The China Society Yearbook (2006) (Chinese Academy of Social Sciences Yearbooks: Society the Ch)

The China Society Yearbook (2006)

The Chinese Academy of Social Sciences Yearbooks: Society VOLUME 1

BEIJING 2007

The China Society Yearbook (2006) China’s Social Development; Analysis and Forecast

Chief Editors

RU Xin, LU Xueyi, LI Peilin Deputy Chief Editors

HUANG Ping, CHEN Guangjin

LEIDEN • BOSTON 2007

This yearbook is the result of a co-publication agreement between Social Sciences Academic Press and Koninklijke Brill NV. The majority of the articles were translated into English from the original Shehui Lanpi Shu 2006 Nian: Zhongguo Shehui Xingshi, Fenxi yu Yuce with funding from China Book International, supported by the General Administration of Press and Publication and the News Ofce of the State Council of China. This book is printed on acid-free paper.

ISSN 1872-7239 ISBN 978 90 04 15637 1 Copyright 2007 by Social Sciences Academic Press, Beijing, China, and by Koninklijke Brill NV, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Hotei Publishing, IDC Publishers, Martinus Nijhoff Publishers and VSP. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change. printed in the netherlands

CONTENTS

Contributors ................................................................................

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Foreword .....................................................................................

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Acknowledgments .......................................................................

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China on the Brink of a New Era: An Analysis of the Social Situation in China, 2005–2006 .............................................. Li Peilin

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1. A Survey of Rural and Urban Residents’ Living Conditions in Eleven Provinces, Municipalities and Autonomous Regions in Western China .................................................... Wang Fenyu and Zhao Yandong

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2. An Analytical Report on China’s Current Social Psychology .............................................................................. Wang Junxiu

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3. New Features of Residential Life and Consumption Structure ................................................................................ Zhu Qingfang

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4. New Features of China’s Population Since Reaching 1.3 Billion ............................................................................... Zhang Yi

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5. Employment: Concerns over Rural Workers’ Employment Issues ...................................................................................... Mo Rong, Liu Jun and Chen Lan

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6. Adjusting the Minimum Subsistence Guarantee System for Urban and Rural Residents ............................................. Tang Jun and Zhang Shifei

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7. Adjusting the Social Structure and Developing a Harmonious Socialist Society ................................................ Lu Xueyi

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8. A Review of Reform and Expectations for the Next Five Years ............................................................................. He Xiaoming

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9. 2005: Non-Governmental Development and Transformation of Rural Areas in China ........................... Xu Xinxin

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10. Chinese Workers: Legal Protection and Exercise of Labour’s Right to Organise ................................................. Qiao Jian

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11. Report on the Development of Chinese Farmers in 2005 ...................................................................................... Fan Ping

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12. A New Phase in the Development of Private Entrepreneurs ....................................................................... Zhang Houyi

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13. Pursuing Harmonious and Equal Education ...................... Yang Dongping

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14. Special Report I—China’s Population Change and Policy Analysis ...................................................................... Cai Fang

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15. Special Report II—Employment Situation and Policies, 2004–2005 ............................................................................ Mo Rong

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CONTRIBUTORS

Throughout this volume, Chinese names are always ordered according to standard practice in China, with surnames preceding given names. To clarify this ordering, surnames are in all capital letters in the following list of contributors. CAI Fang is President of the Institute of Population and Labour Economics, Chinese Academy of Social Sciences (CASS), and Director of the Human Resource Research Centre at CASS. His academic research focuses on economic development in rural areas, regional economics, and poverty alleviation. CHEN Guangjin is Deputy Director of the Institute of Sociology, Chinese Academy of Social Sciences. He received his PhD in Sociology from the Graduate School of CASS. His research foci include rural sociology, social change, and social development. CHEN Lan is Standing Director of the China Labour Law Studies Association and Director of the Legal Affairs Supervision Department of the P.R. China Ministry of Labour and Social Security. She graduated from the School of Law at Peking University in 1986. She is a specialist in China’s social security and labour laws. FAN Ping is Associate Researcher at the Institute of Sociology, Chinese Academy of Social Sciences. His primary research area is sustainable development of rural areas. He obtained his MA from CASS in 1987. HE Xiaoming is a researcher at the Ofce for Economic Restructuring of the National Reform and Development Commission under the State Council. HUANG Ping is Director General of the Bureau of International Cooperation and Exchanges at CASS, Executive Editor of the intellectual journal Dushu, and former deputy director of the Institute of Sociology, CASS. He served as secretary of the Bureau of International

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Cooperation in CASS from 2003 to 2006. He received his PhD at the London School of Economics in 1990. LI Peilin was born in 1955 in Jinan, Shandong Province and earned his PhD from University of Paris I in 1987. He is Director of the Institute of Sociology and Director of the Department of Sociology at the Graduate School of the Chinese Academy of Social Sciences. His main research areas are enterprise organization, social stratication, institutional transformation and development. LIU Jun is a researcher at the Institute for Labour Studies in the Ministry of Labour and Social Security. His research interests are in trade unions, as well as workplace health and safety. LU Xueyi is former director of the Institute of Sociology at the Chinese Academy of Social Sciences, former president of the Chinese Sociological Association, and member of of the Academic Committee of CASS since 1998. He is currently Professor and Senior Researcher at the Institute of Sociology. His research is in sociological theory and rural development studies. MO Rong is Deputy Director of the Institute for Labour Studies in the Ministry of Labour and Social Security. He has worked as a consultant for the World Bank, the Asian Development Bank, the United Nations Development Program, and International Labour Organisation. RU Xin is former vice president of the Chinese Academy of Social Sciences and a former research fellow at the Philosophy Research Institute of CASS. His academic research areas are political economics and aesthetics. QIAO Jian is Director and Associate Professor of the Industrial Relations Department in the China Institute of Industrial Relations. His major research areas are industrial relations, workplace conditions, and labour unions. TANG Jun is a Senior Researcher at the Institution of Sociology, Chinese Academy of Social Sciences. He received his MPhil from Hong Kong Polytechnic University. His primary areas of research are social security, urban poverty, and social welfare.

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WANG Fenyu is a researcher at the National Research Center for Science and Technology of Development. He is also the principal for many national and international co-operational projects. WANG Junxiu is Assistant Researcher at the Institution of Sociology, Chinese Academy of Social Sciences. He received his PhD from the Chinese Academy of Social Sciences in 2004. His research areas are organizational psychology, political psychology, forensic psychology, and surveillance. XU Xinxin is Associate Researcher at the Institute of Sociology, Chinese Academy of Social Sciences. She received her PhD from Peking University in 1997. Her research areas are applied sociology, social change, and social stratication. YANG Dongping is a professor of education at the Beijing Institute of Technology and has published numerous books and articles on educational issues in China. He is also the director of 21st Century Education Development Research Institute and the general producer of the Phoenix Satellite Television Century Forum. His research areas are higher education theory, the contemporary history of education, and educational equality. ZHANG Houyi is a member of the Institute of Sociology at the Chinese Academy of Social Sciences and the vice secretary-general of China’s Private Economy Research Association. His major works are “Rural Peasantry in Reform” and “Private Economy in China”. ZHANG Shifei is Associate Researcher at the Social Policy Research in Institute of Sociology, Chinese Academy of Social Sciences. He received his PhD from the Chinese University of Hong Kong in 2001. His main research areas are social work and social welfare. ZHANG Yi is Deputy Director of the Institute of Population and Labour Economics at the China Academy of Social Sciences. ZHAO Yandong is President of the Social Development Department of the National Research Center for Science and Technology of Development. His research areas are social development and technology policies, social capital networking, and social stratication.

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ZHU Qingfang is the Vice Director of the Chinese Sociological Society. His main research areas are social development, social stratication, social security, and urban development.

FOREWORD

The state of China’s social development has been a subject of international focus for a long period of time. Since the opening up and reform policy of Deng Xiaoping, the Chinese economy has undergone rapid development and experienced a myriad of changes in the last 20 years. China is now experiencing unprecedented changes, and Chinese society has experienced seismic shifts over the last century and a half unlike any it has experienced in the last thousand years, experiencing transitions of a feudal society to a semi-colonial and semi-feudal society to a capitalist society and to a socialist society. For Chinese society, the present time is a vital transitional period when social contradictions and conicts of interest arise from industrialization and urbanization; when economic growth is rapid and material wealth on the increase, but often at the expense of the environment and sustainable development; when the concepts of scientic development and harmonious society have become key philosophies for Chinese society; when globalization impacts the very ber of Chinese society. In this transitional period, Chinese sociologists have been probing and investigating ways of building a harmonious and sustainable developing society. The China Society Yearbook (2006), known as the Blue Book of Society 2006 in the original Chinese version, addresses central issues of current debate in the Chinese sociological community, such as social equality, education, medical treatment and public security. The essays in the yearbook also endeavor to forecast trajectories of important social phenomena for the coming year. The China Society Yearbook is edited by the Analysis and Forecast of China’s Social Development Taskforce of the Chinese Academy of Social Sciences, the highest and most authoritative social science academic institution in China. The leaders of the taskforce are Lu Xueyi and Li Peilin, who have both served as director of the Chinese Academy of Social Sciences Institute of Sociology. The taskforce also associates with many scholars from national academic institutions and the national administration department of economic and social affairs. These scholars analyze and forecast the Chinese social actuality and development through systemized study executed at the beginning and end of every year.

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The publication of The China Society Yearbook (2006) in English will give international readers access to a detailed picture of the current social situation in China and exposure to the latest research by many of China’s top sociologists. Xie Shouguang Secretary General of the Chinese Sociological Association President of Social Sciences Academic Press July 19, 2007

ACKNOWLEDGMENTS

The successful publication and translation of The China Society Yearbook (2006) was the result of hard work and vital support from several different parties. The project received funding from The Chinese Academy of Social Sciences (CASS), and the Institute of Sociology of CASS organized and coordinated the process. Other organizations who contributed to the publication of the yearbook include the Bureau of Scientic Research and the editorial staff of Social Sciences Academic Press, the publishing wing of CASS. We are grateful for the hard work put into this project by the translators Duan Xiaofei, He Jun, Liu Jun, Peng Rong, Wu An, Xie Shengzhe, and Zhang Ruijie. These talented freelance translators translated sixteen articles from the original Blue Book of Society 2006 into English for publication in this volume. Special thanks and commendation is reserved for Jonathan Cobb in the UK for revising and editing the initial translation to meet international standards of academic level English. The translation of this volume, a co-publication of Brill and Social Sciences Academic Press, was made possible through the nancial support of China Book International, supported by the General Administration of Press and Publication and the News Ofce of the State Council of China. Social Sciences Academic Press, Beijing Koninklijke Brill, Leiden

CHINA ON THE BRINK OF A NEW ERA: AN ANALYSIS OF THE SOCIAL SITUATION IN CHINA, 2005–2006 Li Peilin

China’s macro socio-economic situation in 2005 maintained the good momentum it had shown since 2003: high growth, low ination, better employment and a gradual improvement in the standard of living. The economic growth rate stood at approximately 9.3%, ination at approximately 2%, the registered urban unemployment rate did not exceed 4.2%, and personal income in both urban and rural areas increased by a relatively wide margin. These gures indicate that the socio-economic situation for 2005 was the best of the past decade. Guided by a scientic approach to development and strategic plans for the growth of a harmonious socialist society, China is embarking on a comprehensive new set of measures to build a prosperous society and further its modernisation drive. On 11 October 2005, the Fifth Plenary Session of the 16th Central Party Committee adopted the CPC Central Committee Proposal for Formulating the 11th Five-Year Plan for National Economic and Social Development. It summarised development experience since the reform and liberalisation policies were rst introduced, especially during the past ve years, and put forth a grand blueprint for China’s development from 2006 to 2010. Looking forward, China is now standing on the brink of a new era. This requires us to take a scientic approach for all of our economic and social development. As far as economic development is concerned, we must continue with deepening reform, speed up development, and further improve the socialist market economy system. We must however change our economic growth mode, and take a new approach to industrialisation. We must develop a circular economy and build a resource-efcient and environmentally-friendly society. In the realm of political development, we must improve the socialist democratic system and the country’s rule of law, and implement wider and more effective democratic participation and social cooperation. As far as cultural development is concerned, we must establish a communal system of socialist values, and promote and enrich a wide range of cultural

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ventures. In social development, we need to resolve certain prominent issues, and coordinate the interests of different social groups. We must place more importance on social fairness and make every effort to build a harmonious socialist society.

I. General Overview of Social Development in 2005 A. Rapid Economic Growth for Three Consecutive Years China’s third period of rapid economic growth since the introduction of its reform and liberalisation policies started in 2003, and by the end of 2005 had continued for three consecutive years, during which GDP grew by 9.1%, 9.5% and 9.3% respectively. A distinct feature of this period of rapid economic growth has been the central government’s early use of macroeconomic regulation and control and the more exible methods that it implemented, paying more attention to the role of the market in the distribution of resources. The central government adopted different policies toward different sectors, protecting some sectors, promoting others and also restraining yet other sectors. This round of high economic growth is therefore expected to last longer than the previous two. The central government’s macroeconomic regulation and control policies had some impact on the economic growth rate and the increasing nancial revenue of certain regions. However, by taking into account the interests of the whole country, all local governments actively implemented these policies and accelerated the pace of change in the mode of economic growth, thus helping to ensure the healthy, stable and sustainable development of the national economy. B. Remarkable Progress in the Growth of a Harmonious Society Guided by the strategic concept of developing a harmonious socialist society, the central government has already adopted and will continue to issue a wide range of relevant policies and measures including the abolition of agricultural tax, implementation of a strict land protection system, and the adjustment of land requisition prices; it also aims to actively create new employment opportunities and increase efforts to provide training to laid-off workers to nd further employment; to protect the legitimate rights and interests of migrant workers and ensure that their wage arrears are paid to them; to strengthen community

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development; to run pilot old-age security projects in further rural areas; to stop schools from charging fees arbitrarily so that children from poor rural families are exempted from paying school and textbook fees for the duration of their compulsory education stage, and also receive an allowance if they are enrolled in a boarding school; to continue to improve the minimum subsistence guarantee system for the urban poor; promote the establishment of trade unions in non-public enterprises; to strengthen the ght against corruption and tighten auditing and supervision of administrative departments at the central and provincial levels; to tighten supervision and control of tax collection and modify the base personal income tax level, and so forth. These policies and measures directly affect people’s lives, their rights and interests, and are noteworthy steps in the development of a harmonious society. C. Steady Improvement in Standard of Living, Per Capita Savings Exceed RMB 10,000 Personal income continued to increase at a moderately rapid rate. From January to September 2005, after allowing for price increases, urban per capita disposable income was RMB 7,902, an increase of 9.8% over the same period in the previous year, while rural per capita cash income was RMB 2,450, an increase of 11.5%, and total consumer goods retail sales reached RMB 4508.1 billion, an increase of 12.1% over the same period in 2004. The increase in both per capita urban disposable income and rural cash income surpassed the GDP growth rate. Generally speaking, ination remained low. From January to September 2005, consumer prices increased 2.0% and commodity retail prices by 0.8% compared with the same period in the previous year. Food prices went up by 3.3%, 7.6 percentage points lower than the rate of increase during the same period in 2004; the price of grain was up 1.9%, 26.5 percentage points lower than the rate during the same period in 2004. The price of housing rose 5.6%, 1.2 percentage points higher than for the same period in 2004. Prices for entertainment, educational and culture and services meanwhile rose by 2.6%. Prices for other commodities were mostly stable or dropped slightly. The rapid increase in the price of food, particularly of grain, was brought under control, lessening somewhat the pressure on low-income urban families brought about by increased living costs due to previous rapid rises in food prices.

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In 2005 every 100 families in urban areas owned 134 colour televisions, 91 refrigerators, 80 air conditioners, 33 cars, 40 computers and 134 mobile phones. In rural areas these gures included 80 colour televisions, 20 refrigerators, 40 washing machines, 50 mobile phones and 40 motorcycles. By the end of 2005 the savings deposit balance for urban and rural residents was RMB 14 trillion, an increase of 19%, or more than RMB 10,000 per person. The government continued to provide nancial support to poor urban families, earmarking more than RMB 16 billion for minimum living allowances distributed to some 23 million people across China. D. Ofcial Launch of Development of a New Socialist Countryside The enormous disparities in development between rural and urban areas constitute the biggest hindrance to the comprehensive development of a prosperous society, and the construction of a harmonious socialist society. To solve this problem, the central government launched a grand programme to develop a new socialist countryside. The “White Paper” on rural programmes issued by the central government in 2005 was only its second such document in the last 20 years, following a previous paper in 2004. The central government originally intended to phase out the agricultural tax throughout China over a ve year period starting from the year 2004. The task was however actually completed within two years, and by the end of 2005 agricultural tax has been abolished across China except in one or two provinces where the tax rate had dropped to 2% or below. After many years on a plateau, farmers’ annual per capita net income rose by 6.8% in 2004. It then rose again in 2005 by some 6%. This was no mean feat bearing in mind the relatively low level of grain prices and a big increase in the price of agricultural production means in 2005, which thus increased production costs for farmers. Together with 2004, 2005 was the second year since 1997 in which farmers’ annual net income saw a rapid increase. The central government also formulated policies to promote rural development, and continued with pilot projects for the new rural cooperative medicare system. On the basis of the RMB 30 premium for each farmer participating in the cooperative medicare system (central and local funds and individuals each paid RMB 10), the central gov-

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ernment provided an additional RMB 10 to each farmer as a direct subsidy. By the end of June, 2005, pilot projects had been carried out in 641 counties (cities, districts), reaching 225 million farmers, 72.6% of whom (i.e. 163 million farmers) participated in the cooperative medicare system. Subsidies amounting to RMB 5.038 billion were allocated to 119 million farmers participating in the scheme. The rural compulsory education system also saw improvements, with educational subsidies being provided to deprived rural families to help with their children’s schooling. The number of children who were exempted from paying for text and exercise books increased from 24 million in 2004 to 30 million in 2005. Some 16 million school children in 592 deprived counties were exempted from paying for their textbooks, exercise books and other fees. On average every student in elementary school and junior high school was exempted from paying RMB 200 and RMB 340 respectively. With regard to old-age pension, the government expanded the areas running pilot projects to provide subsidies to elderly people who had observed the state’s family planning policies. Experimental social welfare reforms were also implemented to provide a minimum subsistence guarantee for deprived farmers. A strict protection system for land requisition was adopted to protect arable land, and to provide proper arrangements to resettle farmers whose land was requisitioned. Rural infrastructure construction included efforts to help more rural families gain access to clean drinking water, electricity, gas for cooking and metalled roads. E. Improving Employment Situation The government brought the worsening employment situation under control with policies to actively increase employment. From January to October 2005, an additional 8.8 million people gained employment in urban areas, and the gure was expected to reach 9.6 million by the end of the year. By the end of September 2005, the number of urban registered unemployed in China had reached 8.35 million, a registered unemployment rate of 4.2%, the same as at the end of the previous year. The registered unemployment rate in urban areas for all of 2005 was controlled so as not to exceed 4.2%. For while the amount of central government subsidies in 2005 to laid-off workers from stateowned enterprises to guarantee their basic living standard remained the same as in the previous year, the central government appropriated a further RMB 2.6 billion worth of funds to help these workers return

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to employment. These two funds totalled RMB 20.9 billion (including small loans provided at discount interest rates). The disappointing employment situation in certain old industrial core regions also took a turn for the better, because the boom in the raw materials industry in these areas increased employment opportunities. Moreover, as training for employment improved, this in turn improved the ability of laid-off workers to nd new jobs. The rural workforce continued a positive trend to transfer to other areas and locations. Some 120 million rural inhabitants left their hometowns in the search for jobs or to do business in other areas. Of these, some 60 million farmers left their native provinces to look for jobs in other provinces. As we continue to seek a long-term mechanism to promote employment in the market economy, priorities should be given to the employment and reemployment of the following labour groups: laid-off workers from enterprises whose ownership was changed; workers from enterprises that have closed down or gone bankrupt as a result of restructuring; emerging workforces in towns and cities, especially college graduates; farmers who have come to urban areas to seek work; and farmers whose land has been requisitioned. F. Quickening Pace of Urbanisation and Community Development The pace of urbanisation markedly increased in 2005, and China’s urbanisation level reached 43%. The annual rate of increase of urbanisation since 2000, when the level stood at 36%, was 1.4%, contrasting with an annual rate of increase of urbanisation of 1% from 1990 to 2000. Reform of the residence registration system continued as progress sped up to unify the workforce market in cities and the countryside. More than ten provinces (autonomous regions and municipalities directly under the central government) developed reforms aimed at creating a uniform residence registration process for both urban and rural residents. Across China, local governments removed prohibitive regulations and unreasonable fees charged to farmers moving to the cities in search of work. Increasing attention was paid to community development, a basic step towards the development of a harmonious socialist society in China. Communities have replaced work units in providing social management, public service and social support functions, and now

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play positive roles in many areas including social security provision, generation of employment, tax collection, keeping public order, family planning, maintaining hygiene and epidemic prevention, rehabilitation of criminals, environmental protection and grass-root conict mediation. Management staff at the community level are increasingly younger and better educated. At present, 75% of the more than 400,000 community committee members are under the age of 50, of which 77% are educated to senior high school level or above (specialised secondary school). Community volunteer teams have also developed rapidly, with more than 70,000 community volunteer organisations and over 16 million volunteers spread across China. The self-government and democratic election system in villages is being improved, although the system has encountered certain problems. New village committees throughout most of China’s counties (cities, districts, banner counties) have already taken elected. G. New Population Transformation China has made notable achievements in controlling its population, so that the wealth brought about by economic growth can be used to raise the population’s overall standard of living. From the early 1990s to the present, the birth rate dropped from 19.7 per thousand to 12.2 per thousand, and the death rate from 6.7 per thousand to 6.4 per thousand; the natural growth rate dropped from nearly 20 per thousand to less than 6 per thousand. In the 1980s, the annual net population increase stood at around 16 million people, fell to some 12 million people in the 1990s, and has now dropped again to about 7 million people. With China’s rapid GDP growth in recent years, this decline in annual population growth can quickly raise China’s per capita GDP as well as its standard of living. The decline in net population growth, the drop in the index of total social burden (index of children’s burden + index of elderly people’s burden), the sufcient labour force, and the great potential to adjust the population structure and raise the population quality—all of these provide rare historical opportunities for China’s population. As China continues to control the total population and maintain a low birth rate, the quality and structure of the population is becoming increasingly important. The impending population transformation will bring about new challenges: the labour market will develop from an innite supply of workers into one where the total labour supply will

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remain higher than demand, but will show certain structural shortages; the need to turn China from a populous country into a large country with good human resources is becoming increasingly urgent; the contradiction between an ageing population with a low level of welfare and the issue of “the population getting old before getting rich” is becoming increasingly apparent; and the change in the family from a pyramidal to a obpyramidal structure will also pose challenges for traditional methods of caring for the elderly.

II. Major Social Development Problems in 2005 A. Weak Financing of Grass-Roots Rural Governments Affects Their Ability to Provide Public Services The abolition of the agricultural tax saw a corresponding drop-off in revenue. Although transfers of funds from the central government have increased gradually year by year, actual funds at the disposal of village and town governments have continued to decrease. County-level cities and townships whose economies rely heavily on agriculture felt the drop in funds more acutely, especially where local government institutions supported by village or township funds were seriously overstaffed. As a result, almost two-thirds of village and township governments had to borrow money to maintain their daily operations, and the ability of grass-root governments to provide public services was seriously affected as some villages and towns were unable to pay government employees on time. Some villages and towns resorted to selling authority powers and public property to individuals, which resulted in certain instances of disreputable people gaining hold of public property, or monopolising and plundering public resources. This had an adverse effect on cadre-population relations, and caused political and social disturbances of varying degrees in the countryside, because political power at the village and township level is closely related to social stability in rural areas. Government organisations at the village and township level must be reformed simultaneously with their nancial, tax and fee collection, compulsory education, public medical care and other public services systems. Only in this way can a structural foundation for establishing a “public services government” be laid in rural areas.

