could be redundant. Given that a further 22 million SOE workers are employed outside the industrial sector, this implies a total SOE labor surplus of about 10–11 million. Labor productivity in foreign-funded enterprises is almost twice that of SOEs, suggesting that, if this higher benchmark were used, almost half the SOE workers (or 18 million) could be considered redundant.

11

For example, if output of the textile and clothing industry increased by 50 percent while automobile and ordinary machinery output fell by 50 percent, the net increase in jobs would be about 1 million due to the labor intensive nature of the textile and clothing industry (assuming no changes in labor productivity in either sector; both sectors had a similar level of output in 2000).

12

Illiteracy exceeded 15 percent of the population (aged 15 and above) in six predominantly rural western provinces (Guizhou, Gansu, Ningxia, Qinghai, Tibet, and Yunan) in 2000 but was less than 5 percent in many of the more urbanized eastern provinces. In the same western provinces, the proportion of the population (aged 6 and above) with education beyond junior-middle school was less than 15 percent, while in the eastern provinces of Beijing, Tianjing, and Shanghai it was much higher, in the range of 30–40 percent.

13

Twelve months for those who contributed 1–5 years, 18 months for those who contributed 5–10 years, and 24 months for those who contributed more than 10 years.

14

Panel regressions were estimated for nonagricultural employment growth data by province over the period 1978–2000. The equations (estimated in double-log form) specify provincial nonagricultural employment as a function of output growth, real wage growth, and provincial and time dummies. The provincial data are subject to large measurement errors owing to statistical weaknesses in the provincial GDP and employment data. See Brooks and Ran (2003) for more details on the data and estimation.

15

About three-quarters of the annual rate indicated in the Tenth Five-Year plan, which targeted the transfer of 40 million rural labor force into urban areas over the period 2001–2005.

Cited By

  • Adhikari, Ramesh, and Yongzheng Yang, 2002, “What Will WTO Membership Mean for China and Its Trading Partners?Finance and Development, Vol. 39, No. 3, September, pp. 2225.

    • Search Google Scholar
    • Export Citation
  • Ahmad, Ehtisham, 1997, “China,” in Fiscal Federalism in Theory and Practice, ed. Teresa Ter-Minassian (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Ahmad, Ehtisham, Li Keping, Thomas Richardson, and Raju Singh, 2002, “Recentralization in China?IMF Working Paper No. 02/168 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Ahmad, Ehtisham, Mario Fortuna, and Raju Singh, 2004, “Towards More Effective Redistribution: Reform Options for Intergovernmental Transfers in ChinaIMF Working Paper, forthcoming (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Ahmed, Shaghil, 2003, “Sources of Economic Fluctuations in Latin America and Implications for Choice of Exchange Rate Regimes,” Journal of Development Economics, Vol. 72, No. 1 (October), pp. 181202.

    • Search Google Scholar
    • Export Citation
  • Alberola, Enrique, Susana G. Cervero, J. Humberto Lopez, and Angel Ubide, 1999, “Global Equilibrium Exchange Rates—Euro, Dollar, ‘Ins,’ ‘Outs,’ and Other Major Currencies in a Panel Cointegration Framework,” IMF Working Paper No. 99/175 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Balassa, Bela, 1964, “The Purchasing Power Parity Doctrine: A Reappraisal,” Journal of Political Economy, Vol. 72 (December), pp. 58496.

    • Search Google Scholar
    • Export Citation
  • Banker, 2003, “Top 1000 World Banks,” Vol. 153, Issue 929 (July), p. 143.

  • Bayoumi, Tamim, Hamid Faruqee, and Jaewoo Lee, 2003, “A Fair Exchange? Theory and Practice of Calculating Underlying Exchange Rate Trends” (unpublished; Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Bell, Michael W. Hoe Ee Khor, and Kalpana Kochhar, 1993, China at the Threshold of a Market Economy, IMF Occasional Paper No. 107 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Blanchard, Olivier, and Danny Quah, 1989, “The Dynamic Effects of Aggregate Demand and Supply Disturbances,” American Economic Review, Vol. 79 (September), pp. 65573.

    • Search Google Scholar
    • Export Citation
  • Blanchard, Olivier, and Shleifer, Andrei 2001, “Federalism With and Without Political Centralization: China Versus Russia,” IMF Staff Papers, Vol. 48 (Special Issue), pp. 17179.

    • Search Google Scholar
    • Export Citation
  • Borda, Patrice, Olivier Manioc, and Jean Gabriel Montauban, 2000, “The Contribution of U.S. Monetary Policy to Caribbean Business Cycles,” Social and Economic Studies, Vol. 49 (Special Issue), June/September, pp. 22550.

    • Search Google Scholar
    • Export Citation
  • Bottelier, Pieter, 2002, “Implications of WTO Membership for China’s State-Owned Banks and the Management of Public Finances: Issues and Strategies,” paper presented at the Annual Meetings of the Asian Development Bank, Shanghai.

