With China's urban unemployment rate approaching 10 per cent, warning bells are prompting authorities to initiate measures to bring the situation under control, but their efforts may be too little too late, writes RUBY ZHU

Officially, China's urban unemployment rate for 2001 stood at 3.6 per cent. While the figure suggests that China's unemployment number is manageable, it fails to reflect the real unemployment situation in the Mainland.

The Economic Restructuring Office of the State Council estimates that the actual urban unemployment rate is more likely around the 7 per cent mark. Add to that the 150 million surplus workers in rural areas, plus the redundant and soon-to-be-laid-off workers, and 10 per cent would be a more accurate figure.

Between 1998 and 2001, state-owned enterprises laid off 25.5 million workers, of which 16.8 million have been re-employed. China currently has 17.5 million workers that have been laid off from state-owned enterprises, and the total number of unemployed workers is expected to rise to 20 million by the end of this year.

The restructuring of state-owned enterprises is causing China's unemployment to climb. The People's Daily recently reported that about 3,000 large and medium-sized state-owned enterprises will be bankrupt within two to three years' time.

China President Jiang Zemin, at a national re-employment conference convened in September this year, stressed the importance and urgency of re-employing laid-off workers.

Much hope is being placed on China's service sector, which has the potential to re-employ many of these laid-off workers. The sector hired 77.4 million workers between 1991 and 2000, among which 72.4 million were new employees. Most of these positions were from the labour-intensive trading, catering and community services sectors.

The service sector also ranks first in terms of investment to employment ratio. For every 1 million renminbi invested in the sector, 1,000 additional jobs are created, compared to only 550 for manufacturing. Although China's manufacturing sector is enjoying strong growth and is still a big employer, it is trying to move up the value chain by moving from labour-intensive manufacturing processes to capital- and skill-intensive ones.

Private enterprises are also expected to do their bit in creating employment opportunities. Among workers laid off by state-owned enterprises, 68 per cent have found employment with private enterprises. The sector currently employs 42 per cent of the urban workforce. Foreign enterprises also present employment opportunities for local workers, but their stringent requirements usually make laid-off workers shy away from applying for the jobs.

Economists believe that China's WTO entry will create 2-3 million new jobs in the country over the next five to ten years. In the meantime, structural adjustments and changes that have arisen from WTO entry will result in the loss of far more jobs than it will create.

An estimated 8 million additional jobs will be created every year if China is able to maintain its current economic growth rate. This clearly cannot ease its unemployment pressure, and as such, government policies, such as increased investment in infrastructure projects, will play an important role in keeping down unemployment.

The government is also organising a variety of free re-training courses for the unemployed to increase their employability. A series of incentives targeted at the service sector and private enterprises will also soon be launched to encourage them to employ more workers. These include:

• Providing tax breaks, as well as preferential loan arrangements to redundant workers setting up their own business;

• Offering tax concessions to enterprises absorbing a certain number of laid-off workers, and reducing or wavering social insurance premiums;

• Granting financial aid to enterprises employing laid-off men over 50 years old and women over 40 years old.

These measures are expected to create some relief, but the whole unemployment issue should have been given more attention earlier, instead of always focusing on the country's economic growth rate.

Burdened by a huge deficit, the government can no longer simply allocate more money to infrastructure projects to ease unemployment. In fact, urbanisation of villages has drawn rural workers to move to towns to find jobs, which has actually exacerbated the problem. Given these problems, the government needs time to show that its policies can be effective.

Re-employment, like other social problems in China such as the widening gap between the rich and the poor, is a natural obstacle that the country must overcome as it undergoes economic reform. The extent to which this issue can be tackled properly will reflect on the success of its economic reform. If handled improperly, serious unemployment might trigger social unrest and upset the pace of economic growth.