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B. Land Urbanisation Leaves Many Farmers Jobless The use of farmland for commercial purposes as part of the process of rapid urbanisation has brought about increased economic growth and nancial revenues, so many local governments have been tempted to requisition large tracts of farmland. Commercial buildings and housing are sprouting on what used to be farmland, and central government efforts to stop such practices have been unsuccessful. Many farmers who lost their farmland as a result of land requisitions received no proper economic compensation, nor help in nding work in non-agricultural sectors, nor inclusion into urban social security networks. As a result, tens of millions of farmers with no land or social security are unable to nd stable jobs. When they shift to the cities from the countryside, they lose the mutual support network which traditional village life afforded them, and nd themselves in a completely new, strange network of urban interpersonal relationships. Despite their change of residence status from the countryside to cities, the process to become a city resident takes much longer to complete, and the contradiction and conicts therein brought about outbreaks of violent crime in some areas. This also explains why an increasing number of people are travelling to Beijing to request an audience with the relevant government department to air their grievances and seek help in solving their problems. C. Although Finding a Job is Difcult, Structural Labour Shortages Emerge The labour supply continued to exceed job vacancies. As technology and capital contribute more to economic growth, the employment elasticity coefcient in economic growth has continued to decline. At the beginning of China’s reform and liberalisation process, an increase in the size of the economy of one percentage point caused employment to grow by 0.4%, but the same increase now only increases employment by 0.1%. In recent years, a one percentage point increase in GDP only created jobs for some one million people. The total labour supply is still increasing, a trend which will continue until 2016, according to a forecast in the medium-term plan. As more state-owned enterprises are reformed, laid-off workers need to nd new jobs, and there is also heavy pressure for agricultural workers to transfer to non-agricultural sectors, all of which means that employment will continue to be difcult to nd.

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There are, however, certain changes in labour supply and demand. Although farmers’ income is increasing, the income of migrant workers (of whom almost all come from the countryside) is only increasing very gradually. The relations between capital and the workforce in some companies are also deteriorating, and as companies now have higher labour quality requirements, structural labour shortages are becoming increasingly common. These can be divided into four types: 1) Regional shortages: Labour shortages are more common in regions where the economy is growing rapidly and where there is a greater concentration of industry. 2) Skilled worker shortages: There is a severe shortage of medium and highly skilled workers. 3) Labour shortages in certain age groups: There is a severe shortage of young workers under the age of 25. 4) Shortages of young female workers are becoming ever more common. In addition, as more and more laid-off workers aged between 40 and 50 from state-owned enterprises retire, a “new jobless group” composed mainly of young people with little work experience and few skills is now the thorniest employment issue. D. Difculties in Education, Poor Medical Care and Trafc Congestion are Major Everyday Life Issues in Medium and Large Cities In recent years there have been widespread complaints about difculties in obtaining good education and medical care, and about trafc congestion. One reason for these is that the capability to supply such services lags far behind rapidly increasing demand; however the operating mechanisms of the public service sector itself also need reform. The State has repeatedly announced that state education funding accounts for 4% of GDP. However state nancial revenue has greatly increased in recent years, and by 2004, state education funding accounted for only 3.26% of GDP. State nancial support for public medical care is even lower; at present less than 13% of the operating funds of public hospitals come from the government. Moreover, the distribution of these educational and medical resources—which are supposed to serve the public—is seriously unbalanced. Financial input into rural education and medical care is acutely lacking, and irregularities have come to light in certain public service institutes seeking to generate income. In recent years certain schools (including some providing free, compulsory education) have been found to charge exorbitant fees to allow students to enrol. Certain hospitals

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have linked the income of doctors and nurses with the level of prot that they generate for the hospital, with the result that doctors write out prescriptions based not on a patient’s medical requirements but on the price of the medication. Such practices have increased consumer burden and distorted the consumption structure. As a result, the average increase in educational expenditure by ordinary families is several times higher than the average increase in their income. Similarly, state-funded medical expenditure has grown much faster than state nancial revenue, and state-owned enterprises nd that their medical expenditures far surpass their medical budgets. An audit conducted in 2004 of receipts and expenditure for education in 45 counties revealed that some RMB 450 million had been illegally charged, an average of RMB 10 million for each county. From 1990 to 2004, outpatient charges in general hospitals across China rose eleven-fold and warding charges rose nine-fold. In the same period, average urban and rural incomes rose only six-fold and four-fold respectively. An investigation showed that, between 1993 and 2003, the proportion of ill people who did not consult a doctor due to nancial difculties rose from 5.2% to 18.7%. The problems in public service sector operational mechanisms must be seriously addressed and immediately reformed. As ordinary families buy cars, trafc congestion in medium and large cities all over China is becoming an increasingly serious problem, and public transportation development can scarcely meet rapidly increasing demand because many public transport companies run at a loss. This has become a problem that needs to be addressed immediately. Issues which require consideration include how to reform the existing system and establish an effective public service mechanism which is neither market dependent nor wholly government supported, which will ease public service shortages and provide high-quality public service at a time when the supply of almost all consumer goods surpasses demand. E. Reducing the Number of Deprived Communities Remains Vital in the New Century The number of rural poor has dropped from 250 million in 1978 to a current gure of 25 million, and has also reduced from 1/4 to 1/20 as a proportion of the global population. The rural poverty line has gone up from a net per capita income of less than RMB 200 to RMB 637. However if the U.N. poverty standard of a minimum US$ 1 per capita daily income or expenditure (or equivalent purchasing power)

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is applied, there remain some 75 million poor in rural China (which includes approximately all rural poor and low-income people). In recent years, a large number of urban residents have had difculties making ends meet, and in both urban and rural areas, another group of people has emerged whose income is less than half of the average income, referred to as the “relatively poor.” Because of the ever-widening income gap and the high number of low-income people, the number of “relatively poor” has not seen no marked or rapid drop. As popular demands for better education and better medical care continue to increase, educational expenditure and medical care prices are soaring. It is common for rural families to slip into poverty when they are hit by natural disaster, or when they have to pay exorbitant school fees or medical bills for family members. A major task in the new century is to implement a new poverty-elimination programme with new goals, i.e. to narrow the income gap, improve people’s lives, increase domestic demand and strengthen social cohesion. F. Frequent and Serious Production Accidents, Particularly in the Mining Industry Concomitant with the country’s rapid economic growth, problems of insufcient investment in production safety have begun to emerge. From 2004 onwards, the rate of occurrence of production accidents became very serious, with statistics indicating that accident damage nationwide in 2004 cost RMB 250 billion, or 2% of China’s GDP. Production accidents in 2005 were more serious than the previous year. During the period from January to May, a total of 55 accidents with a death toll of ten or more occurred, with a total death toll reaching 1,194. Of those, ve were especially serious (with a death toll of 30 or more), accounting for 397 deaths, increases of 25% and 148% respectively over the same time of the previous year. The frequent occurrence of mining accidents in recent years has been partly due to insufcient investment in production safety, but also due to lax legal and administrative regulations. Rapid economic growth has created enormous demand for energy, and, enticed by increasing demand for coal and the resulting high prots, some mine owners have pushed coal production to frantic levels without paying attention to production safety. Many produce beyond their design capacity, or have altered their mines to increase production capacity. Mines of all types,

china on the brink of a new era

13

including those owned by central and local governments or individuals, produce beyond their production capacities. This has not only caused serious waste and accelerated the depletion of coal resources, but has also resulted in frequent mining accidents. Coal-face miners are unskilled workers with little knowledge of production safety who are also unable to safeguard their own interests. As a result, when an accident occurs, the mine owners normally simply pay nancial compensation to the family of the dead. Between 1 January and 21 August 2005, 33 major mine accidents occurred in China causing 951 deaths, respective increases of 43.5% and 134.2% over the same period of the previous year. On 14 February, a gas explosion at the Sunjiawan mine in Fuxin, Liaoning Province caused 214 deaths, the second worst mining accident since the foundation of the PRC. To tackle the corruption that is believed to be the underlying cause of the frequent mining accidents, the Central Discipline Inspection Commission, the Ministry of Supervision, the State-owned Assets Supervision and Administration Commission of the State Council and State Administration of Work Safety issued a joint circular demanding that all state employees and leaders of state-owned enterprises with investments or stock in mining operations (except where they bought stocks of listed companies legally) to withdraw their investments. By 24 October 2005, initial statistics from twenty coal-producing provinces showed that 3,200 such investors sold off their investments or stocks, but a small number chose to resign rather than relinquish the investment.

III. Policy Suggestions on Promoting Harmonious Social Development A. Focus on Domestic Demand, Economic and Political Stability at Critical Moments 2006 is the rst year of a new Five-Year Plan period, and China now stands at a critical stage where it must change its mode of economic growth, build a harmonious society, increase its economic strength and raise the standard of living of its population. The 17th National Congress of the Communist Party of China will be held in 2007, and the current government’s term of ofce will expire in 2008, which may tempt certain local cadres to assume a wait-and-see attitude and slacken their economic and social development leadership role. This must be

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prevented from happening, and special attention must also be paid to economic and political stability to prevent an economic downturn or adverse impact on the political order. Investment and foreign trade are the two main drivers of China’s economic growth. Investment has been increasing at a rate several times faster than that of GDP. Over 70% of the increase in GDP comes from foreign trade, while the contribution of local consumption expenditure to GDP has dropped to its lowest point in the past 20 years. From 1979 to 2004, (taking price rises into account) local consumption expenditure increased at an annual rate of 7%, while the rate of GDP increase over the same period was 9.4%. The consumption rate (the proportion of local consumption expenditure to GDP) dropped from an average 50.8% for the 13 years from 1978 to 1990 to an average 46.2% for the 14 years from 1991 to 2004. The consumption rate peaked in 1981 (53.6%) and reached its lowest in 2004 (43.1%). This unbalanced economic situation will produce many unstable economic factors, so special attention should be paid to the proper management of the relationship between production and consumption. B. Government Focus Should Shift to Provide more Public Products and Services With the establishment and growth of China’s socialist market economy, market competition has become the dominant mechanism promoting and regulating economic development. The government’s core function remains economic construction, namely formulating development strategies, safeguarding market stability, and regulating and controlling the macro-economy. However the government should gradually shift its focus to providing more public products and services. While there is an excess supply of general commodities for individuals, there are structural shortages in the provision of public products and services such as medical care, education, social security, environmental protection and public transport. These are areas closely related to people’s livelihoods, and the free market cannot solely be relied upon to provide sufcient products and services to meet the goals of serving the public interest. C. Further Improvements to Social Development Modern society can generally be divided into three realms: a government that operates a bureaucracy, an economy that operates on the free market, and a society that operates through the coordination of

china on the brink of a new era

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interests and social participation. Society operates differently from government and the market; it is not antithetical to the free market, but it must ensure public welfare. Although the public products and services it provides are not for prot, it is an important force contributing to the growth of GDP. China’s market economy has developed greatly over the past two decades, but Chinese society meanwhile remains underdeveloped. Many social problems which have occurred in this period of rapid economic growth are due to the lack of a social interest adjustment mechanism. Social development must therefore be sped up so that a fully developed society can ensure both healthy economic growth and social harmony. D. Speed Up Institutional Reform and the Development of Tertiary Industries Most institutions in China are non-prot organisations related to tertiary industries. That the development of China’s tertiary industries lags far behind that of its secondary industries is mainly because of the lacklustre performance of China’s institutions. However any attempt to reform these must inevitably straddle the conict between the introduction of a competitive mechanism and the goal of serving the public interest. Moreover, any attempt to streamline these institutions faces substantial obstacles. However, past experience has shown that relying exclusively on government nance does not make institutions efcient, nor do reforms last long. Therefore, priority should be given to developing methods to further institutional reform and speed up the development of tertiary industries. E. Improve Vocational Training to Promote Labour Market Development As structural shortages become an increasingly serious problem in the labour market, vocational training has become more important than ever before. Flexible vocational training mechanisms can be established, with the government, employer and employee all contributing to the funds required for vocational training. The quality of ordinary workers must be continuously improved to promote the development of the labour market and satisfy its needs. The shortages of technicians which have appeared over the past few years in the developed coastal regions and some big cities reect problems in the underdeveloped vocational technical education system. Since universities and senior high schools

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do not train technical workers, vocational education must be developed to train technical workers for emerging industries. Secondary vocational schools currently enrol some six million students annually, and that number must be raised to eight million—the equivalent of ordinary senior high schools—in a few years’ time. F. Establish a System of Equal Opportunities for All to Narrow the Widening Gap between Rich and Poor For a society to operate effectively, the nal distribution of wealth must reect the differences in the contributing factors to production and in human resources capital. In this sense, pursuing ultimately fair distribution does not mean egalitarianism. The key to narrowing the wide gap between the rich and the poor lies in establishing a system that guarantees equal opportunities for all. Providing equal opportunities for everyone entails removing unreasonable or illegal factors from the nal distribution process. We must also establish a reasonable and legal regulation system for competitive results using nancing, taxation, social security and social welfare means. Narrowing the gap between the rich and the poor is not only an issue of safeguarding social fairness, but also of expanding domestic need and promoting sustainable economic growth. G. Launch a New Campaign to Reduce Poverty Levels China still faces the important task of reducing the number of people suffering from poverty, and the difculty of this task cannot be underestimated. According to a large-scale survey conducted between 2004 and 2005 in eleven provinces (autonomous regions or municipalities) in western China (not including Tibet), 48.4% of rural families do not have access to safe drinking water; a quarter of adults are illiterate; the standard of living of some 40% of families has remained the same or worsened over the past ve years; almost 17% of families spend over half of their annual income on medical care. Providing everyone with equal rights to education is a major method to reduce poverty levels, but in western China an ordinary family spends 5% of its annual income supporting a child through elementary school, 15% of this income supporting a child through junior high school, and 31% supporting a child through senior high school. 84% of a family’s annual income is consumed supporting a student at university. Given the actual income

china on the brink of a new era

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of farmers in western China, it is clear that they can only rarely afford such expensive public products and services, an indication that rural social development in this region is still underdeveloped. It also points to the strong possibility that the gap between cities and the countryside, between different regions, and between the rich and the poor will widen further in future. As China enters a new stage in its development, it must make renewed efforts to reduce the number of people suffering from poverty. If the U.N. poverty standard of a minimum US$ 1 per capita daily income or expenditure (or equivalent purchasing power, which in China equals to an annual net income of approximately RMB 900 per farmer), some 70 million rural inhabitants living below this level will be targeted in new efforts to reduce poverty. It is expected that the 11th Five-Year Plan will introduce more measures to reduce poverty levels. H. Supplement Farmers’ Income by Helping Them Enter Other Sectors of Activity Although China is now implementing a policy which is more conducive to agricultural development than in the past, and although agricultural tax has been abolished, achieving a raise in farmers’ general income remains difcult. Farmers’ income is adversely affected when prices of agricultural means of production rise, or when prices of agricultural produce go down. The slow increase in farmers’ income has become the thorniest problem in achieving the goal of developing a comprehensively prosperous society in China. China cannot completely rely on large-scale operations, employment in non-agricultural sectors, or protectively raise farm produce prices as an effective means of increasing farmers’ income on a general and continuous basis, given the constraints of low per capita arable land, few non-agricultural employment opportunities, relatively low grain prices and erce competition on the international farm produce market. What can be done at present is to have villages produce multiple products, and encourage farmers to diversify into non-agricultural businesses to increase their income, with the government and different social sectors providing the capital, technology, know-how and other services that the farmers require.

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li peilin IV. Some Social Development Trends in 2006

A. The Current Rapid Economic Growth Cycle Will Last Longer Than Three Years China has witnessed three cycles of rapid economic growth since the introduction of reform and liberalisation policies over 20 years ago. The rst economic boom, from 1983 to 1985, and the second, from 1992 to 1994, both ended at the end of their third year and uctuations during the fourth year saw the economic growth rate drop by over two percentage points. China entered its third period of high economic growth in 2003, and 2005 marks the third consecutive year of rapid development. Academics have different opinions of economic growth in 2006, but this year differs in that positive and negative factors affecting the macro-economy co-exist. The macro-economic regulation and control measures adopted by the central government this time have reduced the severity of economic uctuations. Inationary pressure remains low, the proportion of private investment is increasing, a third wave of consumption is approaching, and foreign trade is still going strong. Under these circumstances, it can be predicted that the three-year economic boom will extend, and rapid economic growth will continue in 2006, with an expected annual GDP rate of increase of approximately 9%. B. A New Social Development Atmosphere Will Emerge Guided by a strategic plan for a scientic approach to development and the growth of a harmonious socialist society, China will quicken reform and development in the realms of employment, social security, income distribution, environmental protection and education. More attention will be paid to community development, and all intermediary organisations will undergo rapid development. Economic growth and social development will be better coordinated to correct imbalances between the two, and the current situation where social development lags behind economic growth will change for the better. More positive development can be expected, especially in the elds of medical care and education. The Fifth Plenary Session of the 16th Central Party Committee, convened in 2005, emphasised that “distribution must be based on the value contributed by production factors, and that greater efforts must be

china on the brink of a new era

19

made to readjust income distribution and more attention will be paid to social equality.” China will formulate concrete policies to implement this guiding principle, and it can be expected that the widening wealth gap between cities and the countryside, between different regions and between the rich and the poor will be brought under control. The State will provide a systemic guarantee of equality in terms of opportunity and power, empowering the entire population to develop a more harmonious and vivacious society. C. Quickening the Pace of Development for a New Socialist Countryside China’s socialist pursuit of social equality requires it to narrow the wealth gap between urban and rural areas. As such, China will increase the use of industry to help agriculture and allow cities to propel growth in the countryside, reversing the current trend where rural development lags ever further behind that of cities. China’s rapid, sustainable development also requires support from a large domestic market, and robust domestic demand is out of the question without ensuring the prosperity of a majority of the rural population. The strength of China’s urban economy can now spread and radiate into the countryside: “Enjoy a farmer’s life”, a tourism initiative catering to city dwellers that has emerged in rural areas close to large and medium-sized cities, is only one indication that the city-help-countryside development process has displaced exclusive reliance on government investment. D. The Labour Market Will Change from an Innite Labour Supply to the Co-Existence of a Large Labour Supply with Structural Shortages The current labour market’s dominant feature is that the labour supply exceeds demand, and manual labourers as well as white-collar workers are having difculty nding employment. However, this innite labour supply may come to an end earlier than predicted. Structural labour shortages will become more evident, growing from a regional problem in the coastal areas of south-eastern China into a national problem. Highly skilled technical workers are particularly lacking. The market and local governments will develop solutions to this problem, with more attention being paid to improving the relations between labour and capital, and vocational training for employees. It is expected that compensation for technical workers will increase, thus raising the current low wage levels on the employment market. China’s

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comparatively advantageous workforce is facing new challenges, so it is vital to improve the quality of its human resources and encourage technological innovation. E. The Dwindling Number of Children and the Increasing Number of Elderly People will have a Far-Reaching Impact on the Consumer Market and Senior Citizen Care Popular concepts about childbearing are undergoing profound changes as a result of the improved standard of living, higher educational levels, more frequent social mobility and the higher cost of bringing up a child. Birth and women’s total fertility rates are dropping rapidly. Over the past two years, more than 60,000 elementary schools across China have shut their doors because of an annual reduction of 700,000 to 800,000 pupils attending elementary school. Meanwhile, the number of people over the age of 60 reached 140 million, accounting for more than 10% of China’s total population. This number is still increasing, at an annual rate of 3%; by 2015, the number of over-60s will reach 200 million, accounting for 14% of the total population. This development trend will have a great impact on market demand. On the one hand, producers and suppliers of toys, food, clothing, books, educational products and services for children will nd the market more challenging as demand changes. On the other hand, potential is growing in the tourism, health care and other markets catering to the elderly. As family sizes shrink and the family structure turns from a pyramidal structure to an obpyramidal one, the traditional way of caring for the old is losing its way. Establishing a rural pensioner care system commensurate with the level of economic development which also caters to large numbers of people is causing widespread concern. F. University Expansion is Accompanied by Latent Financial Risks China’s higher education system has developed rapidly over the past decade, with the number of students enrolled in universities rising annually from less than one million a decade ago to approximately ve million now. This has contributed to raising the population quality, but this unusually rapid expansion has also caused problems. The number of universities has increased from 1,000 ten years ago to almost 2,000 today, but their management and education quality have not improved accordingly. In particular, debts as a result of university expansion have become an increasingly evident problem. Some universities are

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21

operating in the red, even unable to pay interests on the debt, and yet nobody is held responsible for these, just as happened in state-owned enterprises some years ago. The debts incurred by universities have increased nancial risk to the banks, and may even become new bad debts with state-owned banks. These debts may also force universities to operate incorrectly in order to make money. G. Extra Measures in the Fight Against Corruption and Bribery After the state audit department began an “audit storm” that swept the entire country, procuratorial bodies across China set up a searchable criminal record database for bribes committed in areas such as construction, nance, education, public health and government procurement. The database, which contains a blacklist of names of those charged and convicted since 1997 of offering bribes or acting as intermediaries in cases of bribery in the above elds, became operational on 1 January 2006. Lawbreaking businessmen and companies which end up on the blacklist will be marked out and restricted in their market activities. H. Forecasts for the Next Five Years Indicate Plenty of “Hot Issues” 2006 marks the start of China’s 11th Five-Year Plan for National Economy and Social Development. Summarising China’s achievements over the last ve years and predicting events over the next ve years is of widespread interest, as China marks new achievements in its development, particularly its progress in building a harmonious society. Foci of public opinion will be the 11th Five-Year Plan in 2006, the 17th National Congress of the CPC in 2007, the Beijing Olympics in 2008 and the Shanghai World Expo in 2010. Furthering reform and speeding up development will remain the major theme of the next ve years. Economically, China will steadily reform the system of large state-owned enterprises, the nancial and tax systems, the operation and supervision system of the stocks and futures exchanges, the rural land distribution system, and the regulation and control system of the real estate market. Socially, China will reform the civil service, the household registry system, the control system for migrant workers, the social security system and the system governing institutions in the elds of scientic research, education, culture, public health and sports. These reforms will be met with widespread interest and anticipation.

A SURVEY OF RURAL AND URBAN RESIDENTS’ LIVING CONDITIONS IN ELEVEN PROVINCES, MUNICIPALITIES AND AUTONOMOUS REGIONS IN WESTERN CHINA1 Wang Fenyu and Zhao Yandong

In a bid to assist the Developing the West campaign of the Chinese government, the National Research Center for Science and Technology for Development (NRCSTD) under the Ministry of Science and Technology carried out a Monitoring Survey on Social and Economic Development in Western China from June 2004 to February 2005 in eleven provinces, autonomous regions and municipalities directly under the Central Government—Gansu, Qinghai, Ningxia, Shanxi, Inner Mongolia, Xinjiang, Yunnan, Guizhou, Sichuan, Guangxi and Chongqing. This survey, known as the Western Survey, aims to categorise the living and working conditions of rural and urban residents in western China through sample questionnaire investigations. The survey received funding from the Norwegian government and technical support from the Fafo Institute for Applied International Studies. It targeted households in western China (excluding Tibet) regardless of whether or not they were registered permanent residents during the survey period, and included members of the oating population. It selected samples by PPS (probability proportional to size) on the basis of the results of China’s fth census in 2000. A total of 44,000 families in western China were selected, 4,000 families from 252 villages or neighbourhoods in each province/autonomous region/municipality. Maps and spreadsheets were used to select suitable families. Surveyors, who received 5–10 days’ training, carried out interviews with the selected families. Statistics show that the survey covers 167,000 people from 44,000 households in 2,707 villages/neighbourhoods in 2,336 townships/towns/streets in 805 counties (or county-level districts and cities) under 128 cities/prefectures 1 Deng Dasheng, Ma Ying, He Guangxi and Xue Shu, all members of the NRCSTD Western China Social and Economic Development Monitoring and Research Team, also participated in work on the report. Deng Dasheng collected and sorted most of the statistics.

