# **III. China’s Employment Strategies After WTO Accession**

Faced with the serious employment problems compounded by its entry into the WTO, China has to take effective steps to deal with the challenges. On one hand, China must fully expand the development of the private sector, especially the small and medium enterprises, promote the service industries, and reform the overly burdened SOEs; on the other hand, it must establish a nation-wide social safety net, improve the labor market, and provide mass on-the-job training or reemployment and re-skilling trainings.

## **_III.1 Encouraging the Private Sector_**

China is now undertaking a dramatic transformation from a traditionally planned economy to a market-based economy. Although China’s economic growth has gained great success by first restructuring agriculture and then moving people out of agriculture and into industry, the traditional industrial enterprises such as state-owned enterprises (SOEs), township and village enterprises (TVEs) are losing steam. The number of workers in state-owned units 29 plunged from 112 million in 1995 to 71.6 million in 2002, and those in collective urban units from 32 million to 11.2 million, a decline of 32% and 65%, respectively. Most of the losses are from the SOEs or collective-owned enterprises, though the exact figures are hard to obtain. Meanwhile, the number of employees in the private enterprises (including enterprises fully registered as private plus some sort of shareholding and joint ownership companies—rose from 13 million to 42 million (more than tripled), and the those in foreign plus Hong Kong, Macao & Taiwan enterprises increased from 5.1 million to 6.7 million, or 31%. 30 The employment elasticity of the self-employed and private enterprises in general is considerably higher that that of enterprises of other ownerships. 31 The emergence of the domestic private sector is the most important result of the reform process in China and the domestic private sector is increasingly important in contributing to output and the creation of new jobs. The output of the private sector has grown an average of 71 percent per year since 1980, and non-state employment has risen an average of 41 percent per year. According to an IFC study, privately owned enterprises currently account for 33 percent of the Chinese gross domestic product, compared to the state-sector's 37 percent. However, including privately owned agribusiness brings the total to 51 percent; and with the contribution of collective enterprises, which are in various intermediate forms of non-state ownership, the total non-state contribution to China’s GDP amounts to some 62 percent. 32 As a result, the private sector has become the major source of reemployment or job creation. This point is demonstrated by the fact

> 29 According to the _China Statistic Yearbook_ , the “units” not only include state-owned enterprises (SOEs), but also the state-owned social services (public facilities, community and recreation services, etc.), education, public health, R&D institutions, and government/party agencies, etc.  The same concept applies to the “collective units”.

> 30 Based on data from _China Statistical Yearbook_ , 1999, 2002, China Statistical Press, Beijing.

> 31 Lu, Ming, et al., “Employment Restructuring during China’s Economic Transition”, _Monthly Labor Review_ , Vol. 125, No. 8, August 2002.

> 32 IFC: _China’s Emerging Private Enterprises: Prospects for the New Century_ , 2000, Washington, DC, USA.

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