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WTO entry: Will China’s workers benefit from this “win-win” deal?

June 27, 2002

China’s entry into WTO has been presented as a great victory for the Chinese nation, with claims that it will push economic growth to new heights and bring increased prosperity to most people. Based on detailed research about the state of the urban unemployed in China, Dorothy J. Solinger questions these rosy predictions.

 


 

On December 11, 2001, China formally joined the World Trade Organization (WTO), a cause for rejoicing for the Chinese — and for people in the United States as well, we have been told. Indeed, ever since the United States and the People’s Republic signed their bilateral agreement in November 1999, the publicity in both nations has been almost nothing but positive, with much of the informed population in both places quite satisfied. China, it appears, is set to become much more modern and prosperous. At the same time, American products will be able to enter China free of most of the barriers set up against them in the past, and American investors will no longer have to suffer discriminatory restrictions and requirements once they receive national treatment in sales, purchasing, distribution, transport and use. The news media — especially when quoting the negotiators on both sides — have told us repeatedly that they achieved a “win-win” deal.

But this so rosy picture turns much more bleak when the plight of the former state-employed workforce is surveyed. Beginning in the mid-1990s the Chinese government has enforced a policy of cutting back the workforce in the name of efficiency. In addition, as an unemployed informant told me, “A lot of factories have gone bankrupt because people prefer foreign-made electronics.” So I would argue that the “win-win” scenario is only valid if the situation of a large portion of the 45 to 60 million urban workers in China who have already been laid-off in the past half decade or so, along with the millions more to follow, is simply discounted altogether.

With the dependents of those already unemployed, amounting to about another 100 million or so, this could mean that perhaps a fifth of the urban workforce (about 300 million people) and about a fourth of the urban population (400 to 450 million people, depending on how counting is done) are being ignored in the positive assessments. These workers, who once had what they thought were permanent jobs, are overwhelmingly over age 35, unskilled and, because many came of age during the Cultural Revolution, were deprived of an education past junior high school, so are said to have a “low cultural level.” Moreover, even of those still nominally at work, some 70 percent are thought to be owed back wages, pensions and compensation for medical expenses as their firms sink ever more deeply into debt. With WTO entry and the heightened international competition it will bring, many of these firms will just disappear.

With new international competition, plus the structural adjustments, deindustrialization and economic system transition that comes in its wake, the numbers of adversely affected people are sure to mount. The investment firm Salomon, Smith, Barney has predicted that as many as 40 million are likely to be thrown out of work within the first five years of China’s entry (of whom 10 million could be former peasants). If, as some projections from within China hold, the WTO connection brings about just 0.5 or 0.6 extra percentage points of gross domestic product growth per year, about 350,000 jobs could be created per annum—providing the economy can continue to churn out new positions at the same rate that it did in the early 1990s. (At that time, one percentage point of economic growth produced 600,000 jobs.) Alternatively, some have claimed that there could be a growth of 500,000 new jobs in labor-intensive exports per year, or five million in 10 years.

Thus, if these reckonings are right, while 40 million jobs are to be lost, only 1.4 million to 2.5 million would be added in the first five years. Granted, projections do vary, ranging from estimates of gains of a mere 10,000 to as many as 12 million new jobs per year, while it has even been asserted that there could instead be a net decrease in employment amounting to a quarter of the present jobs. Some have also calculated that entry into the WTO could drive economic growth up an additional three percentage points a year (though the usual estimate is about 1.5 percentage points), provided that China’s exports remain high. But this estimate preceded September 11 and its impact; whereas exports grew 23 percent in 2000, a recent figure for 2001 is a growth of only 14 percent. Overall, entering the WTO will definitely have a negative effect on China’s agriculture and manufacturing, the sectors which have employed some 80 percent of the labor force to date.

A number of exaggerations — or might I say myths? — have informed the popular discourse on the US-China trade deal. I describe some of these myths below, explaining why they are unlikely to be borne out. Then I outline some of the responses the Beijing government has devised to cope with what it surely knows to be the realities behind these tales, and the obstacles confronting these solutions. And finally, I will suggest the potential fallout that could come with the failure of these initiatives.

FIVE MYTHS BEHIND THE WIN-WIN STORY

Below some of the principal optimistic assertions about how WTO entry will benefit China are analyzed, based on research data. The research challenging these myths has included interviews with many city officials and dozens of unemployed people in China during four trips over the past three years, plus perusal of stacks of Chinese journal articles.

 

 

 

  • “More jobs will be gained than lost”

    According to China’s Ministry of Labor and Social Security, labor supply is, even at present, greater than demand in the cities by more than 30 percent. True, there will surely be many new jobs created after China enters the WTO. Trade growth, industrial adjustment and upgrading will lead to new employment posts, as will new foreign investment.