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in eleven provinces, autonomous regions and municipalities under the Central Government in western China. The survey also used GPS to collect basic geographic information on the areas involved, as well as to carry out a GIS analysis of them. This report elaborates on and analyses the survey’s results as regards water for daily use, drinking water, employment, household income, human resources, education, health, medical services and agricultural production in these regions.

I. Status of Residents’ Use of Domestic and Drinking Water The survey looks into a wide range of aspects of people’s life in western China such as housing, power supply, communications, water supply, fuel, kitchen appliances, sanitation, bathing facilities, waste disposal, etc. The following paragraphs will cover the stability and security of water supply for domestic use and drinking. A. Water Supply for Domestic Use by Rural Residents Faces Severe Seasonal Problems The survey asked residents in western China about their water sources, pipelines, their ease of access to water, and the stability of the water supply. Water for domestic use refers to water for family bathing and washing, and excludes that used for industrial, agricultural and animal husbandry use as well as for drinking. As regards the stability of the water supply, the term “basically stable” is used where there are no or only rare disruptions, “not so stable” where disruptions occur almost weekly or even daily in particular seasons/months, and “very unstable” for disruptions that occur on a daily or weekly basis around the year. It has long been believed that Northwest China has a bigger water problem than Southwest China, as the former runs short of groundwater. But when it comes to water for domestic use, the situation is equally worrying in Southwest regions. The foremost problem is the high incidence of seasonal problems in water supply in the countryside. Up to 24.3 percent of rural residents in the southwest have water supply problems on a weekly or even daily basis during certain seasons or months (See Table 1.1).

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Table 1.1. Supply Stability of Water for Domestic Residential Use in Western China Basically Stable Category

All of Western China Southwest Northwest Countryside Cities and Towns People on Minimum Income People on Low Income People on Medium Income People on High Income People on Maximum Income

Not So Stable

Very Unstable

Whole Country- Whole Country- Whole CountryRegion side Region side Region side 83.0

78.8

15.8

20.1

1.2

1.0

79.3 91.1 78.8 95.5 76.4

75.7 87.9 78.8 — 73.6

19.7 7.2 20.1 2.8 22.6

23.6 10.0 20.1 — 25.4

1.0 1.7 1.0 1.7 1.1

0.7 2.0 1.1 — 1.0

78.8

76.4

20.0

22.4

1.2

1.1

82.0

78.1

16.6

20.9

1.4

1.0

86.4

81.1

12.3

17.9

1.3

1.0

91.4

85.0

7.6

14.0

1.1

1.1

* Total families surveyed: 41,154, Rural Familes: 30,724, Urban Families: 10,430.

As Table 1.1 shows, the supply of water for domestic use is less stable in the southwest than in the northwest, less stable in the countryside than in cities and towns, and less stable among lower-income families than higher-income families. In families on minimum income, up to one-fth of respondents are unsatised with the unstable water supply. B. Drinking Water Safety situation is Worrisome, Particularly for Inhabitants of Rural Areas The safety of the drinking water supply has a sizeable impact on peoples’ health. We rate the safety of drinking water by assessing the safety of its source and processing before drinking. Safe water sources include waterworks, covered wells, pump wells, water wagons and bottled pure/mineral water. Unsafe water sources include open natural waters, such as rivers, lakes and reservoirs, and the rain/snow water which

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wang fenyu and zhao yandong Table 1.2. Drinking Water Safety Unit: % Water Source Safety

Processed before Drinking

Category

Safe

Unsafe

Always Boiled

Sometimes Boiled

Never Boiled

Whole Region Southwest Northwest Countryside Cities and Towns

62.6 54.5 80.6 51.6 95.8

37.4 45.5 19.4 48.4 4.2

71.3 64.7 85.7 64.6 93.6

21.3 24.8 13.9 26.1 5.6

7.4 10.5 0.4 9.4 0.8

* Total families surveyed: 41,156, Rural Familes: 30,723, Urban Families: 10,433 Note: Bottled pure/mineral water is excluded from the Processed before Drinking column.

people collect and store. Processing before drinking indicates whether the water is boiled before consumption. In general, more than one-third (37.4 percent) of families in western China are exposed to unsafe drinking water. This gure is higher among rural residents—48.4 percent. Up to 28.7 percent of families in the region as a whole and 35.5 percent of rural families do not always boil water before drinking it. A more worrying issue is that, among rural families who use unsafe sources of drinking water, 11.8 percent never boil the water before drinking it, and 30.6 percent only boil it occasionally. Drinking water security is an issue that cannot be ignored in any discussion on the health of rural residents in western China. C. Rural Residents in Southwest China Face Serious Problems with Drinking Water Source Safety and Stability An overall analysis of the safety and stability of drinking water sources in western China shows that safety is a bigger problem than stability. Only 55.3 percent of people in the region have access to a safe and stable drinking water supply. One quarter of families have unsafe but stable drinking water, while 11.7 percent of residents drink water that is neither safe nor stable in terms of supply. The problem is more conspicuous in the rural areas of Southwest China, where 18.6 percent people drink water that is neither safe nor stable in terms of supply.

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II. Employment In the families surveyed, all adults aged 16 years and above were asked about their working status. Unemployed members were questioned about their efforts to nd jobs. Those with work were asked about their working conditions and welfare situations, including occupation, area of business, type of employer, working hours, income and social security levels, as well as changes of job and secondary jobs. The following paragraphs will cover the main trends in the employment and unemployment situations of the working-age population in western China. A. General Overview of Employment People of working age (16 years of age and above) account for 77.5 percent of the total population of western China. This gure stands at 74.5 percent in the rural area and 82 percent in cities and towns. Where workers above 64 years of age are excluded, the working-age population accounts for 72 percent of the region’s total population. Of those 16 years of age and above in western China, 22.1 percent are not in the labour market due to schooling, military service or not wanting to enter the work market yet. This rate is 15.2 percent in the countryside and 35.9 in cities and towns, and 18.1 percent for men and 26.4 percent for women. In our survey, employment is deemed to be any paid job of more than one hour in the previous seven days, including farming, herding or shing activities, working for the family business, odd jobs or apprenticeships. When studying the distribution of the employed population in different occupations, the State Statistics Bureau classication was used, which divides all occupations in China into 19 sectors. 59.6 percent of western China’s working population are in farming, forestry, animal husbandry and sheries, 11.2 percent in manufacturing, 6.2 percent in construction, and 6.6 percent in the wholesale and retail sectors. Farming, forestry, animal husbandry and sheries employ 52.4 percent of working men and 68.0 percent of working women in the region, and 10.2 percent and 1.5 percent respectively in the construction industry. When the gures are analysed by type of employer, 10.1 percent of the local working population work for government departments, bodies and state-owned enterprises, 26.3 percent for collectively-owned and

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wang fenyu and zhao yandong Table 1.3. Unemployment Rate of Economically Active Population of Working Age (16–64) Category

Total Area Gender Age group

Educational level

Income level

a. Southwest b. Northwest a. Men b. Women 16–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 a. No schooling b. Below primary school c. Primary school d. Junior middle school e. Senior middle school f. Junior college level and above a. Minimum b. Comparatively low c. Medium d. Comparatively high

e. Maximum

General

Cities and Towns

Countryside

Total

Male

Female

2.0 1.7 2.6 1.9 2.2 5.1 4.0 2.5 2.2 1.9 1.7 1.7 0.8 0.5 0.3 0.6 0.8

5.9 5.4 6.3 4.9 7.2 6.5 6.8 5.6 5.9 5.7 5.4 6.9 5.3 4.1 2.1 6.1 5.7

4.9 4.8 5.1 — — 9.0 5.6 3.8 4.7 4.4 4.5 4.6 5.8 4.2 2.9 3.4 5.3

7.2 6.7 8.1 — — 4.1 8.1 8.0 7.5 7.4 6.7 10.7 4.4 4.0 0.7 7.8 6.2

0.8 0.7 0.9 0.8 0.7 4.4 2.7 0.9 0.6 0.5 0.4 0.4 0.1 0.1 0.1 0.3 0.4

1.5 3.2

6.4 7.0

4.4 5.7

8.7 8.7

0.7 1.3

4.1

6.1

5.6

6.8

1.4

2.4

2.3

2.1

2.5

3.2

1.8

14.6

13.2

16.5

0.9

2.0 2.2

8.6 4.8

6.6 4.0

11.3 6.0

0.6 0.8

2.2

2.4

1.8

3.1

0.7

1.8

1.4

1.1

1.9

0.8

* Total families surveyed: 82,964, Rural Familes: 60,905, Urban Families: 20,195.

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private enterprises (including joint ventures and individually-owned businesses), while an overwhelming 62.6 percent are farmers or selfemployed workers. B. Regional Unemployment Rate is 2 percent, and 5.9 percent in Cities and Towns The ILO (International Labour Organisation) denes the unemployed as people who have not held a paid job in the past seven days (excluding those who leave their posts temporarily on sick or maternity leave, or for other reasons), who are willing and able to work, and who have earnestly sought employment in the past 30 days. As it does not take into account seasonal unemployment or inadequate employment, this strict denition may however lead to the unemployment rate being underestimated. Statistics show that the overall unemployment rate stands at 2 percent in the eleven provinces, autonomous regions and municipalities in western China, comprising an urban rate of 5.9 percent and a rural rate of 0.8 percent (not including seasonal unemployment and inadequate employment). Of the economically active urban population, the unemployment rate is highest among those under 25 years of age, those with junior middle school education, and those on minimum or comparatively low incomes. In urban areas, more women (7.2 percent) are jobless than men. The rate is also higher—above 8 percent—among women aged 20–29 and 45–49 years of age, women with primary school to junior middle school education, and women on minimum or comparatively low incomes. These gures differ from those from the survey that we conducted in urban Beijing, Wuxi and Zhuhai at the end of the 1990s.2 The disparities can be attributed to differences in region and time, and, more importantly, to the stricter denition of unemployment that we have used in this survey, which is likely to bring down the unemployment rate.

2 The income items we took into account in the survey include: individual income, income from family business, income from agricultural production, lease income, pension, annuities, unemployment allowance, basic living allowance, alms, other government subsidies, gifts and gains from selling family property, whether in cash or kind.

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wang fenyu and zhao yandong III. Family Financial Situation

A. Family Income and Income Gap In order to ensure the accuracy of statistics, the survey asked people about all of their activities in the previous year that might generate income, and calculated the total income by adding up each sum, instead of having people estimate their earnings. This method yields results closer to the real income of families interviewed.3 The survey shows that annual family income averaged RMB 11,633 in western China as a whole, comprising a gure of RMB 17,964 in cities and towns, and RMB 9,525 in the countryside. The growing income gap is a widespread concern in China. On the basis of statistics from China’s Statistical Yearbook, scholars estimate that China’s Gini coefcient4 exceeded 0.465 in the year 2004, indicating a huge income gap across the nation compared with the situations of other countries. The survey also gives information on the income gap in western China, showing that the 20 percent of families on minimum income earn less than 4 percent of the region’s total income, while the 20 percent of families of the highest income backet pocket 50.5 percent of the total (see Table 1.4). The revenue of the richest 20 percent of families is 14 times that of the poorest 20 percent. The Gini coefcient in western China is 0.435 for the region as a whole, 0.396 for cities and towns and 0.419 for the countryside. These gures indicate that the income gap in western China is not as wide as generally perceived.5

3 Gu Yan & Yang Yiyong. “New Situations, Features and Countermeasures in the Income and Distribution Sectors”, 2005 Analysis and Forecast of China’s Social Situation. Beijing: Social Sciences Academic Press, 2005. 4 The Gini coefcient is calculated by categorising families into groups according to their incomes. 5 We should point out that instead of using individual income to calculate the Gini coefcient—which is the normal practice in China, we used family income in our calculation. The gap between family incomes is probably smaller than the gap between individual incomes. Additionally, we converted income in kind to an equal sum and included it in total income. This probably raised rural residential income levels and somewhat evened the gap between cities and countryside.

a survey of rural and urban residents’ living conditions

31

Table 1.4. Family Income Gap in Western China Households organized by income level into ve quantities 20 percent lowest income 20 percent second lowest income 20 percent average income 20 percent second highest income 20 percent highest income Gini coefcient

Share in Total Income of Entire Western region

Cities and Towns

Countryside

3.5%

4.1%

3.8%

8.6%

9.9%

9.0%

14.4%

15.4%

14.9%

23.1%

23.8%

23.4%

50.5%

46.7%

49.0%

0.435

0.396

0.419

Note: The Gini coefcient is calculated using the standard ve income level divisions.

B. Income of over 60 percent of Families in the Region Increases in Recent Years The Developing the West campaign aims to improve the living standard of people in western China. We therefore studied changes in family income over the past ve years in the region, and that found 62.9 percent of families acknowledge that their economic situation has improved (to a greater or lesser extent) compared to ve years ago, compared with 19 percent who saw no change, and 18 percent who claimed that their income had dropped. This result shows that the Developing the West drive has brought substantial benet to a great number of people in the West. Urban and rural residents generally hold different views of their nancial situations. Urban residents as a whole seem more pessimistic—the percentage of urban families who believe that their income has increased is 10 percent lower than that of rural families, while the percentage of urban families who believe that their income has decreased is distinctly higher than that of rural families. When asked to anticipate their incomes in the coming years, 63.6 percent of families in the region predicted growth, compared with 22.8 percent who saw no change and 13.5 percent who predicted a decline. In this area there is little disparity between rural and urban families.

32

wang fenyu and zhao yandong

This can be explained by the fact that most people in western China are condent about their future. C. Over 40 percent of Families in Western China are in Debt Our survey shows that only 58 percent of families in western China are free of debt. 10.1 percent of families owe a debt of RMB 2,000 or less, 11.6 percent owe RMB 2,000–5,000, 7.7 percent owe RMB 5,001–10,000, 8.1 percent owe RMB 10,000–30,000, and 4.5 percent owe more than RMB 30,000. The average debt of indebted families is RMB 10,401 each. Urban and rural families show distinct differences in the sums they are likely to borrow. Compared with their urban counterparts, fewer rural families in western China are debt-free or borrow over RMB 30,000, but a higher percentage owes sums below RMB 10,000. The average urban family debt is RMB 24,033, while that of rural families is RMB 7,845. These gures show that a larger proportion of rural families borrow money, but often in smaller amounts. In contrast, urban families either do not borrow, or borrow in large amounts. The reasons behind this difference lie in the purposes for which borrowers need the money. When asked to recall the cause of each debt over the past year, the surveyed urban families listed “building/purchasing a home,” “paying medical bills,’ “children’s educational expenses” and “business purposes” as the top reasons. Indebted rural families tended to borrow to “buy means of production,” “pay medical bills” and “pay for children’s schooling.” More urban families borrow money to build/purchase homes or do business, while more rural families borrow to buy means of agricultural production, such as seeds and fertiliser. As it costs less to buy farming equipment than to build/purchase a home or start/expand a business, rural families in many cases require only small contingency loans instead of the large loan amounts of their urban counterparts. Rural and urban families are on a par when it comes to borrowing to “pay for children’s schooling” and “pay for medical bills.” This reveals that medicare and education is an equal burden to the population of urban and rural areas alike. 71.8 percent of debtors borrowed from relatives and/or friends, while 25.7 percent approached nancial institutions such as banks and credit unions. This reveals that most people in western China still seek loans through private channels.

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33

IV. Human Resources and Education In the drive to develop western China, the tasks of improving the infrastructure, protecting the environment, adjusting industrial structures, exploring resources and advancing science and technology all require manpower to carry them out—the most important factor in any undertaking. The western region will not see rapid, sustainable economic and social growth unless it consistently beefs up the local education and human resources sectors. A. One-quarter of Western Chinese Adults are Illiterate The literacy rate is a key index to the educational level of a population. To measure the literacy rate in our survey, we adopted an internationally popular method: when asking interviewees if they could read an ordinary letter, we offered them three options—with ease, with difculty and unable to read. Our results show in the population of western China above 15 years of age, 58.2 percent can read with ease, 15.9 percent can read with some difculty, and 25.9 percent cannot read at all. It is an arduous task to improve education in western China when nearly one quarter of its population cannot even read an ordinary letter. The local literacy rate is much higher among men than women. Only 17.1 percent of the males surveyed in western region could not read a letter, compared with a gure of 35.5 percent for females, more than double the percentage. There is an even larger gap in the literacy rate between urban and rural areas—8 percent vs. 36 percent, or 1:4.5. These disparities indicate the areas where more efforts are needed to enhance human resources and improve the educational level of residents in western China. B. The Cost of Education is Becoming an Unbearable Burden Increasing nancial pressure from educational expenses is a widespread concern in China nowadays. The Chinese have a long tradition of prioritising children’s education, and in the past many parents would spend all they had to pay for their children’s schooling. As tuition costs and fees have soared in recent years, many families now nd they cannot afford to keep their children in school. We investigated the educational expenses of students in the most recent term in an attempt to discover the educational burden on families in western China. We

34

wang fenyu and zhao yandong

split educational expenses into “tuition costs and fees” and “other costs” (such as for uniform, accommodation and transportation). As Graph 1.1 shows, elementary school, junior middle school and senior middle school students in western China spend an average of RMB 421, RMB 1,296 and RMB 2,805 each on education every year, while college students pay as much as RMB 8,586 each. As average annual family income in the region is RMB 11,633, it costs 4 percent of a family’s annual revenue to support an elementary school student, 11 percent for a junior middle school student, 24 percent for a senior middle school student and up to 74 percent for a college student. It is evident that an average family in the region has no way to fund a child’s college education without using its savings or taking out a loan. This echoes our ndings on family debt—the cost of education is the main reason why many families in western China have to borrow. We can only imagine the burden that education expenses place on families whose income is below the average. Sociologists believe that education is a way not only to improve the cultural and scientic standards of the population, but also to ensure social fairness. Equal opportunities of education for all people can effectively promote intergenerational mobility and alleviate social inequality.

Educational expenses (RMB)

Graph 1.1. Average Annual per Capita Cost of Education in Western China 8000

Tuition costs and fees

7000

Total expenses

8586

6000 5000

5188

4000 2805

3000 2000 1000 0

1296 1668 421 334

805 Elementary school

Junior middle school

Senior middle school

College

a survey of rural and urban residents’ living conditions

35

When education becomes affordable only to particular classes of society, this leads to increased social inequalities, wider gaps between the rich and poor, and greater threats to social stability. China cannot therefore build a harmonious society without lowering the cost of education and securing its citizens’ rights to education. C. Developing Vocational Education is a Pressing Task The Developing the West campaign requires personnel of varying degrees of capability. The top tier can be either imported from outside the region or developed locally. But the overwhelming majority—workers with basic and medium professional skills—necessitate a local supply. Developing vocational education in western China is the primary way to create the population with the necessary basic and medium-level practical knowledge and skills required by local economic and social development. Compared with the East, western China has a more pressing need for such personnel and therefore faces a more urgent task to promote vocational education, which is currently greatly underdeveloped in the region due to historical reasons. Every 1,000 residents in the eleven provinces, autonomous regions and municipalities covered by our survey include 5.4 secondary specialised school and technical school students, this gure varying between 6 and 5.3 for urban and rural areas respectively; 1.2 vocational high school students, 1.4 and 1.1 in urban and rural areas respectively. According to the State Statistics Bureau of China, the national level per 1,000 people for 2004 is 6.8 secondary specialised school and technical school students, and 40 vocational high school students. The western region lags far behind the rest of the nation in vocational education. Since the Developing the West drive was initiated, a larger proportion of junior middle school graduates have entered higher-level schools, mostly senior middle schools. However, secondary vocational schools have insufcient applicants, their graduates have difculties nding work, and their growth is therefore slow. Our survey shows that the number of students in secondary vocational education is less than one-third of that of senior middle school students in western China. The region has a long way to go before reaching the goal of “roughly matching the annual enrolment of secondary vocational schools with that of senior middle schools,” which was set in 2005 in the “Decision by the State Council to Strenuously Develop Vocational Education”.

36

wang fenyu and zhao yandong V. Health Care and Medical Services

Chinese people are paying more attention to their health as living standards have improved. In recent years, medical costs have become a widespread concern for people from all walks of life around China. Financial pressures mean that many people do not see a doctor when they are ill, and wait until the illness is serious, at which point they must pay much more for treatment. A vicious circle thus forms—the poor are more likely to become sick; and once sick, they become poorer. This is the case in the western areas. A. A Vicious Circle of Poverty and Illness China’s western region is economically backward, and so is the health condition of its people. In 2003 the Chinese Academy of Sciences carried out an evaluation of the Chinese people’s health, giving ve-grade scores in four aspects—life expectancy, height, illness and educational level. The results show that the western regions rank bottom in almost all aspects, lagging far behind the central and eastern regions.6 Our survey found that 17.8 percent of residents in western China suffer from chronic disease. We divided this group into ve equal groups according to income. From the poorest to the richest, the incidence of chronic diseases were 20 percent, 18.6 percent, 17.1 percent, 16.8 percent and 15.9 percent respectively, indicating that those with higher incomes are less subject to chronic diseases. This disparity in health between the rich and poor is also reected in people’s self-assessment (see Table 1.5). An overwhelming 74.3 percent were content with their health, compared with some 25 percent who felt that their health was “not so good” or “very bad.” People with higher incomes were more satised with their health. It is evident that health is inuenced by social and economic status. The well-off enjoy better health, while generally speaking, the needy are physically fragile and may plunge deeper into nancial distress once they fall ill.

6

“People of Eastern China Are Healthier”, Health, 24 October 2003.

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37

Table 1.5. Self-Assessment of Health by People with Different Income Levels Self Estimation of Health (%) Category

Population organized by per income into ve 20% quantiles

Minimum income Low income Medium income High income Maximum income

Very good

Good

Not so good

Very bad

15.5

49.3

29.0

6.2

17.4

53.0

25.4

4.2

20.3

55.1

21.6

3.1

22.4

55.0

19.2

3.4

25.9

58.1

14.4

1.6

B. Medical Services: Inadequate Infrastructure or Exorbitant Charges? Medical institutions are society’s major means for helping people recover from illness and maintain their health. China’s medical and health sector has made outstanding progress in the decades from 1949 to the 1980s. Since the 1990s, it has undergone reform together with all other aspects of Chinese society, diversifying the ownership of medical institutions, and commercialising medical services. These changes have led to improvements in the sector, but have also increased medical expenses to an extent that many people nd difcult to afford.7 According to our survey, of the people who received illness or injuries in the previous 30 days, only 77 percent went to the doctor. Of those who didn’t, 43.1 percent cited “economic concerns”, 30.8 percent managed to treat themselves, 24.6 percent saw no necessity to see a doctor, and only 2 percent complained about having no appropriate medical service providers in their regions. The result shows that a major reason why many people don’t seek medical service is that they cannot afford it.

