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Private Sector Key to China's Widespread Unemployment - 2003-03-07

As China's National People's Congress convenes in Beijing, one of the biggest problems facing new leaders is widespread unemployment caused by mass failures of state-owned enterprises. The government has pledged to create millions of new jobs this year. But China's future job growth will come largely from the private sector.

Li Honghua regularly hunts for talent for his private employment agency by doing the rounds of government-run job centers in Shanghai. Hundreds of job-seekers are here, including the usual workers in their 40s and 50s, laid off from unprofitable state enterprises.

But what attracts Mr. Li are the younger university graduates who have traveled to Shanghai from all parts of China, eager to put their skills to use and expand their opportunities. The 35-year-old former lawyer says he came to Shanghai three-years ago in search of work, from the northern province of Heilongjiang. When he saw the rapidly changing job market, and the huge pool of talent, he decided to start his own headhunting agency.

Mr. Li says he took advantage of the government's loosening of regulations on recruitment firms at the end of 2001, as part of China's entry to the World Trade Organization. Private Chinese employment agencies were licensed for the first time, and allowed to form joint ventures with foreign executive search firms. Mr. Li now has 80 steady clients and is making a profit, he says. When he arranges a successful hire, his company gets a quarter to a third of the new employee's salary for a year.

Observers say people like Mr. Li, who start private businesses and provide work outside the state sector, are key to solving China's mounting unemployment problem.

China's rapid transition from a planned economy to a free market system has resulted in 30-million workers losing their jobs at state owned enterprises within the past five-years. Chinese officials say the economy needs to generate at least eight-million new jobs this year to offset growing unemployment.

Last year's official urban jobless rate was a 20 year record of four-percent. But many economists estimate the real jobless rate to be far higher. Government employment statistics do not count 100 million migrants to cities, or the roughly 150 million jobless in the countryside.

At the opening of the National People's Congress in Beijing, retiring Prime Minister Zhu Rongji said one of the government's top priorities should be to create new jobs for laid-off workers and young people entering the labor force. This year's budget increases subsidies for re-employment programs by $570 million.

China's new leaders have also been at pains to emphasize their solidarity with the dispossessed. But many analysts believe that even as it talks about helping the needy, the new government is likely to push ahead more aggressively with capitalist-style reforms.

Andy Rothman, an economist with the firm CLSA Emerging Markets in Beijing, says the best way to relieve unemployment is to loosen restrictions on China's private sector. "We are talking about an enormous number of small, privately-run businesses. That sector of the economy has been growing incredibly rapidly, which has allowed the state sector to lay off 30 million workers over the last five-years without creating urban chaos in China," he says.

Chinese labor officials who oversee social security programs agree. In bustling Shanghai, the government is already changing its approach to unemployment relief. It has recently introduced programs to help laid-off workers open their own businesses.

Ding Feng, an official at the Shanghai labor and social security bureau, says his bureau now trains people to become entrepreneurs. He says the city is guaranteeing bank loans and tax breaks to qualified people trying to get their businesses off the ground, allowing them to borrow between $2,000 and $12,000, often without interest.

For those older workers who find it hard to learn new skills after decades at a state-owned enterprise, the government continues to create labor-intensive jobs such as cleaning, security work, and tree-planting.

But Mr. Ding stresses that the era of the "iron rice bowl", or guaranteed lifetime employment, is over.

At one Shanghai job center, a woman in her forties complains that she has not worked since being laid off from a state-owned textile factory in the late 1990s. She says she does not want to enroll in any government training programs, because they take too long and she needs money now. Li Honghua, the private headhunter, passes her by, shaking his head with disapproval.

Mr. Li says he's not interested in people like her, because they're too picky and they don't want to learn new skills. Companies these days are changing so quickly, and workers have to change too, he says.