    As trade barriers fall and as foreign firms find it much more convenient to invest in China, however, they—as domestic firms in China already are — will be likely either to hire young, well-educated workers, for their skills, good health and general know-how and energy, or else to engage rural-to-urban migrants, for their willingness to serve as drudges for very low wages. So those getting new jobs—whether in banking, insurance, telecommunications and hi-tech or else in assembly-line plants — will not be the workers who have lost their posts.
     

  • “The assault will be just short term; the problems will all be solved in the longer term”

    This statement can only be accurate from the macro, aggregate perspective of the economy as a whole. If we consider the fate of the laid-off workforce, the prognosis is certainly poor not just in the near future, but over the long-term too. As a trade union official told me, “It’s very hard to get employers to hire people over age 35.” Though Chinese journal articles have charged that the furloughed refuse to find work and are waiting for official posts to be restored, in fact a multitude of impediments face the hardy ones who do make the effort to find their own jobs. Despite government programs to retrain them, find them work and supply them with living allowances while they wait, state preferential policies frequently fall flat when bureaucrats can benefit from ignoring them.

    Recent investigations in China demonstrate that under 20 percent of the discharged workers, for whatever reason, has received any job training; that the reemployment rate for the laid off has dropped from 50 percent a few years ago to just 16 percent in the past year; and that the average per capita income of the furloughed is now about half the national urban average, while only 21 million — certainly less than half even of the officially designated accumulated numbers of laid off, not to mention millions of others whose firms have crashed that the regime does not count — had been allowed to register for government reemployment programs as of the end of last year. Meanwhile, a mere 23 percent of the 14 million urbanites across China who are living below the poverty line (mainly because of job loss) are getting the poverty relief they are supposed to receive. Those attempting to start a small business venture typically find themselves denied bank credit and harassed by petty officials who make it very difficult for them to obtain the necessary permits.

    Even as early as mid-1998, an academic survey in China showed that half of those laid off had been out of work for over a year, a sixth for more than three years. As an official magazine noted, these people are destined to compose a “long-term, unstable mass”; a researcher at the Chinese Academy of Social Sciences recently reported that they will “just be excluded and drift downward.”
     

  • “Chinese consumers will benefit from more choice and from cheaper foreign goods”

    The rising middle class and of course the wealthy will obviously reap these benefits. But for the laid off and the soon-to-be-laid off, this one can be quickly dispensed with in the savvy words of two of my interviewees who had been thrown out of work: According to one of them, a woman forced to retire in her early forties, “If cars are cheap, so what. We can’t afford them. As for color TVs, we already have one.” Asked about her view of the WTO, she replied: “It won’t be good for us. We don’t understand it too well. We can’t see any good points for us ordinary people. The unemployed will be even more. We’re pretty apathetic about this. We just don’t care.”

    And, quipped the other, a man of 35, “WTO is good for the rich. It’s not all commodities that are going to get cheaper, just high-class stuff like cars. We can’t afford those things.” He went on to muse, “People like us doing hard physical labor will just increase; for us ordinary folk, us poor people, WTO doesn’t have any good points. What it’s all about, we don’t much understand.”
     

  • “Export-oriented sectors, such as textiles, will benefit”

    It is accurate to separate industrial sectors into winners and losers — up to a point. Yes, it is true that labor-intensive export industries, such as toys, clothing, shoes and textiles should find more open markets abroad with time. But this does not necessarily translate into opportunities for those who have and will be dismissed from the plants of the past — the hundreds of thousands of former pharmaceutical, machinery, automobile, chemical industry and steel manufacturing workers. On top of layoffs that already occurred, now Chinese analysts have written that over 100 automobile factories “can’t go on” once China enters the trade organization.

    Especially among textile workers, supposedly members of a winning sector, millions of mill hands have already been let go with the intentional destruction of over nine million out-of-date spindles as of the end of 1999; in one major industrial inland city, Wuhan, of the more than 100 state-owned textile firms that existed in the 1980s, not one is left today. In their place are some joint ventures, whose owners, after investing, demanded the release of large numbers of former employees; other plants have simply collapsed, unable to bear up under competitive pressures. For, except for a few major bases along the eastern coast, much of the textile technology in China is obsolete, the equipment decades old, the varieties too plain and unmarketable and the mill workers too undereducated to suit the demands of modern industry. And, according to an essay by a top trade union researcher, jobs in export processing in general by now have become more limited, as compared with the recent past, by market saturation, the intensification of competition and the entry of labor-saving technology.
     

  • “The tertiary (service) sector and the privately owned enterprises will provide places for the unemployed”

    Unfortunately for those whose jobs have disappeared, the tertiary, or service, sector has two distinct components, which are generally conflated in official commentaries. Government accounts routinely underline that under a third of the positions in the labor market are currently ones in the service economy and, thus, that expansion potential here is vast. True enough, there is or soon will be demand for the services that big business and the middle class and well-to-do demand, such as insurance and banking. But there is really no market left in this sphere that is likely to employ large numbers of unskilled laborers.