7 Wang Shaoguang. “The Crisis and Favorable Upturn in Chinese Public Medical Care”, Comparison, Issue No. 7, 2003.

38

wang fenyu and zhao yandong Table 1.6. Medical Expenses of People of Different Income Levels in the Previous Year Unit: % Medical expenses in the previous year Category

No expenses

RMB 100

RMB 100–499

RMB 500– 10000

RMB 10000

Total

15.3

23.8

36.3

20.2

4.4

Minimum income

19.0

26.9

31.1

16.7

6.3

15.8

26.4

35.9

18.0

3.8

14.5

24.7

37.2

19.7

3.9

13.5

22.5

38.1

22.2

3.7

13.1

16.6

40.7

25.7

3.8

Population organized Low income by per capita Medium income income into ve High 20% income quantiles Maximun income

C. Medical Care, a Cost for All Of the people we surveyed, 15.3 percent had not incurred any medical expenses in the previous year, 60.1 percent paid less than RMB 500, and 4.4 percent spent more than RMB 10,000 on health (see Table 1.6). In general, infants and the elderly incurred higher outgoings for medical services than the young and middle-aged. There was however little difference between the average sums paid by individuals with different educational and income levels. Regardless of their economic status, people must seek medical advice when they are ill, particularly when they are seriously ill, and pay for it. It is noticeable that the minimum income group sit on both ends of the medical expense ladder: they have the highest number of people who spent nothing (19 percent), less than RMB 100 (26.9 percent) and more than RMB 10,000 on medical service in the previous year. While a large number of the poor incur no health expenditure at all, many others of them however spend a lot. This echoes our nding in the sections above; low-income people are prone to poor health, but for economic reasons, almost half do not consult a doctor when they contract an illness until it worsens to a degree where treatment costs much more.

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39

Medical expenses are an issue not only for the patient but also for his/her family, particularly when large sums of money are involved. Our survey found that approximately 15 percent of families in the west spent at least half of their incomes on medical service in the previous year, and 7 percent spent almost all of their income or more. It is evident that medical expenses are a heavy burden on families in the region. A family is likely to plunge into nancial crisis when a member falls ill.

VI. Agricultural Production Western China is one of the nation’s key agricultural areas. According to the State Statistics Bureau, it is home to 28 percent of China’s farmland and 34 percent of its farming population. Enhancing the agricultural productivity of the region is therefore crucial to improving local living standards, promoting local economic development, and even providing sufcient food for the whole nation. A. More than 70 percent of Western Families are Engaged in Agriculture China’s denition of its farming population is usually based on their residence registration, which includes two classications—urban and rural. For our survey, we used another measure—whether people actually worked in the agricultural sector. Any family involved in agricultural activities in the previous year was deemed to be an agricultural family regardless of their residence registration classication. Those who lived in the countryside but who didn’t work in agriculture in the previous year were not included in the agricultural population. This method helped us gain a better idea of how many people in the west depend on agriculture. The survey shows that 72.9 percent of families in western China were involved in some kind of agricultural activity in the previous year.8 12.4 percent of long-term urban resident families were dependent on agriculture. These are believed to live in suburbs and small towns. In contrast, 7 percent of long-term rural resident families did not engage

8 Agricultural activities refer to agricultural activities in a broad sense and include farming, breeding livestock and aquatics, sheries as well as collecting wild fruit, vegetables and herbs.

40

wang fenyu and zhao yandong

in any agricultural activities in the previous year. This means that many rural traditional farming families have completely left the agricultural sector. B. 60 percent of Villages Suffered Natural Disasters in the Previous Year Natural conditions make agricultural production harder in western China than in the central and eastern regions. The northwest is mostly desert land with scarce rainfall, sparse vegetation and severe soil erosion. The southwest receives more rainfall, but is hilly, has large swaths of limestone terrain and a low rate of per capita farmland. In the northwest each agricultural household owns 10.6 mu (1 mu = 1/15 hectare) farmland, with each member owning 2.7 mu on average, compared with 4.1 and 1.1 mu respectively in the southwest. The percentage of families whose farmland is exclusively on steep slopes stands at 12.7 percent in the northwest and 31.6 percent in the southwest. Extensive cultivation is common in the west, and harvests are heavily dependent on the weather. The percentage of families whose elds are not irrigated was 31.7 percent across the whole region, and as high as 36 percent in the northwest. In addition, the west is subject to natural disasters. Of the 1,900-odd rural communities (administrative villages) covered by our survey, 60.7 percent were hit by severe natural disasters of one kind or another in 2004.9 The most common disasters in the region included drought, ood, insect pests and hail (see Graphs 1.2 and 1.3). C. Ten percent of Agricultural Families in the West Lost Land in the Previous Five Years Despite of its huge territory, China has relatively little land for agriculture, with a tiny per portion per head of population. This scarce land resource, however, has dwindled in recent years due to economic growth and the progress of urbanisation, a fact borne out by our survey. Our survey found that, of the families in the west involved in agricultural activity, 9.7 percent had lost agricultural land in the previous ve years due to various reasons. 48.4 percent of the total lost acreage

9 Severe natural disasters refer to those that cause severe economic losses and high death tolls to people and domestic animals.

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41

Graph 1.2. Natural Disasters in Northwest China (Percentage of Villages)

23.8

Drought Frost

22.3

Flood

19.3

Hail

15.6

Insect pests

13.7

Sandstorm

8.9

Snow

6.4 4.8

Animal epidemic Landslide

4.2

Other

2.3

Earthquake

1.6 0.0

10.0

20.0

30.0

Graph 1.3. Natural Disasters in Southwest China (Percentage of Villages)

33.6

Flood Drought

29.1

Landslide

15.2

Insect pests

12.8

Hail

9.5

Sandstorm

6.2

Animal epidemic

4.6 4.0

Snow Frost

3.3

Other

3.2

Earthquake

1.1 0.0

10.0

20.0

30.0

40.0

42

wang fenyu and zhao yandong

was devastated by natural disasters such as oods, landslides and earthquakes, with oods incurring the highest loss (33.8 percent); 41.8 percent was requisitioned by the state to build roads, plants or for urbanisation; and 6.9 percent went for other purposes (see Graph 1.4). Land is a farmer’s essential means of subsistence. Loss of land therefore has tremendous impact on their life and production. In our survey, 68.4 percent of families who had lost farm land said that the loss had made their life more difcult. Governments at various levels and relevant bodies have made great efforts to provide aid and compensation to these families, and our survey shows that 31.2 percent of families had received various kinds of compensation and aid.10 But this percentage varies according to the reason for the loss of land. Only 7.6 percent of families who lost land in natural disasters were compensated, the lowest of all groups. Families whose land was requisitioned for road construction or urbanisation reported a much higher compensation rate—60.8 percent. However a signicant number of farmers received no aid or indemnity after being deprived of their land. The problem is most prominent among those who lost land due to natural disasters, necessitating more government effort to aid the poor. As nearly 40 percent of rural families whose land were expropriated to build roads, manufacturing plants or for urbanisation received no compensation at all, it is imperative to regulate farmland requisition by local governments and companies so as to protect farmers’ rights and interests. D. One-fth of Families Participate in the Grain for Green Project, Most are Subsidised The campaign to convert cultivated land into forestry and pastures is a key government measure to protect the eco-environment and generate sustainable development. From 1999 to 2004, 287 million mu (over 15 million hectares) of land were converted into forest across China, making a substantive contribution to environmental protection. Also worth noticing, however, is the campaign’s impact on the farmers involved. Our survey found that 22.3 percent of agricultural families had participated in the “Grain for Green” drive during the previous ve years. The rate was higher—30 percent—in Chongqing City, Ningxia Hui Autonomous Region and the provinces of Sichuan, Gansu and

10

In the form of new land, jobs, cash and kind.

a survey of rural and urban residents’ living conditions

43

Graph 1.4. Causes of Agricultural Land Loss

Qinghai, all of which were key campaign implementation regions. Of the land given by these families, 58.1 percent was converted into ecological forest, 32.5 percent to economic forest, 7.7 percent to pasture, and 1.7 percent was used for other purposes. We also studied the compensation issue of the campaign. The survey found that 95 percent families were promised subsidies for handing over their land, and 99.5 percent had had this promise fullled, testifying to the government’s painstaking efforts in this area. Despite the government subsidy, however, the campaign still affected family income. When asked to evaluate its economic impact, 19.4 percent of families said that their incomes had increased after joining the campaign, while 55.3 percent saw no change, and 25.3 percent thought their incomes had decreased. This leads to the question: what will these farmers do when the subsidy period expires? The answer of 51.8 percent families we spoke to was to maintain the status quo; 23.7 percent said they had not yet thought about this, and 5.8 percent would transform their lands into economic forests from the current ecological

44

wang fenyu and zhao yandong

forests; it is worth noting that 9 percent wanted to grow crops in the woods on their land, and 8.6 percent planned to convert their land back to farm or grazing land. State-level decision-makers need to pay serious attention to the fact that almost 20 percent of farmers in the Grain for Green campaign will once again plough up their land when they no longer receive government subsidies. E. Almost 20 percent of Agricultural Families Gave Up Cultivation in the Previous Year The phenomenon that some farmers are abandoning cultivation or leave their land fallow has drawn increasing nationwide attention in recent years. Our survey found that in the previous year 12 percent of agricultural families in the west leased their land to others, while 6.5 percent left the land to lie fallow for the whole year. Up to 17.5 percent of families gave up cultivation in the previous year.11 When asked for the reason for leasing out their land, 56.7 percent of families who did so said they had insufcient manpower, and 34.9 percent thought that there was little prot in farming. Of the families who abandoned their land, 40 percent cited infertile soil and fear of natural disasters as the reasons, and others complained about insufcient manpower and the low rate of return from farming. Harsh natural conditions and low prots were farmers’ two main reasons for ceasing working their elds. Farmers’ emotional bonds to the land appear to be weaker nowadays. When asked if they would like if possible to rent more land, 59.8 percent of agricultural families replied no. Asked if they would give up their land if they could nd jobs in the cities, 57.2 percent said yes. This difference shows that a signicant proportion of farmers are not pinning their hopes of a better life on farming. Agriculture and rural development in western China have now come to a crossroads. To achieve social and economic development in the 21st century, China must face and deal with issues of adjusting industrial structures in its rural areas, improving agricultural production efciency, and meanwhile, creating jobs for surplus rural labourers. 11 Giving up cultivation means leasing out some or all of the farmland owned by a family, or allowing it to lie fallow. Since a family may lease part of its land and abandon the rest, the percentage of families who abandoned cultivation of their land is higher than the sum of families who lease out land or leave it to lie fallow.

AN ANALYTICAL REPORT ON CHINA’S CURRENT SOCIAL PSYCHOLOGY Wang Junxiu

The objective of building a harmonious society and the corresponding political, economic, social and cultural policy adjustments to meet this objective have undoubtedly had a signicant impact on social psychology. An understanding of the general public’s social psychology in certain social environments at specic periods can serve as important parameters for governments in formulating policies and setting the direction for government services. This article, based on review and analysis of recent articles published by research institutions, the media and investigative agencies, attempts to analyse and describe the characteristics and changes in current social psychology.

I. Basic Social Needs The scientic development concept of “putting people rst” is by now widely used and has gained widespread popular acceptance. However, a primary requirement is to clearly understand the implementation of “putting people rst”, as well as the steps required. American psychologist Abraham Maslow conducted research into peoples’ basic needs, classifying these into different levels, namely physical needs, security needs, the need for love and belonging, the need for respect and the need for self-realisation. These ve needs are inter-related, and are incremental—a need cannot be met until the proceeding ones are met. Although Maslow’s theory has been widely criticised academically, it has been a very inuential theory and will be helpful as a tool and reference. Governments at all levels must gain a primary understanding of people’s basic psychological needs, and the social needs that are based on these basic needs. A. The Objective of and Social Need for a Harmonious Society On 10 March 2004, General Secretary Hu Jintao expounded a new development concept that places people rst and emphasises

46

wang junxiu

comprehensiveness, coordination and sustainability in a speech delivered to the Central Committee on Population, Resources and Environment. On 19 September 2004, the 4th Session of the 16th Chinese Communist Party Congress ofcially put forward the goal of building “a society where everyone can fully utilise their abilities, are prosperous, and also live together harmoniously”. This development objective of a “harmonious society” is popular with the general public, but they may have a different understanding of what is meant by a “harmonious society”, and their expectations of a “harmonious society” may also differ. It is therefore important to understand what the social development objective of building “a harmonious society” means for the ordinary man on the street. In the lead-up to the NPC and CPPCC sessions in 2005, the China Economic Times and Sohu conducted a joint survey on the Sohu.net web portal. The question asked was, “what issues most concern you in building a harmonious society?” 3,700 people gave answers, with the top ve concerns being “wealth between rich and poor”, “social welfare and re-employment”, “environmental protection”, “agricultural and farmer issues”, and “control of the real estate sector”. This suggests that people are primarily concerned about the basic needs for living.

25

23.73

(%)

20 15

14.59

14.19 11.73

10 5

8.84

7.54

6.68

6.35

6.24

We al

th g ric ap be h a tw nd een So po cia or lw ree elfa mp re loy and me nt En vir on pro men tec tal Ag tio ric n ult far ura me l a r is nd sue Co nro s l of e t Sto state he re sec al ck m t div arke or isio t eq n r uit efo y Re gio rm nal dev econ elo om pm ic ent ent St erp ate rise -ow ref ned Ta or m xs yst em ref or m

0

Graph 2.1. Chief concerns in developing a Harmonious Society (Sohu.net sample of 3700)

47

an analytical report

During the NPC and CPPCC sessions in 2005, the China Social Research Agency surveyed people’s attentiveness to the sessions, and asked what were the topical issues for the general public in the cities of Beijing, Shanghai, Guangzhou, Shenzhen, Wuhan, Changsha, Shenyang, Chongqing, Changchun and Xi’an. A total of 1,500 questionnaires were returned, with the majority indicating that people were concerned about “wealth distribution, income disparity and social injustice”, “real estate and property”, and “employment and reemployment”. Most people were also concerned about “price uctuations”, the formulation of the Anti-secession Law, “the expected turnaround of the securities market” and “irregular education fees”. A relatively fewer number were concerned about “loss of state assets”, “anti-corruption” and “social security”, accounting for 40 percent of the total number of questionnaires.

100 90

90

89 83

80

81 72

(%)

70 60

69 57

50 43 40

41

39

30 20 10

W inc ealth om dis e d trib soc ispar ution ial ity in an s, Re justic d al e e sta t e pro an per d Em ty plo y ree me m p nt loy and Pri me ce nt u ctu atio Fo ns An r mul ti-s atio ece n o Un ssio f t of expec n L he the ted aw sec tu r uri na Irr ties m roun egu ark d lar e edu t cat Lo ion ss o f st fees ate ass ets An ti-c orr up tio n So cia l se cur ity

0

Graph 2.2. Topical issues of concern to the public

48

wang junxiu

Resolving the securities market predicament

72.9

Increasing farmers’ income

35.3 28.0

Wealth distribution Employment, reemployment and social security

21.4

Housing and car prices

18.1

Irregular education fees, urban school choice, etc. State-owned enterprise reform and loss of state assets Counterfeit and inferior products, food safety Environmental issues and protection The Overlord’s Clause and breaking up industrial monopolies Macro control and China’s economic development Scarcity of fossil fuels

17.6 16.3 13.9 12.7 11.9 11.8 8.9

Preventing industrial accidents

8.5

Standardized compensation for displaced residents and farmers

7.3 0

10

20

30

40

50

60

70

80

(%)

Graph 2.3. The public’s foremost economic concerns (Sina.net survey sample of 1,628 people)

The Sina web portal also conducted an online survey during the two sessions on the topic of “economic developments that most concern you in 2005”. The results showed that “resolving the securities market predicament”, “increasing farmers’ income”, “wealth distribution”, “employment and social security”, “housing and car prices” and education-related issues were the public’s foremost concerns (See Graph 2.3). Although an online survey is restricted in terms of popular access, and this questionnaire was also relatively narrow in scope, the ndings to some extent still reect social views. These surveys reveal certain characteristics, as follows: (1) at present, the basic life needs of the general public remain the most urgent, and must be met in the rst place; (2) people’s future expectations appear to be realistic; (3) unlike Maslow’s perspective that demand based upon individual aspirations, the public seems to be concerned about whether

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other people’s basic life needs are met. (4) The public combines closely connected individual needs with overall social development, thus forming a consensus to build a “harmonious society” from bottom to top. B. The Public’s Willingness to Participate in Social Activities Over the past year, discussion on “harmonious society”, concern over the progress of cross-Straits exchanges, but also pride over the successful launch of the Shenzhou 6 spacecraft have demonstrated the public’s concern and enthusiasm in participating in national affairs. Along with increasing civic awareness, participation in public affairs will become an inevitable trend as public living standards continuously improve. The research centre of the News and Media Institute of the Chinese Academy of Social Sciences obtains its data from the www.comrc.com.cn website, which it hosts itself. The 2005 Social Awareness Survey, conducted in Beijing, Shanghai, Guangzhou, Shenyang and Chengdu, shows that citizens who participate in public affairs because they “are concerned about community work”, “want to participate in the selection process” or “want to be aware of community-related public affairs” accounts for a high proportion of those who do so. Fewer people are concerned about “becoming involved in dealing with local issues and activities”, “participating in local government-related activities” and “joining Party-related activities.” Less than 10 percent of the total chose none of the above. This shows that the public place major emphasis on community-related activities in public activities, and on selection in political activities; they are less involved in public affairs (Graph 2.4). 1. Political Involvement The 2005 Social Awareness Survey conducted on the Comrc.com.cn site shows that respondents from different cities show differing levels of interest in politics. In general, there is a halfhalf split between those who are interested in politics and those who are not (See Table 2.1). Respondents who frequently and occasionally discuss politics account for 10 percent and 41 percent respectively; those who never and seldom do so account for 17 percent and 32 percent respectively. Generally speaking, the popular understanding of political interest is mainly at the macro-economic or national level, which is expressed mainly in terms of personal concern about state political trends. Public

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47.4 44.0

43.6

40.0

(%)

35.0 25.0 20.0 15.0 10.0

22.0 15.6

15.0 9.4

5.0 1.2 com Fo mu cusin nit g o yw n Pa rtic ork i sel pati Un e n ctio g der n p in th sta nd roc e rel ing ess ate co d p mm ub lic unity affa De irs a issu lin es g w a i nd th gov act loca ern Pa ivit l me rtic ies nt- ipa rel ting ate i d a n lo ctiv cal itie J o s rel inin ate g d a Par ctiv tyNo itie ne s of the abo ve Un cle ar/ no ans we r

0.0

Graph 2.4. What kind of activities do you think citizens should participate in?

political enthusiasm and the level of concern about national affairs is more easily gleaned from reactions to certain social events. On 27–28 April 2005, the “China Youth” survey centre conducted a survey about the visit of (Taiwan political gures) Lian and Song to the mainland. 95.8 percent of respondents had been keeping an eye on the news, while only 4.2 percent said they knew nothing about it; 65.1 percent thought the visit would promote the peaceful reunication of Taiwan and the mainland. From these results, we can see that public enthusiasm for direct involvement in political activities is not very high, but there is nonetheless a very high degree of concern. Certain major events also reected increasing public participation in public affairs, such as the spontaneous nationwide surge in charitable donations to survivors of the Southeast Asian tsunami.

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Unit: % Classication Very interested Interested Not very interested No interest No idea/ no answer Total

Beijing

Shanghai Guangzhou Shenyang Chengdu Average

7.0 46.0 30.0

9.0 47.0 27.0

4.0 48.0 33.0

10.0 49.0 30.0

— 27.0 41.0

6.0 43.4 32.2

17.0 0

17.0 0

15.0 0

11.0 0

31.0 1.0

18.2 0.2

100

100

100

100

100

—

The level of public participation is related to increasing government transparency in public decision-making, and the measures taken to encourage public participation in public affairs. It is also related to the availability of convenient participation platforms and the reduction in cost of doing so—people can now easily participate in political affairs via telephone, SMS (text message), the internet, e-mail, etc. These new features of public participation were widely used in such fora as discussions on harmonious society, involvement in the Summer Palace environmental protection incident, and the expression of views on changes to the personal income tax threshold. The main arena of direct political participation for the public is the electoral process. In the ndings above, electoral participation came second only to community activities, accounting for 44 percent of respondents. The 2005 survey shows that the ratio of public concern over People’s Congress election results is close to the gures outlined above, with those very interested accounting for 2.6 percent; those interested accounting for 36.6 percent; those with little interest, 45.6 percent; those with no interest at all, 14.4 percent; and those who have no idea or no answer accounting for 0.8 percent. If we classify public participation in political affairs in terms of forms of organisation, i.e. personal participation, multiple participation, and group participation; and in terms of participation modes, i.e. receipt of information, expression of ideas, communication and exercise of inuence, the electoral process is a means of participation for individual expression of personal perspectives and attitudes. The activeness of participation is closely related to the personal inuences inuencing

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participation and the election result inuencing the individual. For instance, villagers show great enthusiasm in village committee elections. Psychological research into village elections divided electoral behaviour into “political orientation” and “non-political orientation”. “Political orientation” is voters’ awareness of the signicance of the electoral system. “Non-political orientation” comprises factors that inuence a voter’s choice. Study results revealed that “political orientation” comprises the following four elements: (1) reecting voters’ awareness of the signicance of the electoral system in safeguarding the long-term interests of the country, raising the state’s international reputation and promoting rural economic development; (2) reecting voters’ awareness of the signicance of the electoral system in improving popular living conditions; (3) reecting voters’ awareness of the signicance of the electoral system in safeguarding and guaranteeing villagers’ political rights; and (4) reecting voters’ understanding of the connection of the electoral system to the issue of village cadre supervision. The major factors in “non-political orientation”, meanwhile, are “identication of the candidate”, “the moral standard and skills of the candidate”, advice from the candidate’s family, relatives or friends.1 In general, public participation in political affairs is primarily through individual participation, with relatively minor multiple and group participation; its dominant forms are the acquisition of information and the expression of attitudes and views, while only seldom is there any interaction. 2. Participation in Community-related Activities In the survey on areas of participation, although the rate for community-related activities is higher than that for political affairs, the rate of proactive participants is not very high. The results of the 2005 Social Awareness Survey show that the rate for those who believe that they should be actively involved is approximately 36 percent. In reality, the participation rate will presumably be lower (See Graph 2.5). Another survey found that 17 percent of people are very willing to participate in community affairs, whereas 29 percent would like to participate—a combined total of 46 percent. However, this willingness to participate varies greatly according to differing specic situations.

1 Zhang Feng et al., “Structural Features of the Behaviour of Village Voters”, Applied Psychology Vol. 4, 2004.

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(%)

25.0 20.0

17.6

15.0 11.0 10.0 5.0

3.0

0.2

0.0 1 2 3 4 5 6 Note: The numbers represent the levels of participation, 1 representing the highest level and 6 the lowest.

Graph 2.5. Respondents’ opinions on levels of public participation in decision-inuencing activities

The percentage was highest for issues closely related to individual economic interests, where those who expressed “strong interest” and “relatively strong interest” reached a combined total of 87.2 percent. For example, the percentage of homeowners was much higher than that of renting tenants. The percentages for social services, recreation and sports activities were close to each other, at a very low rate of 4 percent. Furthermore, a higher number of the elderly, those with poor educational backgrounds and long-term residents tended to participate in this type of activity. At present, founding an owners’ committee is usually associated with the protection of owners’ rights, and serving as a member in an owners’ committee is closely related to personal rights and interests. Participation rates in owners’ committees were therefore higher than those for social services, recreation and sports activities.2 The previous study also found that major problems for the public when participating in public affairs include low community awareness, relatively little community organisation, lack of community activities,

2 Wang Xiaozhang: “Citizens’ Willingness to Participate in Community Related Activities”, Zhejiang Social Sciences Vol. 4, 2004.