    • Search Google Scholar
    • Export Citation
  • Brooks, Ray, and Ran Tao, 2003, “China’s Labor Market Performance and Challenges,” IMF Working Paper No. 03/210 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Cai, F. W. Dewen and D. Yang, 2001Labor Market Distortions and Economic Growth: Examining Institutional Components of Regional Disparity in China,” Working Paper No. 10 (Beijing: Center for Human Resource Studies, Chinese Academy of Social Sciences).

    • Search Google Scholar
    • Export Citation
  • Chadha, Bankim, and Eswar Prasad, 1997, “Real Exchange Rate Fluctuations and the Business Cycle: Evidence from Japan,” IMF Staff Papers, Vol. 44, No. 3 (September), pp. 32855.

    • Search Google Scholar
    • Export Citation
  • Chen, Show-Lin, and Jyh-Lin Wu, 1997, “Sources of Real Exchange Rate Fluctuations: Empirical Evidence from Four Pacific Basin Countries,” Southern Economic Journal, Vol. 63 (January), pp. 77687.

    • Search Google Scholar
    • Export Citation
  • China Finance Yearbook, various issues.

  • China Industrial Statistical Year Book, various years.

  • China Statistical Year Book, various years.

  • Chinn, Menzie, and Eswar S. Prasad, 2003, “Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration,” Journal of International Economics, Vol. 59, No. 1 (January), pp. 4776.

    • Search Google Scholar
    • Export Citation
  • Chou, W.L and Y.C. Shih, 1998, “The Equilibrium Exchange Rate of the Chinese Renminbi,” Journal of Comparative Economics, Vol. 26 (March), pp. 16574.

    • Search Google Scholar
    • Export Citation
  • Clarida, Richard, and Jordi Gali, 1994, “Sources of Real Exchange Rate Fluctuations: How Important Are Nominal Shocks?NBER Working Paper No. 4658 (Cambridge, Massachusetts: National Bureau of Economic Research).

    • Search Google Scholar
    • Export Citation
  • Daniel, James, Tom Richardson, Raju Jan Singh, and George Tsibouris, 2003, “Medium-Term Fiscal Issues,” in China: Competing in the Global Economy—Policies for Sustained Growth and Financial Stability, ed. Tseng Wanda Markus Rodlauer (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Dibooglu, Selahattin, and Ali M. Kutan, 2001, “Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary,” Journal of Comparative Economics, Vol. 29, No. 2 (June), pp. 25775.

    • Search Google Scholar
    • Export Citation
  • Dorfman, Mark, and Yee Mun Sin, 2001, “China: Social Security Reform—Strategic Options” (unpublished; Washington: World Bank).

  • Findlay, Christopher, Harry X. Wu, and Andrew Watson, 1995, “Fiscal Decentralisation, Regionalism and Uneven Development in China,” Chinese Economy Research Unit Working Paper No. 95/5 (Adelaide, Australia: University of Adelaide).

    • Search Google Scholar
    • Export Citation
  • Funke, Michael, and Jörg Rahn, 2004, “By How Much Is the Chinese Renminbi Undervalued?” (unpublished; Hamburg: Hamburg University).

    • Search Google Scholar
    • Export Citation
  • Hertel, Thomas, and Terrie Walmsley, 2000, “China’s Accession to the WTO: Timing Is Everything” (West Lafayette, Indiana: Center for Global Trade Analysis, Purdue University).

    • Search Google Scholar
    • Export Citation
  • Hoffmaister, Alexander W. and Jorge E. Roldós, 2001, “The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea,” Journal of Macroeconomics, Vol. 23, No. 2 (Spring), pp. 21339.

    • Search Google Scholar
    • Export Citation
  • Ianchovichina, Elena, and Will Martin, 2003, “Economic Impacts of China’s Accession to the World Trade Organization,” Policy Research Working Paper No. 3053 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • Isard, Peter, and Hamid Faruqee, eds. 1998, Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, IMF Occasional Paper No. 167 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Isard, Peter, and Hamid Faruqee, Kincaid, G. Russell and Martin Fetherston, 2001, Methodology for Current Account and Exchange Rate Assessments, IMF Occasional Paper No. 209 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Jin, Hehui, Yingyi Qian, and Barry Weingast, 2003a, “Federalism, Chinese Style I: Fiscal Incentives and Regional Development” (unpublished; Oakland, California: University of California, Berkeley).

    • Search Google Scholar
    • Export Citation
  • Jin, Hehui, Yingyi Qian, and Barry Weingast, 2003b, “Federalism, Chinese Style II: Economic Decentralization and Political Decentralization” (unpublished; Oakland, California: University of California, Berkeley).