    This point is graphically illustrated by the scenes I have witnessed along the streets of Chinese inland cities. These days, the service sector, starved nearly to death until the early 1980s, seems full of life, packed with business. You can get your shoes shined for two yuan by three different peddlers on just one block, buy the same pair of nylons for the same 10 yuan five or six times or the same ballpoint pen for two or three yuan in the same lane. Or you can choose any one of 10 pedicabs to deliver you as far as a couple of miles away, for as little as a piddling three to five yuan.

    Indeed, this emerging market lacks true demand-driven economic activity, at least insofar as the work done by the furloughed is concerned. This is because, given the immense proportions of the official program of enforced dismissals, plus the unspecialized nature of the labor the affected workers have to offer, there simply cannot be demand sufficient to absorb the millions made redundant, now struggling to find takers for their wares and their services.

Beijing's strategies

By now, over four years have passed since the Communist Party first announced explicitly that firms would have to “reduce the workforce, increase efficiency” at a major Party convocation in the fall of 1997. Unfortunately for the victims of this massive retrenchment, none of the Party’s several efforts to help those discarded has yet to bear much fruit.

These include a Reemployment Project begun in 1995 that only targeted a fraction of the laid off, due to its narrow designation of who deserved to be its beneficiaries: in practice, it only served the employees of the better-off, state-owned firms, for the most part ones that are still in existence. For a variety of reasons, the main one being insufficient funding, workers from the more than half of state enterprises losing money; from the untold numbers of plants that have just disappeared, whether due to buyouts, mergers, or de facto bankruptcy; and from factories that formally went bankrupt, are ineligible.

The regime has also attempted to install a social security system, but its difficulties here are legion. Unemployment insurance, for example, only established some 15 years ago, has no accumulation to speak of. Pooling even at the city level is hindered as firms doing well do not make their contributions while failing ones cannot afford to put in their share; and bureaucratic misappropriation and outright official corruption eat away at what monies are in the pot. An internal report disclosed that as of the end of 1999, 73 percent of households where the head was employed were not participating in the program, and only 18 percent said they were. In four major cities, just 11 percent were participating, while among the out-of-work, a negligible 2.89 percent had joined the program. Of those laboring in the private sector, a scant four percent of the employees had been entered into the system at that time.

Thirdly, a principal thrust in the past two years — urging the laid off to perform community service — is also floundering. Of about two million temporary posts in this sector identified by a recent four-city sample survey, for instance, more than half remain unfilled. Among the reasons given in an official journal are lack of training, absence of intermediaries to connect potential job holders with employers, no provisions made for the implementation of supposed preferential policies for employers who take on workers under the scheme and a disinclination among the furloughed to do such petty labor as minding the sick, chaperoning children home from school, or sweeping the streets.

Potential fallout

What I have sketched above is really past history and current realities, not a story of the future, which is, of course, yet to unfold. But surveying the data, it is most difficult not to conclude that dangers lie ahead, both for those already marginalized, surely, and most likely for many more like them in the days to come. How, as a mass, they will react, is anyone’s guess. Whether from a spirit of throwing themselves into the glory of an imagined future of plenty once China has become fully modern and prosperous or else just from the lack of any alternative to forging their livelihood through their own mettle, a number of my informants in 1999 displayed admirable pluck, as their words reveal:

If you don’t fear fatigue and don’t fear bitterness, you can find something to do; if you’ve no income, you can’t be choosy;

(On being asked about a suicide case) It was his own character. A lot of people are laid off. They can’t all commit suicide!

Even though there’s a lot of people laid off in Wuhan, you can still find something to do... if you still have two hands.Also belying the received wisdom about their lack of adaptability, in a 1997 survey of laid-off workers, 55 percent expressed a willingness to become just an ordinary worker, service or sales person, and another 35 percent professed that they were prepared to do any kind of work, no matter how dirty or tiring, if only it would enable them to meet their own basic expenses.

But there is also a much darker side to the time to come. One account in an August 2001 internal publication revealed that in the year 2000, some 30,000 protest demonstrations broke out, many about issues of job loss and unpaid wages and pensions. In another variant, as one of my informants so frankly expressed it, “People would rather be criminals than starve to death. They’ll use all kinds of ways to survive.”

Which one of these prospects will come to predominate as China turns more totally to the global economy is yet to be known. But what is certain is that while millions of better-placed citizens rise to the challenge, millions of others will sink into obscurity, their working lives cut short, their potential undeveloped and their ability to purchase products offered up by the world market and its merchants completely wasted.

Dorothy J. Solinger is Professor of Political Science at the University of California, Irvine, and an Adjunct Senior Research Scholar at the East Asian Institute, Columbia University. This is an edited version of a talk she gave at the Woodrow Wilson International Center for Scholars Symposium: “China Joins the WTO: Domestic Challenges and International Pressures,” held in Washington, DC, on December 12, 2001, and was first published in the USA-China Business Review. Her most recent book is Contesting Citizenship in Urban China: Peasant Migrants, the State and the Logic of the Market (California, 1999).

 

 

 

 

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