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low levels of community management, and a weak sense of community belonging.3 As work unit functions weaken and community functions improve, community building requires further public participation, a process which requires the mobilisation of popular enthusiasm, increased participation rates, the stimulation of the public’s motivation, and an improvement of the quality of participation.

II. Social Anxiety In psychology, Social Anxiety generally indicates an inner unrest which is aroused when one’s own social role and social behaviour does not meet the required targets in the individual socialisation process. In this article, this refers to the common popular anxiety which arises when a certain individual demand cannot be met. There are various kinds of social anxiety, with Risk Anxiety and Fairness Anxiety being the most distinctive. A. Risk Anxiety Different individuals experience different levels of danger, but a good number of people feel more strongly that danger comes from all aspects of life. In the general population, Risk Anxiety mainly indicates anxiety arising from environmental dangers, as well as pressures and threats in their daily life. The 2003 and 2004 surveys on sense of security conducted by the State Statistics Bureau show that social atmosphere, social order, employment and unemployment, education and corruption are the issues of highest concern to the public (See Graph 2.6). Starting in November 2004, the China Social Investigation Agency conducted a survey of 2,000 people nationwide on public’s satisfaction. The satisfaction ratio for questions related to security was relatively low; only for the category of property security did the “satised” and “very satised” replies exceed 20 percent.

3 Qin Ying et al.: “Survey of Citizens’ Community Awareness”, Reform and Strategy Vol. 8, 2003.

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2003 20.17 18.89

(%)

20.00

15.62

15.00

17.10 17.2716.79

2004

15.92 13.73

14.55

14.26

10.00

6.89

8.39 4.34 4.66 4.00 3.37 2.07 1.99

5.00

me rel nt an oca d tio n

usi n

g

ace Di spl

Ho

s En vir on pro ment tec al tio n

Sa

lar

ya

nd

wa ge

up tio n Co rr

pl un oyme em n plo t an ym d ent Ed uca tio n

l or der cia So

Em

So

cia

l at mo

sph

ere

0.00

Graph 2.6. Social issues of most concern to the public

Such results are inevitably restricted by the multiple choice answers, and do not fully reect the population’s reaction to the variety of risk factors in the social and natural environments. But the relatively low satisfaction with current living standards indicates that the public have a higher level of risk anxiety over personal and property security, unemployment, and destruction of the natural environment. Current social surveys into Sense of Security focus more on security and social order, while the State Statistics Bureau’s 2003 and 2004 surveys on Sense of Security show that the major factors inuencing public social security are crime and public disorder, with approximately one-third of respondents selecting both of these. In fact, threats to personal security come from many areas, and even include food security, which is closely related to the population’s daily life. Issues have frequently arisen in recent years related to food security. The more usual concern over food hygiene has been replaced by concern over food safety. People are extremely aware of the danger inherent in food. In 2005, Xiao Kang magazine conducted a nationwide sample survey. The survey factors affecting food safety including the degree of pollution in foods, the inuence of applied science and technology on food, and subjective feelings. Out of a total possible 100 points, food safety received a rating of only 49 points. A survey conducted by “China Youth” survey centre in 2004 shows that 82 percent of people are concerned about food safety issues. A consumer safety survey jointly conducted by Sohu and a market research rm in 2005 shows that over

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90 percent of people intend to alter their consumption habits because of production safety issues. Psychologist Karen Horney made an easy distinction between anxiety and fear. She believed that fear is a person’s reaction to a clear, physical danger; while anxiety is more likely to be a reaction to an imagined danger. To most people, the constant occurrence of misdeeds and food safety issues, give them the feeling that they may get hurt at any time. According to German sociologist Niklas Luhmann, the main dangers facing people in modern society are not disasters or unpredictable natural threats, but instead dangers from fellow humans. As human society has accumulated knowledge, natural dangers have gradually become understood and humans have gradually learned how to escape these. Control over the environment has improved our sense of safety, and reduced our sense of anxiety. Compared with the natural environment, however, our social environment is more complicated, and it is this form of unpredictability which individuals feel unable to handle and control. A population’s ability to identify and face danger is a vital issue. From a social point of view, methods must be found not only to reduce danger, but also to eliminate the excessive anxiety which people feel upon encountering a dangerous situation. B. Fairness Anxiety The China Social Investigation Agency conducted a survey on social issues of highest concern to the public in the China Economic Times and on the Sohu web portal, and the disparity between rich and poor ranked rst in the results. A survey on social conditions and public opinion conducted by the Beijing Institute of Social Psychology in 2004 identied the disparity between rich and poor as the most serious social problem. This issue ranked a mere 5th position in 2000, but jumped into rst position in 2001 and has remained in that position since then, indicating that the wealth disparity already exceeds a popularly acceptable degree. Nowadays, numerous discussions on this issue not only consider the economic and macro policy angle, but wealth disparity is now considered equal to social unfairness. As the wealth disparity gap cannot be completely eliminated, efforts to narrow the disparity should on the one hand be implemented, while attention should also on the other hand be paid to the fairness anxiety issues caused by the widening wealth disparity.

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In surveys conducted by the Beijing Institute of Social Psychology, citizens named the widening gap between rich and poor, corruption, food safety, social safety and employment as issues requiring urgent attention and solutions. Similarly, the widening gap between rich and poor, corruption, increasing prices, housing, and social safety were identied as the issues which most inuence the public mood. The reasons for the strong social dissatisfaction with the widening gap between rich and poor are linked to the realisation and understanding of the widening gap. The survey conducted by the Beijing Institute of Social Psychology shows that 76 percent of respondents believe that the gap is wider than previously, 12.9 percent think it is the same, only 3.5 percent believe it has narrowed, and 7.6 percent have no feelings on the matter. The popular realisation of the gap is not essentially based on statistics, nor the Gini coefcient, but rather on a perceived understanding, and respondents were usually unable to comment objectively on the reason for the gap. As a result, many people associated the gap with corruption or illegal earnings. The survey shows that the public’s understanding of the reason for the gap is an important factor inuencing fairness anxiety. The survey also shows that the public were more inclined to seek an external reason from a social perspective; only relatively few people considered the reason to be a personal one. 12.2 percent believed it was due to individual skill, 8.1 percent thought it was due to family background, while the remainder thought it was due to social factors such as corruption and disparities in profession. The understanding of the widening gap between rich and poor is closely related to the respondent’s position on the scale between rich and poor, and their understanding is based on their judgment of themselves. The closer they believe themselves to be poor, the stronger their sense of a widening gap. If they conclude the reason to be social, those who consider themselves poor tend to feel powerless to alter the situation, and believe that their own efforts will be pointless. As they are unwilling to see the situation for what it is, a strong unfairness anxiety is easily aroused. This point is also proven by one of the surveys conducted by the Beijing Institute of Social Psychology. Respondents from different social classes order social issues differently: the top ve serious social issues in the upper-middle class are: corruption, the gap between rich and poor, social safety, food safety and increasing prices; the priorities in the lower classes however are: the gap between rich and poor, increasing prices, corruption, employment and housing. The survey respondents

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were also asked to indicate their own social class: 25.1 percent believed they belong to the elite, 2.3 percent to the upper middle class, 25.1 percent to the middle class, 34.4 percent to the lower middle class, 27 percent to the bottom class, and 10.6 percent did not know. Research into social psychology indicates that the psychological mechanism of unfairness is social comparison, i.e. one person’s selfassessment is not a comparison of investment and return on an economic basis, nor it is that your return exceeds your input, in which way you might feel satised or gain a sense of fairness. Instead, it is comparison of your investment and return with those of others. A person who believes that his investment and return is equal to those of others will think this fair. However the way in which individuals select counterpart for comparison is a matter of extreme individuality. Generally speaking, an individual will nd another who is similar to him in most aspects with whom to perform a comparison. Some compare themselves with their superiors; some compare themselves with their inferiors. The latter are always satised with what they get, while the former cannot but be full of negative feelings. When those who compare themselves with similar people discover that their investment and return is less than those of others, this arouses a sense of deprivation and unfairness. Social mobility and social rank differentiation provide the conditions for people to compare themselves with each other. A constantly competitive society pressures people to compare themselves with their superiors, thus creating an ever increasing number of people who experience fairness anxiety. Anxiety from an individual is a psychological signal, just as pain is a signal of discomfort. In he same way, social anxiety is a social signal and is a warning of social problems.

III. Social Behaviour Trends The social behaviours discussed here are not an analysis of demonstrated social behaviours, but possible expressions of behaviour by the public, which is a preliminary state of behaviour. A. Social Response Strategies People living in a complicated social environment inevitably encounter various social problems and frustrations, and respond to these in different

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ways. China Investigations Net designed two scenarios to understand the strategies that individuals may use in response to social issues. The questions were as follows: suppose a national or local policy is under discussion prior to enactment, a policy which may potentially affect the respondent’s interests. What approaches would the respondent use in their response so as to inuence the decision-making process? The results indicated that different approaches would be used to respond to national and local policies. Fewer people responded to national policies, a percentage of 26.8 percent while 31.4 percent of the returned questionnaires indicated that they would respond to local policies. Responding in this sense means that people would choose to take action to inuence national policies, namely turning to trade unions or industrial associations, writing to their civic leaders, or resolving the issue with the help of lawyers, courts or the media. For local policies the preferred option was to talk to the trade unions or industrial associations. But the order of preference for other options differed. In descending order of preference, they were: contacting their leaders or the media, resolving the issue with the help of lawyers, Communist Party organisations, writing to their leaders, or handling the issue through the courts. The means of response were all the same, the only difference being the order of preference. However the response rate to different types of policy also differs, as the response rate to local policies is normally higher than that to national policies, however using lawyers and the courts to inuence national policies is more common than direct action or direct contact with government representatives that it is at the local level. It is especially obvious from the method of response that the major method of response is to approach the broadcast media, there are a number of people who would be willing to initiate and implement an effective response by resolving an issue through a lawyer or the courts, but fewer indicated that they would be willing to take direct action; here, the ratio of those willing to take group action was higher, in the form primarily of business groups, then of Party groups and administrative groups, while those willing to participate in popular organised groups were relatively few. Other surveys have obtained the same results. One survey of laid-off workers in ve cities in Heilongjiang Province discovered that 21.1% of laid-off workers felt that society was “extremely unfair”, while 52.9% felt it was “relatively unfair”. However, when asked what their attitude would be if asked by colleagues or neighbours to participate in a group complaint against a specic situation, only

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18.3% said they would participate, while 32.8% said they would show sympathy but would not participate, 18.1% said they would observe, 19.2% said they would refuse, and 11.6% said they had no idea what they would do.4 A further survey of popular response to social issues carried out in Xinjiang, Chongqing, Sichuan, Inner Mongolia, Shaanxi, Gansu, Yunnan, Guizhou and Ningxia recorded the general responses to major social problems such as economic development, cultural and educational development, the exploitation of natural resources and environmental protection, increasing income, the laying off of industrial workers and their re-employment, contradictions and conicts in ethnic relations, the withholding of rights to workers who migrate to the cities, the Three Farming Questions, and leadership corruption. An analysis of the factors identied four ways in which people responded to social problems, which could be divided as follows: a. the percentage of “positive reaction” respondents who felt that individual and social responses were predominantly positive, with a very low negative response rate, was 34.11%; b. 3.72% of “negative social reaction” respondents felt that negative social responses together with individual negative responses caused extreme clashes; c. the “negative individual reaction” individual negative response methods accounted for 13.48%; while 48.68% of respondents selected the “non-reactive” option, where all forms of reaction had little effect. B. Nationalism in Consumption Behaviour Economic globalisation has synchronised the domestic and international markets, and popular consumption behaviour also shows a number of global traits. However, recent years have seen a clear increase in nationalist sentiment in popular consumption behaviour, a socio-psychological phenomenon that deserves further attention. Popular consumption behaviour primarily aims to meet individual consumption needs, and a product’s brand, quality and price are generally the prime considerations. In today’s globalised world, however, popular consumption behaviour is increasingly inuenced by a brand’s

4 Wu Danmei: “Survey of Laid-off Workers in Five Cities in Heilongjiang, and Social Support Policies”, Bianjiang Economy and Culture Volume 1, 2005.

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reputation—when choosing between different products, people prefer better known products. On the other hand, Chinese brands of certain higher technology products still lag behind their international counterparts, which are gaining increasing inuence with the opening of the Chinese market. The Media Survey Centre of the Institute of Journalism and Communication of the Chinese Academy of Social Sciences (CASS) conducted a survey on media coverage and corporate image in 2003. The results showed that the most reputable brands were Haier, Sony, BMW, Mercedes Benz and Coca Cola. Only two Chinese brands, Haier and Lenovo, made the top twenty brands. The remainder were from the US and Japan (6 each), Germany (4), Korea and Finland (1 each). Despite the fact that these brands are well known and people think highly of them, they are not necessarily the top choices when making a purchase. Consumption behaviour involves people considering different aspects of similar products. Sometimes certain products are de facto excluded, although the criteria for exclusion will vary from person to person. Quite a number of consumers have begun in recent years to boycott Japanese brands. This is very visible on certain Internet fora, with many bulletin board sites covering automobiles, electronic products, IT and digital products carrying a strong desire to boycott Japanese products. This is related to a series of political incidents instigated by Japan in recent years, namely the Japanese government’s re-writing of history textbooks, the Japanese Prime Minister’s visits to the Yakusuni war shrine, and the issue of Diaoyu Island. Relating to this sentiment, recent years also saw a number of incidents caused by problems with products or advertisements, such as widespread technical issues with Toshiba laptops, Mitsubishi Pajero cars and the Toyota Parado car advertisement issue, all of which further intensied public anti-Japanese sentiment. In contrast, Korean products are rapidly gaining Chinese market share. Samsung, Hyundai and other Korean brands are widely recognised by Chinese consumers for their mobile phone and automotive products, and Korean movies, TV series, clothing and food are well received in China. This is to some extent due to the fact that Korea’s attitude towards Japan is relatively consistent with China’s. Horizon Research conducted a survey on China-Japan-Korea relations in Beijing, Shanghai and Guangzhou in July 2005. The results revealed that assuming that there is no difference in cost between a Korean product and a Japanese product, 14 percent and 22.2 percent

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of respondents indicated they would denitely not buy Korean and Japanese products respectively. 16.6 percent and 17.9 percent respectively of those would probably not buy Korean and Japanese products, and 9 percent and 7.1 percent of respondents indicated they would denitely buy Korean and Japanese products. The afnity for Korean products is clearly higher than that for Japanese products. Japanese products entered the Chinese market earlier than Korean ones, in larger volumes and in more varieties. But a survey of actual consumption indicates that, except for electronic appliances and automobiles, more respondents buy Korean products than Japanese ones. The Media Survey Centre of the Institute of Journalism and Communication of the Chinese Academy of Social Sciences (CASS) found through one of its surveys that respondents think highly of Japanese products. Their positive comments on Japanese cars, cosmetics and computers highlight their good design, high technology and good quality. These positive comments place a question over the reason for people being less willing to buy Japanese products, and some refusing to consider buying a Japanese product. The factor of price may play a role, but nationalism is also an important reason. Horizon Research’s survey showed that 29.3 percent and 40 percent of respondents indicated that they dislike or relatively dislike Japan respectively. Adding these two groups together makes up 69.3 percent of all respondents. Those who indicated that they dislike or relatively dislike Korea made up 0.3 percent and 5.7 percent respectively, a total of 6 percent. Only 2.8 percent and 21.5 percent said that they like and relatively like Japan respectively, while 12.6 percent and 68.3 percent said that they like or relatively like Korea respectively. Chinese consumers’ consumption tendencies do exhibit certain nationalistic factors—emotional factors cannot always be detached from consumption rationality. Despite that, consumption tendencies do not equal consumption behaviour, and nationalist sentiment may defer to a product’s characteristics or other factors. This phenomenon reects people’s contradictions in consumption, which people will abandon whenever they can. Overall Sino-Japanese relations may be “economically warm and politically cold”, but Japanese products still make up a high market share in a number of sectors, and do not appear to reect the impact of nationalist feelings. However, Korean produced machinery and electronic products are gaining rapid acceptance, and Korean culture is becoming increasingly popular, indicating a

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possible alternative choice for people to seeking to abandon this internal contradiction. It can be said that nationalist sentiment does exist in consumption across-the-board. Haier’s growth into a top Chinese brand is also partly due to nationalist sentiment, for example, and domestic enterprises should gain a clear grasp of such favourable elements and emulate enterprises like Haier which do not contradict the public’s sensibility and rationality in consumption.

NEW FEATURES OF RESIDENTIAL LIFE AND CONSUMPTION STRUCTURE Zhu Qingfang

I. Income and Consumer Demand is Increasing Steadily While Consumption Structure Shifts Focus to Quality In 2005, the implementation of various macro-economic regulation and control policies has had the anticipated effect. The macro economy kept increasing steadily, and instability was restrained. The government’s policy of favouring and beneting farmers has altered the long-term trend of slowly increasing agricultural production and farmers’ income. The national economy increased by 9%; consumption prices rose mildly and the supply of consumer goods was plentiful. The material life of the population has improved steadily, and there were varied opportunities for leisure and cultural life. The consumption structure continued to shift its focus to quality. From January to September 2005, urban residents’ per capita disposable income was RMB 7,902, an increase of 9.8% over the same period of 2004 after taking price rises into account, and 2.8 percentage points more than last year’s actual increase of 7.0%. Disposable income is expected to total RMB 10,500 for all of 2005, an increase of 9.3% over the previous year. The average pay of urban employees from January to September increased by 12.5%, 3.4 percentage points higher than last year’s rate. The government continued to broaden support for urban minimum living allowance recipients. By the end of September, the minimum living allowance allocated to 21.86 million people amounted to RMB 13.8 billion. The number of urban minimum living allowance recipients is expected to reach 23 million by the end of the year, and minimum living allowance payments will be well over RMB 16 billion. Rural conditions continued to improve, and various policies beneting farmers have generated better production results. The country produced a bumper grain harvest in 2005, with summer grain output increasing by 5.1% over the previous year. The added value of agriculture from January to September increased by 5.0% over the same

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period of the previous year, and an increase of over 5% is expected for the whole year. In the same period, farmers’ average cash income was RMB 2,450, an increase of 11.5% over the previous year. This is the second year in which the rate has increased by more than 11%. Farmers’ per capita net income is estimated to be RMB 3,150 for the whole year, an increase of 5.7% over the previous year, and is expected to maintain a relatively high rate of increase for two years in a row. In recent years, the government and society as a whole have actively worked to eliminate poverty, and the proportion of farmers whose per capita annual net income was lower than RMB 1,000 has dropped from 29.7% in 1995 to 8.5% in 2004, 2.6 percentage points lower than that of the previous year. On the other hand, the proportion of high income farmers, whose per capita annual net income exceeded RMB 5,000, has risen from 2.3% to 15% over the same period. A. Consumption Structure Shifting to a Focus on Quality Per capita consumption expenditure is expected to be RMB 4,900 in 2005, an increase of around 7% over the previous year. The Engel coefcient (the proportion of food expenses to total consumption expenditure) will decline from that of last year. The Engel coefcient for urban residents is expected to decline from 37.7% in 2004 to 37% in 2005, while that of rural residents will drop from 47.2% in 2004 to 46% in 2005. The weighted average Engel coefcient for both urban and rural areas is expected to drop from 43.2% to 41%. On the whole, the popular living standard is comfortable, and most urban families have leisure money to spend. The proportion of expenses on clothing to total consumption expenditure continues to decline. A larger proportion of money is being spent by people on making their life more comfortable and prosperous, thanks to the smaller proportion of income spent on basic subsistence. For example, the proportion of expenses on education, recreation and entertainment has continued to increase. From January to September 2005, urban expenditure on these items grew to 15%, an increase of 5% over the same period of the previous year, an average per capita expenditure of RMB 892. The proportion of expenditure on medical care, transportation and communications is also increasing, accounting for 35% of total consumption expenditure. This shows that leisure expenditure has considerably increased. The standard of living of urban residents continued to increase, with an increase in the proportion of expenditure on purchasing and decorating organisation or

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commercial housing, accounting for 9.3% of consumption expenditure. 93% of commercial housing is sold to individual consumers, and over 80% of residents have their own housing. It is expected that per capita housing size will rise from 25.7m2 in 2004 to 26.5 m2 in 2005. Improvements to the quality of life are also indicated by the rapid progress of modernisation. An increasing number of new household electric appliances are to be found in ordinary families, and modernisation of the communications and information network is accelerating. According to a survey of urban families conducted by the State Statistics Bureau, by the end of September 2005, every 100 urban families owned 134 colour TV sets, 91 refrigerators, 80 air conditioners, 18 video cassette recorders, 29 audio systems, 68 video CD players, 2.2 pianos, 3.3 cars, 40 computers and 134 mobile phones, all of which increased from the same period of the previous year. Great changes have also taken place in the rural consumption structure. 15% of consumption expenditure was spent on housing, making up the second largest portion of consumption expenditure. The per capita housing size grew from 27.9m2 in 2004 to 28.5m2, with reinforced concrete, or brick and wood housing accounting for 84%. The proportion of expenditure spent on services rather than consumer goods grew from 28% in 2004 to 29%, while expenditure on medical care, transportation and communications rose fastest, accounting for 15%. Expenditure on leisure, education and recreation products and services accounted for 12%. It is expected that by the end of 2005, every 100 families in the countryside will own 80 colour TV sets, 20 refrigerators, 40 washing machines, 50 mobile phones and 40 motorcycles. Since the increase in farmers’ income is slower than that of urban residents, household electric appliance ownership is much lower in rural areas than in the cities. On the whole, the time gap between urban and rural areas is approximately 15 years. B. The Booming Market has Abundant Supply of Consumer Goods Retail sales of consumer goods from January to September in 2005 totalled RMB 4,508.1 billion, an increase of 12.1% over the same period of the previous year, and 2.4 percentage points higher than the rate of increase for the same period of that year. The actual increase in the retail sales of consumer goods in urban areas was 13.4%, and 9.4% in rural areas, a gap of 4 percentage points. It is estimated that retail sales of consumer goods for all of 2005 will be RMB 6,095

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billion, an increase of 13% over the previous year. The actual increase will be 11% once price rises are taken into account. The market mechanism played a dominant role in allocating resources. Statistics indicate that over 95% of commodities are distributed by the market, and the state set the prices of less than 5% of commodities. The supply of over 99% of commodities equalled or exceeded demand. The supply of industrial commodities exceeded demand, as did durable goods and communications equipment. As a result, the prices of these commodities kept dropping. Since its accession to the WTO, China’s economy has been integrated into the global market, and according to Ministry of Commerce research, 73.8% of China’s economy (including the labour, capital, real estate and technology and information markets) is now market-oriented. Consumption growth areas continued to improve in 2005. Housing, new household appliances, cars and tourism remain popular consumption growth areas. In the last two years, although the government regulated and controlled the excessively rapid expansion of investment in real estate, sales of commercial housing and homes has increased rapidly. Total sales of these two types of housing in the rst three quarters of 2005 reached 347 million m2 and 313 million m2 respectively, both increasing by 23% over the same period of the previous year, or four and ve percentage points higher than those in 2004. The actual increase in sales in terms of value was 34%. As the price of oil continues to rise, small-engine capacity cars are selling well. In the rst three quarters, car sales increased total retail and wholesale values of large and medium goods by 13% over the same period of the previous year. Consumers now replace old items at a much faster rate when it comes to mobile phones, electronic products and household appliances. Mobile phones in particular are selling extremely well, with a total of 335 million mobile phones across China at the end of 2004, an increase of 28% over the previous year. By the end of October 2005, this number had reached 383 million, while the number of xed-line phone users was 312 million, an increase of 19% over the previous year. C. Consumer Price Index Rose Moderately and Steadily The 2004 Consumer Price Index increased by 3.9% above that of 2003. The index from January to September of 2005 rose by 2% over the same period of 2004, and the rate of increase shrank month by month.

