[OPE-L] Jobless growth in China

From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Sat Apr 14 2007 - 11:20:33 EDT

Vol:24 Iss:07 URL:


Jobless growth in China


China is experiencing the same disjunction between economic growth and
employment generation that is plaguing many other developing countries.


At a construction site in Beijing. China is becoming more like other
countries of the developing world that have gone in for export-oriented
manufacturing production along with trade liberalisation.

FOR some time now, policymakers in India and elsewhere in the developing
world have been looking to China as the source of inspiration for policy -
often in utter disregard of the very specific institutional conditions in
China and other specificities that ought to be recognised.

It is certainly the case that China's spectacular rate of aggregate
economic growth for nearly three decades as well as the substantial
reduction in poverty are deserving of admiration and also emulation as far
as possible. But some features of that growth suggest that uncritical
emulation is unjustified, and that China is now coming up against problems
similar to those faced by many other fast-growing developing countries.

The common problem everywhere, it seems, is that of employment generation.
China is increasingly seen as the manufacturing powerhouse of the
developing world to which manufacturing jobs from the North are
increasingly being transferred. However, the actual evidence on Chinese
employment shows a somewhat different recent reality.

To begin with, in the past two decades, the share of the secondary sector
in total employment has changed very little, increasing from 21 per cent
in 1985 to 23 per cent in 1995 to just under 24 per cent in 2005. This is
despite the fact that though the share of the secondary sector in the
gross domestic product (GDP) increased to reach nearly half of GDP in

Much of this is because the pattern of growth has been - as elsewhere in
the world - much less labour-absorbing than in the past. Overall,
employment elasticities of output growth have been low. But more to the
point, they appear to have fallen sharply in the 1990s compared to the
previous decade.

It is expected that primary sector employment elasticities will be low,
and indeed they turned negative in China in the 1990s. After all,
development is all about shifting people from agriculture and other
primary activities to other sectors. However, even industrial employment
generation has been inelastic, and the elasticity has fallen by five times
between these decades, to only 12 per cent over the 1990s. This explains
the low aggregate employment elasticity to GDP for China as a whole over
the decade until 2000.

For any other developing country such figures would hardly be surprising,
but China has become synonymous internationally with rapid economic growth
based on the export of relatively more labour-intensive commodities. This
naturally leads to the expectation that manufacturing growth will be such
as to generate relatively more employment, and that the employment
elasticity of manufacturing output at least would be relatively high.

In fact, exports have grown dramatically in the past 10 years in
particular, and within that, the share of processing exports has increased
sharply also in the last decade, going from less than 20 per cent of the
total value of exports in the 1980s to more than 55 per cent in the most
recent period. Processing exports are seen as generating less value
addition but more employment, and, therefore, are more likely to generate
more employment generation than resource-based or capital-intensive
exports. This makes it all the more possible to expect that the pattern of
Chinese growth would be such as to create more employment in

But the extraordinary thing is that despite all these favourable features,
manufacturing employment in China peaked in 1995, when it was still less
than 100 million workers. Thereafter, and remarkably in the context of the
enormous boom in export-oriented manufacturing that has been evident over
the past decade, total manufacturing employment has actually fallen. There
has been a slight recovery in recent years, but according to the official
Chinese government statistics, it is still around 12 per cent below the
levels of the mid-1990s.

The reason for this apparently surprising result is that China is now
becoming more like other countries of the developing world that have gone
in for export-oriented manufacturing production along with trade
liberalisation. Other "successful" exporting countries of East Asia and
South-East Asia, as well as Latin America, have seen domestic production
being eroded by import competition, which has adversely affected
employment-intensive small producers in particular.

The loss of employment in import-competing units has in most cases not
been enough to offset the increase in employment in export-oriented
activities. This has typically meant a net decline in manufacturing
employment even in the most dynamic exporting countries.

In the case of China, the process of trade liberalisation has been more
belated and was certainly more limited until the early years of this
decade. Indeed, comparable trade liberalisation has occurred only after
its accession to the World Trade Organisation (WTO), which has exposed
many more domestic producers to the same tough external competition. This
is why the process of net manufacturing employment loss, which began even
in many dynamic exporting countries in the early 1990s, started somewhat
later in China, in the late 1990s.

As a result, the rapid expansion of export-oriented manufacturing in
recent years has still not been enough to compensate for the loss of jobs
in manufacturing production, which has been threatened or eliminated by
import competition.

To this must be added the effects of the ongoing "reform" of state-owned
enterprises in China, which has involved substantial reduction of the
workforce in these. The loss of manufacturing employment has been most
sharply felt in the state sector.

The share of state-owned enterprises in urban employment fell from more
than 70 per cent in the early 1980s to less than 30 per cent in the early
years of this decade. Indeed, in 2005, the share of private units was more
than that of state enterprises for the first time.

The problem of unemployment is deeper than is revealed by official
statistics, which show relatively low open unemployment (between 4 and 6
per cent) but do not include a significant proportion of workers laid off
from state-owned enterprises and urban collectives. When these workers are
included, the rate of unemployment in 2000 was much higher at around 12.5
per cent of the working population. The data also do not capture the
jobless rural migrants.

It is now estimated that rural-urban migrants number around 150 million,
most of whom are employed in informal activities, but a significant
fraction of whom are unemployed.

So, despite the much higher aggregate export-oriented growth, the Chinese
economy is experiencing the same disjunction between economic growth and
employment generation that is plaguing many other developing countries,
including India.

This archive was generated by hypermail 2.1.5 : Mon Apr 30 2007 - 00:00:17 EDT