    • Search Google Scholar
    • Export Citation
  • Karacadag, Cem, 2003, “Financial System Soundness and Reform,” in China: Competing in the Global Economy, ed. Tseng Wanda Markus Rodlauer (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Lane, Philip R. Gian Maria Milesi-Ferretti, 2000, “The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates,” IMF Working Paper No. 00/123 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Lardy, Nicolas R. 1998, China’s Unfinished Economic Revolution (Washington: Brookings Institution).

  • Lardy, Nicolas R. 2000, “Fiscal Sustainability: Between a Rock and a Hard Place,” China Economic Quarterly, pp. 3641.

  • Lardy, Nicolas R. 2002, Integrating China into the Global Economy (Washington: Brookings Institution).

  • Li, S. and F. Zhai, 1999, “China’s WTO Accession and Implications for National and Provincial Economies” (unpublished).

  • Martin, W. B. Dimaranan, and T. Hertel, 1999, “Trade Policies, Structural Changes and China’s Trade Growth” (unpublished).

  • Mattoo, Aaditya, 2002, “China’s Accession to the WTO: The Services Dimension,” World Bank Policy Research Working Paper No. 2932 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • Ministry of Finance, 2002, “Accounting Information Quality Assessment Report,” People’s Republic of China.

  • National Audit Office of the People’s Republic of China, 2002, Audit Report.

  • Nehru, Vikram, and others, 1997, China 2020—Development Challenges in the New Century (Washington: World Bank).

  • Organization for Economic Cooperation and Development (OECD), 2002a, Realizing the Benefits of China’s Trade and Investment Liberalization: The Domestic Economic Policy Challenges (Paris).

    • Search Google Scholar
    • Export Citation
  • Organization for Economic Cooperation and Development (OECD), 2002b, China in the World Economy: the Domestic Policy Challenges (Paris).

    • Search Google Scholar
    • Export Citation
  • Panitchpakdi, Supachai, and Mark L. Clifford, 2002, “China and the WTO: Changing China, Changing World Trade” (Singapore: John Wiley & Sons (Asia)).

    • Search Google Scholar
    • Export Citation
  • Prasad, Eswar, and Thomas Rumbaugh, 2003, “Beyond the Great Wall,” Finance and Development, Vol. 40, No. 4 (December), pp. 4649.

  • Qiang, Gao, and Barry Weingast, 1997, “Federalism as a Commitment to Preserving Market Incentives,” Journal of Economic Perspectives, Vol. 11 (Fall), pp. 8392.

    • Search Google Scholar
    • Export Citation
  • Rumbaugh, Thomas, and Nicolas Blancher, 2004, “China: International Trade and WTO Accession,” IMF Working Paper No. 04/36 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Solinger, Dorothy J. 2002, “Special Report: China’s Employment Mess,” China Economic Quarterly, No. 4.

  • Steinfeld, Edward S. 2000, Forging Reform in China (New York: Cambridge University Press).

  • Studwell, Joe, 2000, “On the Block: What Is the Family Silver Worth?China Economic Quarterly, No. 2.

  • Tenev, Stoyan, Chunlin Zhang, and Loup Brefort, 2002, Corporate Governance and Enterprise Reform in China: Building the Institutions of Modern Markets (Washington: World Bank and International Finance Corporation).

    • Search Google Scholar
    • Export Citation
  • Tseng, Wanda, Hoe Ee Khor, Kalpana Kochhar, Dubravko Mihaljek, and David Burton, 1994, Economic Reform in China: A New Phase, IMF Occasional Paper No. 114 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Tseng, Wanda, and Markus Rodlauer, eds. 2003, China: Competing in the Global Economy—Policies for Sustained Growth and Financial Stability (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • United States Trade Representative, 2002, Report to Congress on China’s WTO Compliance, December.

  • Wang, G. 2001, “Projections of China’s Population from 2001–10,” working paper presented at a conference on “China Labor Markets in Transition,” December.

    • Search Google Scholar
    • Export Citation
  • Wang, Tao, 2004, “China: Sources of Real Exchange Rate Fluctuations,” IMF Working Paper No. 04/18 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Wong, Christine P. ed. 1997, Financing Local Government in the People’s Republic of China (Hong Kong SAR; New York: Oxford University Press).

    • Search Google Scholar
    • Export Citation
  • World Bank, 2001, China: Overcoming Rural Poverty (Washington: World Bank).

  • World Bank, 2002, China—Provincial Expenditure Review, January (Washington: World Bank).

  • World Bank, 2003, China—Promoting Growth with Equity, Country Economic Memorandum, September (Washington: World Bank).

  • Yang, Yongzheng, 2003, “China’s Integration into the World Economy: Implications for Developing Countries,” IMF Working Paper No. 03/245 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Young, Alwyn, 2000a, “The Razor’s Edge: Distortions and Incremental Reform in the People’s Republic of China,” Quarterly Journal of Economics, Vol. 105, No. 4 (November), pp. 10911135.