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Generally speaking, the 2005 Consumer Price Index rose moderately, with a basically steady trend. By looking at different categories of commodities, we found that compared with the same period of the previous year, the highest price increase in the rst nine months of 2005 was housing (including rent, water and electricity), an increase of 5.6%; food prices were second, rising by 3.3%, but still down by 9.4 percentage points against the rate of increase for the same period of the previous year. Grain prices were down by 26.5 percentage points, which was the main reason for the decline in the Consumer Price Index. Prices of leisure, education and cultural products rose by 2.6%; tobacco and alcohol prices rose by 0.4%; prices of medical treatment, transportation and household appliances and services, as well as clothing all declined. Consumer prices rose by 1.7% in urban areas (36 large and medium cities saw prices rise by 1.5%), while they rose by 2.5% in rural areas. Commodity retail prices in the rst nine months of 2005 rose by 0.8% over the same period of the previous year. Fuel prices rose by 16.1%; prices of gold, silver and jewellery rose by 4.3%; food prices rose by 3.5%; building material and hardware prices rose by 2.1%; prices of transportation, communication, and prices of leisure and sports items and medicine all declined. According to a People’s Bank of China survey for the third quarter of the year, the prices of commercial housing remained high as a result of price rises in water, coal, electricity, oil and transportation. Ination, dissatisfaction with present commodity prices, and lack of optimism about price trends are increasingly popular concerns. D. Urban and Rural Residents More Willing to Save and Balance of Savings has Increased Prices remained stable in 2005 and urban and rural incomes increased considerably. However, due to limited investment channels and heavy expenditure on education, medical care and housing, residents preferred to save rather than spend their extra income. According to a People’s Bank of China survey for the third quarter of the year, about 40% of residents wished to make deposits. With the appreciation of Renminbi, many exchanged US Dollars for Renminbi to deposit. At the end of September 2005, the deposit balance was RMB 13,631.6

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billion, RMB 1,676.1 billion higher than the RMB 11,955.5 billion deposited by the end of 2004, or an increase of 14%, three percentage points higher than that for the same period of the previous year. This was an average increase of RMB 186.2 billion per month, and will reach RMB 14,190 billion by the end of 2005, an increase of 19%. Per capita deposit balance will reach RMB 10,850, RMB 2,500 more than the previous year. E. Consumption during “Golden Week” Continues to Increase, and Tourism is a Major Consumer Growth Area In 2005, during “Golden Week”, the seven-day National Day holiday, the number of domestic travellers reached 111 million people, an increase of 10.5% over the same period of the previous year. Revenue generated by tourism reached RMB 46.3 billion, an increase of 16.6%, or an average per capita spend of RMB 417. Booming tourism also promoted the development of transportation, commerce, catering businesses, nance, communications, leisure activities, recreation and related services. Commodity retail sales during the week-long public holiday reached RMB 270 billion, an increase of 14.2% over the same period of the previous year. The number of domestic travellers for all of 2004 reached 1.102 billion, generating revenue of RMB 471.1 billion. It is estimated that this number will reach 1.4 billion in 2005, equivalent to 1.1 trips for every member of the population. Per capita spending will increase from RMB 428 in 2004 to RMB 460 in 2005. In 2004 each urban resident spent an average of RMB 730 on tourism, while rural residents spent an average of RMB 210. As incomes increase, tourism will be a popular destination for disposable income. In recent years, more countries and cities have become tour destinations for Chinese tourists. Foreign travel is also becoming popular, and the number of tourists going abroad is growing faster than that of domestic travellers. The total number of international travellers in 2004 was 28.85 million, of which 22.98 million paid for their trips themselves. This gure grew by 55% over the previous year, a rate of increase eight percentage points more than that of 2003. F. Varied Opportunities for Leisure and Culture The growing variety of leisure and cultural life primarily relied on increasing government input into cultural ventures. In 2004, govern-

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ment input into cultural ventures accounted for only 0.4% of its total scal expenditure, and per capita expenditure on cultural events was only RMB 12. Low as these gures were, they increased by 14% and 13% respectively over the previous year. In recent years, residents’ expenditure on cultural activities, education, recreation and leisure has increased markedly. Together with expenditure on medical care and communication, these account for 33.5% of residents’ total daily consumer expenditure. Total average per capita expenditure has risen from RMB 1,415 in 2000 to RMB 2,405 in 2004, an increase of 70%. It is estimated that this will total RMB 2,700 or more in 2005, accounting for 36% of residents’ total daily expenditure, up from 28% in 2000. Farmers’ expenditure on these three categories of commodities and services account for 26% of their total expenditure. In recent years, an increasing number of ordinary Chinese are using computers and have access to the Internet. In 2004 the number of people logging onto the net reached 94 million, accounting for 7.2% of China’s total population. Mobile phone networks now cover 2,861 cities (counties), or 90% of China’s population. Every 100 Chinese have 50 telephones of all kinds. With the tremendous development of cultural events, venues for all kinds of performing art, libraries, museums and other cultural events have spread across the country. In 2004, there were 2,580 artistic performance troupes in China, and 41,400 cultural venues open to the general public. Rural culture halls cover 80.5% of China’s villages, while access to broadcast and television programmes stands at 94% and 95% respectively. Some 6.41 billion books were published, an average of 4.94 volumes per person, and subscriptions to newspapers and magazines reached 148 million copies, equivalent to 11.4 copies on average per 100 people. The emergence of modern entertainment venues and all kinds of theme parks satised the leisure needs of residents from different social strata. In 2004, there were 310,000 cultural recreation venues such as ballrooms, electronic game arcades, Internet cafes, bowling alleys, billiard halls, as well as audio-video product rentals, theatres, art galleries, and artistic product companies. They employ 1.86 million people with xed assets worth RMB 71.6 billion and operation revenues of RMB 56.7 billion. The recreation industry and cultural market generated greater business than the previous year, with great consumer potential. But they also require improved regulation and standardisation. Popular access to education has raised popular literacy levels. The proportion of people with senior high school education to the total

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population increased from 10.3% in 1995 to 18% in 2004. In 1995 only 24 out of 10,000 people went to college, but in 2004, 103 out of 10,000 people were college students. The data above shows that everyday life in China is changing from subsistence to focus on leisure and cultural consumption—oriented toward development and comfort. This will be an integral part of the prosperous society that China is striving to build.

II. Problems and Suggestions A. Consumer Demand is Weak and the Consumption Rate has Dropped to an Historic Low Statistics show that consumer expenditure has increased at a slower rate than that of GDP since China began the reform and liberalisation process in the late 1970s. From 1979 to 2004, (taking price rises into account) consumer expenditure increased at an annual rate of 7%. The GDP rate of increase was 9.4% over the same period, 2.4 percentage points higher than the latter. The consumption rate (the proportion of consumer expenditure to GDP) dropped from an average 50.8% for the period from 1978 to 1990 to an average 46.2% for the period from 1991 to 2004, a drop of 4.6 percentage points. The consumption rate peaked in 1981 (at 53.6%) and reached its lowest point in 2004 (at 43.1%), a gap of 10.5 percentage points. When consumption rate is dened as the proportion of commodity retail sales to GDP, a similar decline is seen, as shown in Table 3.1. The consumption rate in other countries is normally between 60– 80%. In 1999 the average consumption rate was 81% in low-income countries and 74% in middle-income countries, both higher than the 40–50% level in China. The main reason for China’s low consumption rate was an excessively high investment rate. The average investment rate for the rst 13 years of the reform period was 27%, and 39.5% during the last 14 years, a rise of 12.5 percentage points. It saw a low of 19.8% in 1981 and a peak of 51.5% in 2004, a difference of 31.7 percentage points. The underlying reason for the high investment rate is the low effectiveness of investment and poor economic return of enterprises. Since 1978, the coefcient of investment yields and the contribution rate of total assets of industrial enterprises have gradually declined, dropping by 48% and 49% respectively when comparing

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Table 3.1. Change in Total Consumption and Consumption Rate between 1978 and 2004 Units: 100 million RMB, % Absolute amount (at prices for the year in question) GDP Year

consumption rate

consump- Retail Investment Proportion tion rate sales of in xed of conconsumer assets sumption goods rate to GDP

Proportion of retail sales of consumer goods to GDP

Investment rate (proportion of investment to GDP)

Total between 1978 and 1990

116957

59406

38916*

29502

50.8

47.7

27.0

Total between 1991 and 2004

1193109

544832

456635

498400

45.7

38.3

41.8

4862

2604

—

961

53.6

—

19.8

136876

58995

53950

70477

43.1

39.4

51.5

Peak (1981) Trough (2004)

Source: China Statistical Yearbook (2005). * Total between 1985 and 1990.

gures for 2004 with those of 1978. The poor returns have put China’s economy in a vicious cycle of high investment, high growth rate, high consumption of resources and low consumption expenditure. Although popular income and expenditure levels have increased greatly since the beginning of reform and liberalisation, they are not in step with the GDP rate of increase. For example, total wages in 1990 accounted for 15.9% of GDP; but this gure dropped to 12.3% in 2004, with a lowest point of 11.9% in 2000, indicating that workers are becoming increasingly underpaid. The deviation is more serious for low-income workers: the 120 million migrant workers are a good example, as they greatly contribute to urban construction but receive very low pay and often do not receive their wages on time, if at all. A survey by the Population and Labour Economy Institute of the Chinese Academy of Social Sciences shows that over the past 20 years, migrant workers have contributed to 21% of GDP growth, but their average monthly pay is some RMB 1,000 lower than their urban counterparts. Since they are underpaid, they have no extra money to spend, resulting in weak domestic demand. A raise in the consumption rate is urgently required. The contradiction between investment and consumption must rst be resolved, and the mode of economic growth changed. Instead of relying on more investment, enterprises’ economic returns should be increased, resources

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economised, and emphasis placed on expanding domestic consumer demand. More efforts should be made to increase the income of lowincome workers and increase the number of middle-income earners, and pay more attention to social equality and harmony. Reform should be furthered in education, medical care and social security so as to eliminate worries about these issues, and consumption abilities ensured through good systems and policies. The role of nancial policy should be considered in promoting consumption, and good use should in particular be made of national debt funds, by appropriating these for the rural population and for social security in order to increase consumption potential. The trend whereby the consumption increase is lower than the increase in GDP should be reversed. B. Housing Problems for Low- and Middle-income Families Buying a house constitutes an important part of consumption. At present, per capita living space still lags far behind the goals of a prosperous society. In cities, families who do not own their own housing or who are packed into tiny or dilapidated houses account for a large proportion of the total population. The robust demand for housing has led to frenzied real estate development. In March 2004, the state adopted policies to regulate and control overheating real estate development but to no effect. Real estate development investment in urban areas increased from RMB 314.9 billion in 1995 to RMB 1,315.8 billion in 2004, a three-fold increase. The proportion of real estate development to total xed asset investment in urban areas increased from 20.1% to 22.3% in 2004, and real estate investment increased 30% over the previous year. Real estate development investment for the rst nine months of 2005 totalled RMB 1,037.8 billion, an increase of 24% over the same period in 2004, and accounting for 22% of all investment. The contradiction between supply and demand in the real estate market is evident. The consumer price index for housing increased 5.6% in 2005, indicating excess demand. Sales of housing increased by 23% in the rst nine months of 2005 compared with the same period of 2004. But much of this housing remains unsold, tying up a large amount of funds. This strange phenomenon reects a structural contradiction in real estate development. Many newly constructed apartments are targeted at the middle or high end of the market, and are expensive and spacious. There are much fewer smaller, lower priced apartments. Yet the people most in need of housing are the

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middle- and low-income population, who cannot afford to buy large, expensive apartments. Developers meanwhile do all they can to reduce costs, and acquire cheap land and low-interest loans in order to achieve high prot margins. According to statistics issued by the Fuzhou Municipal Pricing Bureau, the average prot margin for real estate projects is 50%, with the lowest being 20% and highest being 90%. Prot margins of some Zhuhai housing projects are as high as 60–70%. The State Taxation Administration estimates that taxes, fees and prots account for 60% of housing prices, while their construction cost accounts for only 40% of the price. Low investment, high prot margins and high housing prices have all generated large fortunes for real estate developers. Speculation in housing sales has also distorted the real estate market, creating a situation in which speculative needs and real consumers’ needs co-exist. Those who need commercial housing most cannot afford to buy apartments on the market. According to a survey conducted by the magazine Personal Finance, a three-member family in Beijing had a per capita disposable income of RMB 15,600 in 2004, giving a total disposable income for the family of RMB 46,900. By saving RMB 26,700 every year, they would have to save for 16.3 years to buy a 70 m2 two-bedroom apartment with a price tag of approximately RMB 600,000. Statistics from 37 large cities nationwide show that a twobedroom apartment normally costs RMB 300,000–650,000, and ordinary families must save for 14–21 years to raise that amount. This is far beyond the nancial means of low- and middle-income families, who yearn for low-rent apartments and economically affordable housing. But investment in economically affordable housing in 2004 was down by 2.5% compared to the previous year, and dropped by another 12% in the rst nine months of 2005 compared with the same period of the previous year. The proportion of investment in affordable housing to total housing investment dropped from 6.1% in 2003 to 4.6% in 2004. Some localities no long build affordable housing, making this type of housing very difcult to get. In 2005, several thousand people queued for weeks simply in order to receive a number that qualied them to buy an economically affordable apartment. On the other hand, a large number of expensive apartments are unable to sell. 123 million square meters of commercial buildings are currently vacant, accounting for 26% of all constructed buildings. Some 60 million square meters of these vacant buildings are for homes. The reasonable housing vacancy level in other countries is 5–10%.

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People cannot work well without a comfortable place to live, so solutions need to be found to meet the housing needs of low- and middle-income families. The government should continue to regulate and control the real estate industry at the macro-economic level, formulating policies beneting low- and middle-income families with regards to housing loans, real estate management, land development and tax and fee exemptions. It should develop policies to limit and regulate the high prot margins of real estate developers. It should make inexpensive, low-rent apartments available to families who don’t have their own apartments. It should also stipulate a ratio of investment in affordable housing, dene those who are eligible to buy affordable housing, and re-adjust the housing composition. The government should formulate policies to provide housing subsidies for those who have difculty buying commercial apartments and include this subsidy system in the social security system. All this will allow low-income families with no home of their own to buy or rent an apartment. Laws and regulations on housing should be improved to clearly state residents’ rights to residence and their social obligations. C. Number of People Below the Poverty Line Remains High, Weakening Consumer Demand It is an undisputable fact that the gap between the rich and poor has widened in recent years. The number of impoverished people remains large, although this varies greatly as different standards of poverty are applied. According to the poverty level established by the World Bank, China has 200 million people living in poverty. From an expenditure standard, the Asian Development Bank estimates that China has 37 million people living in poverty in urban areas. According to Chinese Statistics Bureau statistics, China had 26.1 million rural residents living in abject poverty in 2004, and another 49.77 million in low-income categories. Together, they number some 75.87 million, accounting for 10% of the rural population and 5.8% of China’s total population. China must eradicate poverty to achieve its goal of making the country prosperous, and must not only ensure that the poor have enough to eat and wear, but that they can also live a prosperous life. The foremost task is to determine exactly how many people are living under the poverty line. As we indicated in the previous paragraph, the number of poor people in China varies greatly according to different sources.

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It is therefore necessary to conduct an investigation and objectively calculate the size of the impoverished population. Based on survey results of 118,000 households in the China Statistical Yearbook published by the State Statistics Bureau it can be estimated that 91.45 million people live in poverty across China in 2004, accounting for 7% of the total population. This calculation is based on (1) a sample survey of 68,000 households in rural areas in 2004, the results of which shows that 8.5% of households surveyed had an annual per capita income of less than RMB 1,000. The actual average per capita income was RMB 695, or RMB 58 per month, or RMB 1.9 per day. This income level is 4% higher than the abject poverty level (RMB 668) issued by the State Statistics Bureau, and 25% lower than the minimum income level (RMB 924), giving a true reection of the standard of living of the rural poor. Based on this standard, it can be estimated that there are 64.3 million people in the countryside who are regarded as impoverished. (2) Based on a sample survey of 58,000 households in urban areas, 5% of these had an annual per capita income of RMB 2,313, or RMB 193 per month, or RMB 6.4 per day. This is lower than the minimum standard of living for urban residents and much lower than the standard of US$ 1 per day. The 5% proportion in the sample survey translates to 27.15 million people across the whole population, a gure close to the 23 million people who receive the minimum living allowance. Thus the impoverished population in both urban and rural areas is 91.45 million, which is close to the 95.8 million gure calculated using the consumption capability standard. The poor are society’s weakest, most disadvantaged group. In rural areas they include low-income farmers, migrant workers, people who are unable to work, the elderly, the physically weak, the sick, the handicapped, and widows and widowers. In urban areas they include retrenched workers, low-income workers who are handicapped or suffering from illness, retirees, widows and widowers, and old people who are handicapped or suffering from illness with no children to take care of them. The poor have very weak purchasing power. According to a survey conducted in 2004, rural low-income families spend only RMB 1,248 on consumer goods annually, 43% lower than the average rural level and 70% lower than that of high-income families. In urban areas, lowincome families spend only RMB 2,855 on consumer goods annually, 60% lower than the average, and 83% lower than that of high-income

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families. The gap between the rich and poor is even wider when it comes to the number of household appliances a family owns. Therefore, the weak purchasing power of the poor is the major reason that consumer demand is so weak. The eradication of poverty is a major task as China strives to build a comprehensive prosperous society. To maintain social stability, the government should endeavour to ensure that all people living in poverty receive their minimum living allowance. Government nancial bodies at all levels should set aside a special account for funds used to pay the minimum living allowance. The central government and governments of districts, municipalities and counties should all contribute their share to the funds to guarantee that sufcient funds are available. The funds appropriation procedure should be transparent and the management and supervision system should be improved. The best method to eliminate poverty from urban areas is to create more job opportunities and provide training to the unemployed so that they can nd work. The proportion of the rural poor is even larger. Various measures aiming at tackling existing problems related to agriculture, the countryside and farmers should be implemented in order to reduce the number of the rural poor. In 2005, the central government set itself the task of “building a new socialist countryside”. The effective implementation of instructions to “give more to the farmers, take less from them and allow them more freedom in making decisions” will be an effective way to increase farmers’ income, add vitality to the countryside and increase domestic demand. In rural areas with relatively good nancial conditions, the government should give impoverished farmers the minimum living allowance and increase the number of people who receive such allowance. In 2004, only 4.96 million farmers received the minimum living allowance, accounting for only 7.7% of the total rural poor. Many farmers were also reduced to poverty after succumbing to illness, so it is vital that a new cooperative medical care system be established as soon as possible with individual farmers, villages and governments all contributing to the funds in order to reduce the heavy economic burden. D. Expenditure on Education, Medical Care and Housing Places Too Much Pressure on Residents In recent years, popular expenditure on education, medical care and housing have occupied an ever larger proportion of their consumer expenditure, accounting for approximately one third of total consumer

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expenditure in both urban and rural areas, seven and ve percentage points higher than the gures in 1997. Ordinary people refer to these costs as the “new three large mountains”. As expenditure in these three areas increases, residents have to reduce their remaining consumption expenditure accordingly and are more willing to save. In 2004 urban expenditure on education accounted for 7.8% of total consumer expenditure, with per capita expenditure of RMB 514, an increase of 41% above that of 2000 and an average annual increase of 9%. Insufcient education funds also forced some schools to arbitrarily charge extra fees from students. Over the past decade, schools have charged excess fees totalling RMB 200 billion, which places a heavy burden on many families. It is estimated that annual tuition and boarding fees for a university student are more than RMB 10,000, over three times the highest school fees in the world when calculated according to actual purchasing power. Families with children studying at university must thus lower their standard of living. This burden is even heavier for rural families, as farmers need several years’ income to support a university student. Many poor families have to borrow money to keep up with the daily expenditure. Compulsory education is also a heavy burden for farmers. Many junior high school students have to drop out of school simply because their parents cannot afford to pay textbook and other school fees. The rural drop-out rate for junior high school students is 20–50%. Expenditure on medical care accounts for 7.4% and 6% respectively of urban and rural families’ overall consumer expenditure. In recent years, the price of medical care and medicine has soared, with some medicine prices increasing ten-fold from a few years ago. Although medical system reforms have resulted in 17 medicine price reductions, prices for most medicines are still too high. Urban per capita expenditure on medical care rose from RMB 42 in 1992 to RMB 528 in 2004, a twelve-fold increase, and its proportion to overall consumer expenditure rose by ve percentage points. Per capita expenditure on medical care in rural areas rose from RMB 16.4 in 1989 to RMB 130.6 in 2004, a seven-fold increase. According to the third survey of the national medical care service conducted by the Ministry of Health, about half of urban residents and 87% of rural residents have no medical insurance; they have to pay medical care fees by themselves. 40–60% of the rural poor were reduced to poverty because of illness. 60–80% of people in central and western China who died of illness did so because they could not afford to see a doctor.

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Expenditure on housing accounts for 10% and 15% of overall consumer expenditure in urban and rural areas respectively. Expenditure on housing is the second largest expenditure item in rural areas. The high price of housing has put great pressure on residents. The heavy burden of education and medical care comes from the fact that the state has invested too little in these two areas. In order to raise the quality of the population and improve their quality of life, a scientic concept of development must be applied that focuses on people’s requirements, and ensure that the goal of development is to allow every member of society to share the fruits of social development and to satisfy people’s basic needs. Education is an important way of improving the quality of the populace, and enhancing their ability to nd work and escape poverty. The same priority should be given to education development as to infrastructure construction, and a corresponding legal system should be developed. By 2010, the proportion of expenditure on public education to GDP should be increased from the current 3% to more than 4%. Similarly, in order to meet the goal of elementary medical care for all, the proportion of expenditure on medical care to GDP should be increased from the current 0.9% to more than 1.5%. Effective measures should be taken to lower the cost of medical care so that low- and middle-income earners can afford to go to school and receive medical care. Educational and medical resources should also be distributed more favourably to rural areas.

III. Forecast for Popular Life and the Consumer Market in 2006 In recent years, macro-economic regulation and control measures have achieved their initial results. The state has formulated policies and taken measures to promote agricultural production, allowing farmers’ income to increase continuously. As China develops a comprehensively prosperous society and deepens its reforms, its social and economic development will proceed in a stable, comprehensive and coordinated manner. The year 2006 is the rst year of the 11th Five-Year Plan period, and people’s livelihood will only improve and consumption appreciably increase if we can maintain the continuity and stability of macro-economic regulation and control policies, stabilise demand, regulate supply, improve the development of a harmonious society and maintain a proper increase in the national economy.

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It is predicted that GDP in 2006 will be nine percent above that of 2005. China will continue to take measures to restrain overall investment in xed assets and allow this to grow at an acceptable rate. The actual increase in urban per capita disposable income will be approximately 8% and the actual increase of rural per capita net income will be around 6%. Retail sales of commodities will increase by 10% over the previous year, and the consumer price index will rise by 2% over the previous year. Residents’ savings deposits in both urban and rural areas are expected to continue to increase by more than 10%. The government will pay more attention to social equality in the distribution of wealth, to increasing the income of the low-income population, to gradually increasing the proportion of middle-income earners and effectively regulating excessively high income—bringing order to personal income distribution. The government will assist laidoff workers by providing them the minimum subsistence guarantee, and providing new jobs and social insurance. It will also make sure that preferential policies for laid-off workers really benet them, and provide vocational training so that they can nd jobs more easily and escape their straitened circumstances. Also on the agenda are broadened social relief coverage for poor families in both urban and rural areas, improvements to the social security system and a conscientious effort to solve the problems of low-income people regarding housing, medical care and education and so forth. In 2006 the increase in urban income will outstrip the increase in farmers’ net income, so the gap between cities and the countryside will continue to widen. In recent years, although more investment is penetrating western China, the benets are not evident and the gap between China’s eastern and western regions is also widening. Excessively high income in monopoly industries has not been brought under control, and gaps between industries is also widening. These disparities will lead to an even wider gap between people of different incomes and between the rich and poor, and hamper any increase in consumption and domestic demand. They will also be detrimental to social stability. The government and relevant policy-making bodies must pay attention to this trend and tackle these issues seriously. Along with the increase in consumption, the consumption pattern will be upscaled, focusing on commodities and services that provide comfort and quality. The Engel coefcient will decline further as the consumption hot spots concentrate on housing, mobile phones, and

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new high-performance, high-quality household appliances. The tourism and holiday economy will maintain rapid growth. The education and cultural industries will prosper and diversify as the population increases spending in these areas to meet their own increasing demand. Leisure and cultural life will also diversify, as the government increases investment in cultural ventures and gradually creates a public culture service system. Expenditure on education, cultural products, entertainment, health care, body-building, leisure and tourism will continue to increase. China’s population will nd their material and cultural life improved in 2006.

NEW FEATURES OF CHINA’S POPULATION SINCE REACHING 1.3 BILLION Zhang Yi

The government’s continuing efforts have created many new phenomena of population growth in China since the latter half of the 20th century. These features became even more noticeable when China’s total population reached 1.3 billion at the beginning of 2005. These mainly indicate a slow-down in growth, the early appearance of a peak value and the acceleration of the ageing process.

I. Population Growth Slows, with the Population Annual Increase Dropping to over 7 Million During high-birth rate years, there were over 20 million newborn infants in China annually. In 1963, the year with the highest birth rate in Chinese history, the number of newborn infants reached over 29 million. However, since the mid-1990s, the rapid increase of the population has been kept under control, and in the decade since 1995, China’s population has maintained a lower growth rate. After 1995, projections from both the UN Population Division and the US Population Reference Bureau indicated that the Chinese population’s future annual natural increase would gradually slow so that the annual net increase of the population would also decrease constantly. The reality matches these demographers’ predictions exactly—China’s birth rate is dropping. It can be seen from Table 4.1 that the mortality rate in China has stayed around 6.5% since 1978 and has remained extremely stable. Closer analysis however shows that the mortality rate increased slightly in 1978–1991, uctuated in 1992–1995, and maintained a downward trend in 1996–2003. In 2004 it rose slightly from 6.40% in 2003, to 6.42%. Although it remains to be seen whether this increase was caused by the gradual ageing of the population, it is clear that, in the long term, the gradual increase in average age will in turn cause an increase in the mortality rate, which means that, for a given population birth

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rate, any slight increase in the mortality rate will lower the natural population increase rate. The population birth rate in China reached 18.25% in 1978, and increased further in the 1980s before beginning to fall again in the beginning of the 1990s. By 2004 the birth rate had dropped to 12.29%, almost 6% lower than in 1978 and 11% lower than in 1987. The radical policy to lower the population birth rate at the beginning of the 1980s caused people to give birth ahead of the implementation of the policy, or to exceed the birth quota. Once the population policy was adjusted, the birth rate in the early 1990s returned to the level at the end of the 1980s. Of course, the increase in the birth rate during this period was also connected to the provisions in the Marriage Law, which stipulated that the legal marriage ages of men and women should respectively be 22 and 20. In minority ethnic group areas, the legal marriage ages published at the time were actually no younger than 20 for men and 18 for women. The rapid decrease in the birth rate caused a direct decrease in China’s natural population increase rate. After falling to 10.55% in 1995, the natural increase rate kept going down, and reached 5.87% at the end of 2004. Since 2003, the natural increase rate has been lower than the Table 4.1. Birth, Mortality and Natural Increase Rates of China’s Population Since 1978 Unit: % Year

Birth rate

Death rate

Natural increase rate

Year

Birth rate

1978 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

18.25 18.21 20.91 22.28 20.19 19.90 21.04 22.43 23.33 22.37 21.58 21.06 19.68

6.25 6.34 6.36 6.60 6.90 6.82 6.78 6.86 6.72 6.64 6.54 6.67 6.70

12.00 11.87 14.55 15.68 13.29 13.08 14.26 15.57 16.61 15.73 15.04 14.39 12.98

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

18.24 18.09 17.70 17.12 16.98 16.57 15.64 14.64 14.03 13.38 12.86 12.41 12.29

Mortality Natural rate increase rate 6.64 6.64 6.49 6.57 6.56 6.51 6.50 6.46 6.45 6.43 6.41 6.40 6.42

11.60 11.45 11.21 10.55 10.42 10.06 9.14 8.18 7.58 6.95 6.45 6.01 5.87

Source: Table 4–2 of the electronic version of the China Statistical Yearbook 2005, China Statistics Press, 2005.

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mortality rate for the rst time since 1978. A survey of expected fertility in various locations shows that, coupled with economic development and social progress, the expected number of children for newly-wed couples in China also showed quite a steep decrease compared with previous years. In 2004, there were 15.93 million newborn infants and 8.32 million deaths in China, or a net increase of 7.62 million.

II. The Population Peak Value Will Occur Earlier and May Reach 1.45 billion Before the publication of data from the 5th Population Census, academics and government departments normally quoted predicted gures from certain demographers made on the basis of data in the 4th Population Census, i.e. the belief that China’s future population peak value would be reached in 2050, with a maximum gure of approximately 1.6 billion. As this prediction was made for the world’s most populous country, it was generally believed and widely used by the foreign media. However, population is subject to change. Even though data can provide good predictions, they can only simulate a trend. As the population of China now has low birth, mortality and natural increase rates, the peak value of the population will come sooner. The history of population changes in the world’s developed countries shows that, under normal circumstances, the earlier the peak value comes, the lower the maximum peak value of population. Conversely, the later the peak value, the higher the maximum peak value of population will be. It can be seen from Table 4.2 that, by making predictions on the basis of data from the 5th Population Census, and applying different assumption plans, the future peak value of China’s population will never reach 1.6 billion. However, several questions here may require further investigation. First, the current total fertility rate in China is actually an index obtained from deliberate calculations, with a gure obtained from the 5th Population Census of 1.27. However, both government ofcials and demographers believe that the gure includes a large number of reporting failures, with the result that the gure is not effectively used in forecasts. At present, the total fertility rates used for population predictions that can be found in literature are all higher than that one: when the State Family Planning Commission issued their forecast in 2002, the total fertility rate gures used were respectively 1.8 and 2.0, which conform to the medium assumption plan used by the State Statistics Bureau.

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zhang yi Table 4.2. Predictions for Future Total Population Growth Trends in China Unit: Billion

Year

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Low Medium High Year assumption assumption assumption scenario scenario scenario 1.305 1.311 1.317 1.324 1.330 1.337 1.344 1.351 1.357 1.363 1.368

1.312 1.321 1.330 1.338 1.348 1.357 1.366 1.376 1.385 1.393 1.401

1.314 1.325 1.336 1.347 1.359 1.372 1.385 1.398 1.411 1.423 1.434

2016 2017 2018 2019 2020 2025 2030 2035 2040 2045 2050

Low assumption scenario 1.373 1.377 1.380 1.382 1.385 1.387 1.378 1.360 1.332 1.293 1.244

Medium High Assumption assumption scenario scenario 1.408 1.414 1.420 1.424 1.429 1.442 1.447 1.446 1.438 1.415 1.383

1.444 1.454 1.462 1.470 1.477 1.504 1.526 1.550 1.570 1.575 1.568

Notes: 1. Total fertility rate in the High assumed scenario is assumed to be 2.14, and 1.55 and 1.8 respectively in the Low and Medium assumed scenarios. 2. Assumed Average Life Expectancy: When life expectancy reaches 70–72.5 years, that of men increases by 0.45 years for every 5 years, and that of women by 1.4 years. At 72.5–75.0 years, that of men increases by 0.20 years every 5 years, and that of women by 1 year. Source: Zhang Weimin, Xu Gang, Yu Hongwen and Cui Hongyan; Predictions on Population Change, from Population and Development in the Overall Development of a Prosperous Society, edited by Tian Xueyuan and Wang Guoqiang, China Population Press, 2004, p. 103.

However, an increasing number of experts in population prediction are becoming suspicious of this assumed data. According to expert opinions, China’ total fertility rate may be approximately 1.5. On this basis, with no adjustment to population policy, the total population growth track may change to follow the low assumption scenario. That is to say, the peak value of the population of China may appear in around 2025, at a peak population of 1.387 billion. However, this scenario estimates that the annual net increase in population is approximately 6 million, which differs widely from data obtained from a recent 1/1000 sample investigation on population change, which indicated a net increase of 7.61 million in 2004. Second, we now know that China celebrated its 1.3 Billion Population Day on 6 January 2005, i.e. China’s total population reached 1.3 billion at the end of 2004 or the beginning of 2005. However, the medium assumption scenario estimates that the total population at the end of 2005 would be 1.312 billion—4–5 million higher than the actual data. Besides, the estimated population change track in the medium assump-

new features of china’s population

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tion scenario shows a recent net increase of 8–9 million, 1 million higher than the gure of 7.61 million for 2004. If reporting failures are taken into account, and the recent annual net increase is 9 million, the estimated total population of mainland China at the end of 2005 is 1.308 billion. Thus, the population peak value under the medium assumption scenario might appear in around 2030, with a peak value of 1.4 billion (bearing in mind that the total fertility rate of 1.8 is slightly higher). Even if the inuence of other factors is taken into consideration (for example, the relatively high current number of reporting failures) and the total population at the end of 2005 is estimated to be 1.312 billion, then, assuming a total fertility rate of 1.8, the peak value of the total population will be below 1.45 billion. Third, the assumed total fertility rate higher than 2.14 is a policy and theoretical assumption that maintains the fertility rate above the replacement level. However, such an assumption is not at all practical, primarily because no adjustments have been made to current birth control measures. Secondly, the fertility rate will continue to decrease together with economic development and social progress, and with an increase in the level of education of women of child-bearing age. The population development history of developed countries indicates that the higher a woman’s education level, the lower the number of children a woman will produce. Therefore, the assumption that China’s population will reach 1.57 billion does not conform to social reality.

III. The Ageing Process Will Accelerate and There Will be Increased Pressure to Provide for the Elderly As mentioned above, if the population peak value in China comes earlier, the total population will be lower. For a given population mortality rate, especially a given mortality rate for senior citizens, the main factor that will restrain population growth is a long-term low birth rate. In fact, the population tendency reected by China’s population pyramid indicates a gradual decrease in the child population. In the 1st Population Census in 1953, the 0–14 year-old child population in China accounted for 36.28% of the total population—this was related to the high mortality rate of newborn infants. However, in the 2nd Population Census in 1964, the 0–14 year-old child population accounted for 40.69% of the total population, exposing a strong

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population growth trend. In the 3rd Population Census in 1982, a population reduction trend resulting from birth control emerged: the 0–14 year-old child population dropped to 33.59%. This gure fell further in the 4th Population Census in 1990, to 27.69%, which directly resulted in an increase in the proportion of the 15–64 year-old labour force population to total population, to a high level of 66.74%. Due to the steadily decreasing birth rate since 1992, the proportion of the 0–14 year-old population to total population obtained in the 5th Population Census in 2000 plummeted to 22.89%. On the one hand, this brought about a rise in the proportion of the senior population (above 65 years of age) to total population, inching China towards becoming an ageing society. On the other hand, it also raised the proportion of the labour force population to 70.15%. This increase in the proportion of the population above 65 years of age to total population caused by the reduction in child population is called ageing due to shrinkage of the population pyramid base. Life expectancy in China was 35 years in 1950, a gure which had increased to 68.55 years by the time of the 4th population census in 1990 (66.84 years for men and 70.46 years for women). This increase in China’s life expectancy is due to improved living standards and health and medical care, and also due to rapid developments in medical science and the increased use of new medical technology. This therefore saw a big increase in the 5th Population Census in 2000, to 71.40 years (69.93 years for males and 73.33 years for females). This was more than twice the gure of 35 years in 1950. This increase in the proportion of the senior population to total population resulting from prolonged life is called ageing at the top of the population pyramid. Data from the 1/1000 population change sample investigation in 2004 also shows that the proportion of the 0–4 year-old population to total population dropped to 4.94%, that of the 5–9 year-old population was 6.08%, and that of the 10–14 year-old population was 8.28%. This also showed a very obvious trend towards an obpyramidal population structure. Because of the rapid tapering of the bottom of the population pyramid, the relative increase in the proportion of senior citizens in China will simultaneously increase the pressure to provide for them, both in the family and socially. Generally speaking, in the senior population, senior citizens aged 65–74 are referred to as “young seniors”, those aged 75–84 as “middle seniors” and those aged over 85 as “old

new features of china’s population

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seniors”. As the age level of the population increases, the proportion of “old seniors” will also consequently increase. We all know that the proportion of people who are able to care for themselves is higher among “young seniors”, and decreases in “middle seniors” and “old seniors”. Seniors who are unable to care for themselves require the help of family members and social institutions for the care of senior citizens to meet three major requirements for providing for senior citizens—nancial, mental care and household services. As the 1/1000 population change sample investigation in 2004 showed, of China’s senior citizens, “young seniors” can basically care for themselves, but a large proportion of “middle seniors” and/or “old seniors” are unable to do so. For example, only 3% of seniors aged 60–64 and 5% of those aged 65–69 are unable to take care for themselves, while this proportion increases to 9% in those aged 70–74. Although the proportion of “young seniors” who are unable to care for themselves is still low, the proportion increases rapidly among “middle seniors”: it accounts for 14% of seniors aged 75–79 and for 25% of seniors aged 80–84. The proportion is even higher among “old seniors”: 36% of seniors aged 85–89, 49% of those aged 90–94, and 55% for those over 95 years of age (See Table 4.3). These are however only survey gures, and the real situation is more pessimistic. Because a large proportion of the senior population suffer from chronic illness, a very high proportion of this population require help and medical treatment due to illness at certain times of the year. Even if they can care for themselves, they depend on help from others in certain vital daily activities such as shopping, cooking and cleaning. It can be seen from the data obtained from the current simulation (see Table 4.4) that the ageing process of China’s population will experience the following phases: a gradual ageing phase (until 2025), a rapid ageing phase (2025–2040), and an ageing continuation phase (after 2041). This development of the ageing process will have the following characteristics. First, the country will get old before it gets rich. From 2000–2025, the median age of the population will increase greatly, from 30 to 39. In fact, according to the Population Division of the United Nations, the Chinese median age will exceed that of the USA in 2005. The speed of ageing of the Chinese population will also be very close to its historical record.

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zhang yi Table 4.3. Population’s Ability to Take Care of Themselves of at Ages 60 and above Units: Persons, %

Category Population Percentage Percentage Percentage aged 60 or of men of women of those above Able to Take Care of Themselves

Proportion of Total Population

Percentage Percentof those age of Unable to those Take Care Able to of Take ThemCare of selves Themselves

Total

154902

75735

79166

141257

91

13645

9

60–64

47599

24266

23333

46171

97

1428

3

65–69

40062

20110

19952

38132

95

1930

5

70–74

32538

16095

16442

29656

91

2881

9

75–79

19159

9111

10047

16436

86

2723

14

80–84

10469

4387

6082

7809

75

2659

25

85–89

3727

1348

2379

2377

64

1350

36

90–94

1115

355

759

569

51

546

49

234

63

171

105

45

128

55

95+

Source: Table 4–16 of the electronic version of the China Statistical Yearbook 2005, China Statistics Press, 2005.

This speed will be much higher than that of relatively advanced countries and regions in the last 30 years. The only country whose ageing speed will exceed China is Japan. However, there is an important difference in the future population histories of Japan and China. Japan became rich before the ageing of its population, whereas the situation in China will be reversed. When the proportion of the population aged 65 or above reached 7% in 1970, Japan’s per capita GDP had already reached US$ 1,900; when this proportion reached 14% in 1995, per capita GDP stood at US$ 38,000. However, by the time that China begins to become an ageing society, per capita GDP will have only reached approximately US$ 1,000. And it is estimated that when the proportion of the population aged 65 or above reaches 14%, per capita GDP may only exceed US$ 3,500. The comparison of per capita GDP also covers up internal differences within the senior population. Current studies indicate that a majority of experts in the elds of demography and sociology believe that the income of senior citizens is lower than that of younger people. Senior citizens also make up a considerable proportion of the poor popula-

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Table 4.4. Age Structure Change Trends of China’s Population under a Medium-Level Scenario Units: 10,000 persons, % Year

0–14 Years Old

15–64 Years Old

Population Proportion Population

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030 2035 2040 2045 2050

26582 26318 26190 26128 26112 26166 26257 26371 26531 26742 26969 26976 27031 26912 26754 26553 24803 22564 21696 21771 21441 20296

20.26 19.93 19.7 19.52 19.38 19.28 19.22 19.17 19.16 19.19 19.25 19.16 19.11 18.96 18.78 18.59 17.21 15.6 15 15.14 15.15 14.68

94513 95416 96210 96974 97650 98266 98803 99248 99601 99706 99674 99853 99649 99636 99464 99287 99759 98099 93825 89602 87241 84423

Over 65 Years Old

Increase Proportion Population Proportion Compared with Previous Year 1488 903 794 764 676 616 537 445 353 105 –32 179 –204 –13 –172 –177 472 –1660 –4274 –4223 –2361 –2818

72.04 72.25 72.36 72.45 72.46 72.41 72.31 72.14 71.92 71.56 71.15 70.91 70.47 70.18 69.83 69.5 69.2 67.81 64.87 62.32 61.64 61.04

10094 10336 10553 10746 11001 11268 11582 11961 12347 12877 13452 13978 14732 15418 16226 17028 19598 23998 29110 32397 32862 33578

7.69 7.83 7.94 8.03 8.16 8.3 8.48 8.69 8.92 9.24 9.6 9.93 10.42 10.86 11.39 11.92 13.59 16.59 20.13 22.53 23.22 24.28

tion. Studies of data from the 5th Population Census suggest that, as of 1 January 2000, the poor senior population accounted for approximately 17.5% of the total senior population and the total poor population nationwide amounted to 22.748 million. As the population age and the population of senior citizens gradually increase, the population of poor senior citizens may further increase.1 Secondly, the country will have a huge population of senior citizens. China has the world’s largest population, and a huge total population

1 Qiao Xiaochun, Zhang Kaiti, Sun Lujun and Zhang Ling. “Impoverished Senior Population Estimates in China”, Population Science Issue No. 3, 2005.

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naturally entails a huge population of senior citizens aged 65 and above. The 5th Population Census showed that there was already a senior citizen population (aged 65 and above) of 88.27 million. In contrast, in 1900, the USA only had a population of 3.10 million seniors aged 65 or above, and by 2000, although its senior citizen population had by then increased ten-fold, the gure only totalled 35 million. Thirdly, there will be a rapid ageing process nationwide. Many predictions indicate that China’s population ageing process is very rapid and only Japan may be matched in this respect. For example, if the proportion of the population aged 65 of above reaches 7% in 2001, 10% in about 2017 and 14% in about 2028, it will take 26 years for this proportion to rise from 7% or 14%. In Japan, these gures reached 7% in 1970, 10% in 1985 and 14% in 1994, thus requiring 24 years to rise from 7% to 14%. In the UK, a veteran capitalist nation, this proportion reached 7% in about 1930, 10% in 1950, and 14% in 1975, thus requiring 45 years to rise from 7% to 14%. France was the earliest country to become an ageing society, when the proportion of its population aged 65 or above reached 7% in 1865. However, this proportion did not reach 10% until 1940 and 14% until 1980, indicating a very slow ageing process: this rise took 115 years. The USA, the world’s most capable capitalist nation, became an ageing society in 1945, but the proportion of the population aged 65 or above did not reach 10% until 1975. It is estimated that this proportion will reach 14% in 2010, thus requiring 65 years to rise from 7% to 14%.

IV. Demographic Opportunity Window Will Remain Open Until 2020 A demographic bonus or demographic opportunity window refers to a situation in which the labour force accounts for a large proportion of the total population, the dependency coefcients of seniors and children are relatively low, and the labour force population can increase accumulation due to a lighter social burden, thus promoting economic and social development. This historical period, which is a part of population change, is called the demographic bonus period or opportunity development period. As can be seen from Table 4.4, there will be a slight rise, from 72.04% to 72.46%, in the proportion of the labour force aged 15–64 compared to China’s total population between the years 2005–2009. However, from 2010 onwards, there will be a slight decrease—from 72.41% in

new features of china’s population

93

2010 to 69.5% in 2020. During this period, although the ageing level will rise to 11.92%, the proportion of the labour force to total population will remain level at about 70%. This is the best demographic opportunity period for China to develop a prosperous society with a lighter social burden. In the next 15 years of developing a prosperous society, we will be better able to respond to the increasing population ageing process, as long as China can properly solve the problem of employment, gradually improve the quality of its population, increase its human capital and nalise the social security system. In terms of gross gures, China has now already survived its most severe employment problems. Future new additions to the labour force will fall on a continuous basis: in 2006 there will be over 9 million new arrivals to the labour force aged 15–64, over 8 million in 2007, and this gure will keep falling until 2015, when the labour population will begin to see negative growth. Due to the inuence of increased enrolment in higher education institutions, the amount of new arrived youth workers will continue to drop and university students will face increasing pressure and competition for employment. Within a few years, the annual number of university and junior college graduates will rapidly increase to 4–5 million. Unless the issue of graduate employment is resolved, social stability will be badly affected. The shortage of low-end employees (such as housekeepers and rural workers) and unemployment of high-end employees will co-exist in the labour market. The course of population change, especially in the labour force, requires China on the one hand to continue to keep to its strategic guideline of basing people’s income on employment, and on the other hand to urgently seek ways to transform Made-in-China products into Invented-in-China ones. Faced with a gradual slowdown in the annual increase of the labour force and an eventual negative increase, as well as gradually increasing pressure on human capital caused by increased enrolment of college and junior college students, the expansion of low-end industries will continue to cause shortages of manual workers from rural areas. In order to avoid such a phenomenon, efforts must be focused on improved industrial technology standards and increased innovation in response to employment pressure for high- and mediumend talent.

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zhang yi V. First Marriages Will Occur Later in Life, and the Birth Rate May Continue to Drop

First marriage age in China has undergone a noticeable rise ever since the implementation of birth control in the 1970s. In the later years of the Cultural Revolution, this gure rose to an average of 26 years in cities, 25 years in townships and 24 years in rural areas for men, and 24 years in cities, 23 years in townships and 22 years in rural areas for women. In 1980 the legal marriage age in the Marriage Law was modied. Although the rst marriage age was raised from its original provisions, this was still lower than actual late marriage age provided for in late marriage and late childbearing policy, although it caused the rst marriage age to decrease to some extent. However, since the 1990s, the rst marriage age has started to rise once again. Increased population movement, employment uncertainties caused by urban reform, rising housing prices and extended periods of education for both sexes have all been critical factors in the increase of rst marriage age. Data from the 5th Population Census indicates that in 1989, men on average rst married at the age of 24 in cities, and at 23 in townships and in rural areas. The average marriage age for women in cities was 23, 22 in townships, and 21 in rural areas. However in 1990, the average rst marriage age of urban men rose to 25. After that, 1992 saw the average age of rst marriage of men in townships and rural areas rise to 24 (See Table 4.5). By 1997, the urban gure for men had already reached 26, 25 in towns and 24 in rural areas. The gures for women also indicated a certain rise, rising to 24 in cities in 1996, 23 in towns in 1995, and 24 in rural areas in 1992. By 2003, the average age at which women rst married had risen to approximately 24.45 (for cities, towns and rural areas). As market economic reform continues, students of both sexes will pay more attention to their professional education. An increased education period will delay employment and the age of rst marriage, and lower the birth rate.

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new features of china’s population Table 4.5. Rising Age Trend for First Marriages in China

Unit: Years of Age

Men

Year 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Women

City

Town

Rural areas

City

Town

Rural areas

24 25 25 25 25 25 25 25 26 26 26 26

23 23 23 24 24 24 24 25 25 25 25 25

23 23 23 23 23 24 24 24 24 24 24 25

23 23 23 23 23 23 23 24 24 24 24 24

22 22 22 22 22 22 23 23 23 23 23 23

21 21 21 22 22 22 22 22 22 22 22 22

Source: Calculated from relevant gures in the 5th Population Census.

Under such circumstances, it can be expected that with accelerating urbanisation and the lengthening average education time, the average rst marriage age will continue to increase, resulting in a further decrease in the population birth rate.

EMPLOYMENT: CONCERNS OVER RURAL WORKERS’ EMPLOYMENT ISSUES Mo Rong, Liu Jun and Chen Lan

I. Analysis of the Employment Situation in 2005 A. In the First Three Quarters of 2005, the Annual Employment and Re-Employment Goals of 90% and 78% were Met From January to September 2005, there was an increase of 8.1 million urban newly employed people, or 90% of the annual target of 9 million. 3.9 million laid-off and unemployed people were re-employed, which reached 78% of the annual target of 5 million.1 Of these, 880,000 people in the “4050” category (40–50 year-olds) were helped to nd employment, or 88% of the annual target of 1 million. By the end of the third quarter, there were 8.35 million registered urban unemployed nationwide, and the registered urban unemployment rate stood at 4.2%. Based on the current level of development, it can be expected that the “95146”2 employment, re-employment and unemployment regulation targets can be achieved or even exceeded, and the annual registered urban unemployment rate can be controlled at under 4.3%. B. Integrating State-owned Enterprises’ Basic Subsistence Guarantee for Laid-off Workers into the Unemployment Insurance System By the end of September, 17 provinces had essentially completed this integration, and special working plans had been formulated or were being implemented in further provinces. Integration was proactively undertaken, and there were 980,000 laid-off workers from state-owned

1 Source: Ministry of Labour and Social Security press releases for the third quarter of 2005. 2 i.e. an increase of 9 million urban newly employed, 5 million re-employed laid-off and unemployed people, 1 million re-employed 40–50 year-olds, with the registered urban unemployment rate controlled at 4.6% (abbreviated to “95146”).

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enterprises (SOEs), 550,000 less than the gure at the end of last year. By the end of September, 105.46 million people were covered by unemployment insurance nationwide, while the number receiving unemployment compensation amounted to 3.85 million. From January to September, income from unemployment insurance compensation reached RMB 22.9 billion with a year-on-year increase of 16%, while expenditure amounted to RMB 13.8 billion. 6.05 million people nationwide received unemployment insurance benets at various times in the rst three quarters of the year. C. The Labour Market Exhibited Active Supply and Demand Interaction and the Job Openings Rate Increased Information on supply and demand in the labour market collected by the Ministry of Labour and Social Security from public employment agencies in 103 cities nationwide showed that employers recruited 4.266 million workers of all kinds from the labour market, 4.398 new million job seekers entered the labour market, and the job opening rate stood at approximately 0.97. Graph 5.1 shows the changes in the supply and demand conditions of the labour market. In the third quarter of 2005, information on supply and demand in the labour markets of 103 cities nationwide showed the following main characteristics.3 (1) Labour market supply and demand showed a higher increase. Compared with the previous quarter, the numbers of positions vacant and job seekers increased by approximately 360,000 and 310,000 respectively, an increase of 9.4% and 7.8%. Furthermore, compared with the same period of the previous year, the numbers of positions vacant and job seekers increased by approximately 710,000 and 650,000 respectively, an increase of 20.9% and 18.3%. (2) The tertiary industry remained the main job provider. In the third quarter, the proportions of positions vacant in the primary, secondary and tertiary industries in the 103 cities were 2.6%, 32% and 65.4% respectively. Compared with the previous quarter, the

3

Source: China Labour Market Network.

500 480 460 440 420 400 380 360 340 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 0.65

0.69

0.75 0.75 0.73 0.74

0.78

0.89 0.86

0.89 0.9

Job seekers

0.88 0.89

0.93

0.94 0.94 0.94

Job openings rate

0.95

0.97

Graph 5.1. 2001–2005 Changes of Labour Market Supply and Demand Conditions

Positions vacant

01 :Q 1 20 01 :Q 2 20 01 :Q 3 20 01 :Q 4 20 02 :Q 1 20 02 :Q 2 20 02 :Q 3 20 02 :Q 4 20 03 :Q 1 20 03 :Q 2 20 03 :Q 3 20 03 :Q 4 20 04 :Q 1 20 04 :Q 2 20 04 :Q 3 20 04 :Q 4 20 05 :Q 1 20 05 :Q 2 20 05 :Q 3 20

1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00

Job openings rate

99 concerns over rural workers’ employment issues

10,000 persons

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proportion of demand in the secondary industry went up, while the proportion of demand in the tertiary industry dropped slightly. (3) Businesses with recruitment needs were mainly concentrated in the manufacturing, wholesale and retail, and hotel and catering industries, which accounted for 24.7%, 19.1% and 11.8% of demand respectively. Demand in real estate and other service industries, as well as the leasing and commercial service industries was also relatively high, at 9% and 8.1% respectively. (4) Businesses accounted for as much as 95.4% of demand, while government authorities and institutions only accounted for 1%. Of business demand, domestic enterprises made up 77.7%. Demand from private enterprises, companies with limited liabilities and companies limited by share was relatively high, at 23.7%, 19.8% and 12.1% respectively, while demand from businesses with investments from Hong Kong, Macao and Taiwan stood at 5.4%, and foreigninvested businesses at 7.8%, while individually operated businesses amounted to 9.2%. Compared with the previous quarter, the personnel demands of state-owned and collective enterprises respectively dropped by 1.7% and 2.6%, while that of businesses with investments from Hong Kong, Macao and Taiwan rose by 1.2%. (5) The unemployed accounted for 57.7% of job seekers. Of these, young unemployed rst-time job seekers accounted for 22% (college graduates currently account for 34% of young unemployed rst-time job seekers), newly unemployed people for 20.6%, and other unemployed for a further 15.1%. In addition, laid-off workers accounted for 7.1% of job seekers, and migrant workers for 27.3% (local rural labourers made up 12.5%, and outside workers 14.8%). Compared with the previous quarter and the same period of the previous year, the proportion of young unemployed rst-time job seekers rose respectively by 2.3% and 3% and the number of newly unemployed people dropped respectively by 1.9% and 5.2%. (6) Demand for high-level technical talent exceeded supply on the labour market. Viewed in terms of supply and demand, job opening rates for talent at various technical levels all exceeded 1. The labour supply normally exceeds demand, but higher job opening rates are to be seen in positions for senior engineers, senior skilled workers and senior technicians, which stand respectively at 2.09, 2.06 and 1.88.

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D. Principal Measures to Promote Employment and Re-Employment in 2005 First, targets and responsibilities must be assigned and implemented at all levels. Since 2005, government labour security departments have formulated special plans for employment and re-employment in accordance with the targets of the “95146” plan. These targets must be broken down, assigned and implemented at all levels down to the grassroots level. Planning schedules must continue to be implemented on a monthly basis, and local governments must establish a level-based target responsibility system to ensure that tasks are properly assigned and completed. Second, support from special funds must be further improved. In 2005, the central government increased re-employment special subsidy funds by another RMB 2.6 billion while maintaining the basic subsistence special subsidy for laid-off SOE workers at the same size, thus bringing the total amount of the two funds to RMB 20.9 billion (including RMB 2 billion in small loan interest subsidies). Third, the policies must be implemented and services improved. In 2005, the central government labour security department organised several special nationwide employment service activities. During the Spring Festival, “Re-employment Aid Month” was held nationwide, with the main objective of reaching out to disadvantaged groups who have difculties getting re-employed. From the second quarter onwards, the Policy Real Effect re-employment initiative was implemented to verify difculties in policy implementation, adjust these in a timely manner, provide concerted solutions to problems reported by laid-off workers, and effectively apply employment promotion policies. In mid-June, authorities organised a Private Enterprise Employment Week in 100 large and medium-sized cities to promote the private economy and expand its employment. A Special Technical Position Recruitment Initiative was coordinated during the peak job-seeking period for college graduates and the high season for business operations by public employment agencies in various cities around the country. Measures including advisory services, position matching, jobs guidance, an internships programme, specialised training and other support services were used to promote the graduates of various colleges and workers who had already undergone skills training to satisfy businesses’ urgent needs for high-quality skilled workers. Fourth, the development of high-skill and occupational training must be enhanced. Government labour security departments initiated

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a high-skills training project in the eastern region of the country. Fullscale skills sampling surveys and specialised investigations and research were performed to get an initial understanding of the status of talent nationwide. Policies and measures were formulated to further enhance the development of high-skilled talent. The vocational qualication certicate system was vigorously promoted, producing 3.85 million vocational skill certication participants and 3.28 million vocational qualication graduates, as well as 78,000 new technicians in the rst half of the year. Re-employment training and entrepreneurship training continued in 2005, with 3.7 million participants in re-employment course nationwide and 260,000 participants in entrepreneurship training. At the same time, the agricultural and other departments implemented the “Sunshine Project” training initiative for the transfer of labour from rural areas.

II. Employment Conditions of Rural Workers A. The Number of Migrant Rural Workers Seeking Employment Reached 120 Million, of Which Approximately 60 Million Were Trans-Provincial Migrants Although departments such as the State Statistics Bureau, the Ministry of Agriculture, the Population and Family Planning Commission and the Ministry of Labour and Social Security have continued to investigate, collate statistics and monitor trends, there is at present no uniform data on the numbers of rural workers migrating in search of employment. Despite the fact that different departments’ statistics are not consistent in their scope of investigation or in their statistical range, a general judgment can be made of the current number of migrant rural workers in China by comparing similarities and differences. —Data from the State Statistics Bureau. In recent years, the Rural Area Investigation Team of the State Statistics Bureau has conducted an annual sample investigation of rural residents and administrative villages nationwide. The results indicate that the size of the rural labour force migrating to work has increased year by year. The gure stood at 110 million in 2003, an increase of 8.6% from 2002. In 2004 this gure was 120 million, an increase of 3.8%. The migrant labour force refers to rural workers who have been away from their own township for over one month, and includes both trans-provincial

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and intra-provincial migrants. These investigations included both the migrant employed as well as those who remained unemployed in this labour force within the period of the investigation. —Data from the Ministry of Agriculture. The Agricultural Research Centre of the Ministry of Agriculture monitors rural labour force migration conditions through xed observation points. The subjects of the xed observation points are various village social-economic units including farm residents, economic associations and businesses. Statistical results show that the nationwide migrant labour force in 2004 was approximately 103 million, accounting for 21% of the total rural labour force, an increase of 4.5% compared with 98 million in 2003 (See Table 5.1). In this context, the migrant rural labour force refers to those who have been away for over 3 months, thus giving a smaller statistical range than that of the State Statistics Bureau. According to data from the State Statistics Bureau’s Rural Investigation Team, rural labourers away for 3 months accounted for 92.7% of the total migrant labour force, so the size of the total migrant rural labour force can be calculated at approximately 110 million. Table 5.1. Migrant Rural Labour Force Conditions in 2001–2004 Year

2001

2002

2003

2004

Migrant rural labour force (million) Proportion of migrant rural labour force to total rural labour force (%)

90 19.3

94 19.4

98 20.5

103 21.0

Source: Ministry of Agriculture data from xed rural observation points.

—Data from the Population and Family Planning Commission. The National Population and Family Planning Commission conducted a pilot investigation of the migrant rural population at the end of 2003. As of 15 November that year, the migrant rural population (over 6 years of age) stood at 68.81 million, of which those crossing provincial borders accounted for 71.6%, and those crossing county borders for 28.4%. The migrant population as dened by the investigation refers to the population whose residence is registered in the county but who were not personally in the county at the time of investigation. According to Ministry of Agriculture xed observation point data, the rural population that migrated from their home counties accounted for 33.4% of the total rural migrant population, so the

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number of migrant workers nationwide in 2003 can be calculated at approximately 100 million. —Data from the Ministry of Labour and Social Security. According to a brief investigation and statistics from the Ministry of Labour and Social Security in May 2005, the current total number of rural workers in urban areas is approximately 89.07 million. The investigation collated collective data reported in prefecture level cities, and included towns, county-level cities and administrative townships. The migrant rural labour force engaged in non-agricultural industries in rural areas was not included. In addition, as this was a cursory report, the possibility that the report included a degree of error should not be excluded (approx. 5%). Therefore, the actual number of rural workers should be denitely higher than suggested by statistical data from the brief investigation. Results from previous sample investigations suggest that approximately 20% of the migrant rural labour force enters rural areas to engage in non-agricultural industries. By using such a gure and an additional 5% degree of error, the number of employed migrant rural workers can be calculated to be approximately 120 million. From the above analysis, the scale of the rural labour force currently migrating in search of employment can be assessed at approximately 120 million, of which about 100 million are rural workers in urban areas and about 60 million were employed in a different province (calculated based on 80% of the rural labour force migrating to urban areas, and 50% migrating across provincial borders). B. Rural Workers are Mainly Young and Middle-Aged, and the Majority are Male According to investigation data from the Agricultural Investigation Team and the State Statistics Bureau,4 although there has been a slight increase in the average age of rural workers in recent years, the majority of rural workers migrating for employment are still young and middle-aged. In 2004 the average age of rural workers was 29, of which 16–25 year-olds accounted for 45%, 26–30 year-olds for 16%, 31–40 year-olds for 23%, and those over 41 years of age for 16%. It can be

4 Unless specically stated, the data quoted here is from annual investigations of the State Statistics Bureau Rural Investigation Team.

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seen that those under 30 still account for 61%. Viewed in terms of sex, the majority of migrant rural workers were still male, accounting for 60% of all rural workers in 2004. C. Although the Proportion and Quality of Workers Who Have Received Skills Training Have Seen Some Improvement, the Overall Standard Remains Relatively Low In terms of the education of migrant rural workers, 2% are illiterate or semi-illiterate, 16% are educated to elementary school level, 65% to junior high level and 12% to senior high level, while 5% are educated to technical secondary school level or above. The proportion of those with junior high education or lower fell from 85% in 2003 to 83%, while the proportion of those with senior high education or above rose from 15% in 2001 to 16% in 2004. However, the proportion of those with junior high school education or lower accounted for 83%, indicating that the overall education level of rural workers remains relatively low. When seen in terms of skills training, those who received skills training account for 28%, an increase from 17% in 2001, but the remaining 72% have not received any training. D. The Main Migration Methods are Self-Initiated and Through Family Networks, While Organised Migrations Increase Year by Year The migrant rural labour force mainly depends on its own initiative, although a considerable proportion migrate following introductions from friends and relatives. In 2004, 33% of rural workers migrated in search of employment on their own initiative, while 65% migrated following introductions from friends and relatives. 20–30% of migrant rural workers were assisted by employment services, of which 10% came from government agencies. In many regions organised migrations have increased year by year. For example, 139,000 rural workers migrated from Luoyang, Henan in 2003. By 2004, this number reached 157,000, an increase of 18,000, accounting for 20% of all migrant rural workers. The proportion of rural workers who migrated in organised groups increases in proportion with their education level (See Table 5.2). In 2002, less than 10% of rural workers with an education level below senior high school migrated in organised groups. However, the proportions of rural workers with education levels above technical secondary school and junior college migrating in organised groups amounted to 17.5% and 25.6% respectively.

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mo rong, liu jun and chen lan Table 5.2. Education Conditions of Rural Workers Migrating for Employment Unit: %

Migration method Government (Unit) organisation Introduction through friends and relatives Own initiative Total

Illiterate Primary Junior or semi- school high literate school

Senior high school

Vocational Junior No college college or vocational above training

Vocational training graduates

5.22

2.58

2.77

6.26

17.5

25.6

8.81

2.76

30.58

32.45

35.12

32.01

26.7

20.8

36.21

33.36

64.21

64.96

62.11

61.74

55.8

53.6

64.98

63.88

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

Source: State Statistics Bureau Rural Investigation Team investigations, 2002.

Rural workers migrating in organised groups receive relatively stable employment and higher incomes. In 2002, rural workers who migrated in organised groups had an average annual migrant period of employment of almost 9 months, while their average annual income reached RMB 6,604, both of which were higher than for rural workers who migrated on their own initiative or through introduction from friends and relatives (see Table 5.3). Table 5.3. Different Migration Methods, Employment Period and Income for Rural Workers in 2002 Migration Method

Average annual employment period (months)

Average monthly Average annual income (RMB) income (RMB)

Government (Unit) organisation

8.64

791

6,604

Introduction from friends and relatives

8.11

659

5,237

Self-initiative

7.82

680

5,193

Source: State Statistics Bureau Rural Investigation Team investigations.

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E. The Central and Western Regions are the Main Sources and the Eastern Regions are the Main Destinations for Labour. Half of Rural Workers Move Across Provincial Borders Certain provinces in China’s central and western regions are the main sources of migrant labour, while the country’s eastern regions are the main destinations. In 2004, the proportion of migrant rural workers from the central and western regions reached 67%, while 70% of migrant rural workers work in the eastern regions, 2% higher than in 2003. In terms of region, 97% of migrant rural workers from the eastern regions mainly migrate and work within the eastern regions. The proportion migrating to the central and western regions is statistically insignicant. 65% of rural workers migrating from the central regions work in the eastern regions, while the central regions are the second choice for employment, and few workers go to the western regions. 56% of rural workers from the western regions migrate and work within the western regions, 41% in the eastern regions, and very few in the central regions (see Table 5.4). The Labour and Social Security Department’s brief investigation in 2005 also indicated that rural workers employed in the eastern provinces accounted for 62% of all rural workers, those in the central provinces for 20%, and those in the western regions for 18%. Nearly half of all migrant rural workers migrated and worked across provincial borders, a gure which is increasing year by year. The number of rural workers migrating and working across provincial borders Table 5.4. Distribution of Migration Directions of Migrant Rural Workers in 2004 Unit: % Source regions Destination regions Eastern regions Central regions Western regions Nationwide

Eastern regions

Central regions

Western regions

Nationwide

97 65 41 70

2 33 3 14

1 2 56 16

33 40 27 100

Source: State Statistics Bureau Rural Investigation Team Investigation, 2004.

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increased from 36.25 million in 2001 to 60 million in 2004 (accounting for 50% of all rural migrant workers). The number of rural workers migrating and working across provincial borders in 2003 showed a large increase of 15.04 million compared with that of the previous year, while the rate of increase of trans-provincial migrant rural workers in 2004 dropped, with an increase of less than 4 million compared to the previous year. More rural labourers are choosing to migrate and work within their own provinces. F. Rural Workers Mainly Engage in Manufacturing and Construction, While the Service Industry is Becoming Increasingly Important According to the Ministry of Labour and Social Security’s brief investigation in 2005, rural workers are mainly distributed in key industries such as manufacturing (27%), construction (26%), hotels and catering (11%), wholesale and retail (12%) and real estate and other services (9%), and other industries (15%). The investigations of the State Statistics Bureau also indicate that, in 2004, 30% of migrant rural workers worked in the manufacturing industry, 10% in the construction industry, 10% in the social service industry, 7% in the hotel and catering industry and 5% in the wholesale and retail industry. Rural workers are widely distributed across the manufacturing, construction, social service, hotel and food and wholesale and retail industries, and have become an important part of the industrial labour force. They account for 68% of the total work force in the processing and manufacturing industries, almost 80% of that of the construction industry, and over 52% of that of the wholesale, retail and hotel and catering industries. G. Instances of Salary Income are Rising and Becoming an Important Source of Income for Rural Families According to the investigations of the State Statistics Bureau, the average annual salary income of rural workers in 2004 was RMB 6,471, RMB 882 higher than in 2003. Rural workers remitted or brought home an average annual cash amount of RMB 3,411. The salary incomes of rural workers also showed remarkable variations due to the different employment regions. In 2003, the average monthly salary income of rural workers working in eastern regions was RMB 760, while those

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concerns over rural workers’ employment issues Table 5.5. Changes in Composition of Net Per Capita Income in Rural Households

Unit: % Income type

1990

1995

2000

2002

2003

2004

Salary income Net family operational income Transferred or property income

20.2 75.6

22.4 71.4

31.2 63.3

33.9 60.0

35.0 58.8

34.0 59.4

4.2

6.2

5.5

6.0

6.2

6.6

100.0

100.0

100.0

100.0

100.0

100.0

Total

Source: China Statistical Yearbook (2004).

in the central and western regions were RMB 570 and RMB 560 respectively—salary incomes in eastern regions were RMB 200 higher than in western regions. Migrant salaries have become an important way for farmers to increase their income. Farmers’ income in the last few years shows that, besides their main income from agricultural production and operations, salary income is still an important way for farmers to increase their income and the proportion of such income to total income is increasing year by year. In 2004 the average annual per capita net income of rural residents nationwide was RMB 2,936, an increase of RMB 186 compared with the previous year once ination factors had been deducted. The average salary income for farmers was RMB 998 per capita, an increase of RMB 80, or 8.6%, compared to 2003. Salary incomes have maintained a steady increase, mainly derived from the continuing rapid increase in the income of farmers working away from home. In 2004, based on all farmers’ income, the per capita average income from migrant work was RMB 398, 14% of the average per capita net income, an increase of RMB 52, or 15% since 2003. According to incomplete statistics based on all rural families with members working away from home, the average per household income from migrant work had grown to account for 40% of total income.

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mo rong, liu jun and chen lan III. Employment Environment for Rural Workers

A. Rural Workers’ Employment Environment is Improving Improving the employment environment and upholding the rights of rural workers while they work in the cities has helped to safeguard the employment, survival and development rights of the disadvantaged, and contributed to social harmony and congruence. The central government issued a series of documents, policies and measures aimed at protecting rural workers’ rights and improving their employment environment. The central government’s White Paper in 2004 and the Announcement on Further Improving the Employment Environment of Farmers in Cities issued by the State Council in December 2004 underlined the main problems in upholding rural workers’ rights and improving their employment environment in urban areas. The two documents also laid down the principles for system reforms to abolish rural-urban divisions and bring about equal employment opportunities for rural workers, details of which are below: 1. Solving the Problem of Wage Arrears for Rural Workers By 26 November 2004, RMB 31.8 billion in wage arrears had been cleared for rural workers nationwide. Of that, RMB 16.2 billion in wage arrears was cleared within 2003, fullling the target set for that year. By the end of 2003, a total of RMB 17.1 billion in wages was still owed to rural workers, and RMB 15.6 billion had been paid back. While dealing with these wage arrears, central and local governments also established processes to ensure that rural workers receive their full pay on time. The Ministry of Labour and Social Security and the Ministry of Construction issued a joint document, Temporary Measures for Paying Rural Workers in the Construction Sector. Similar regulations were drawn up by various local governments to ensure payment and prevent delays. 2. Cracking Down on Illegal Job Brokers, Re-Adjusting the Labour Market, and Providing Free Employment Service to Rural Workers 3. Abolishing Irrational Limits and Charges on Farmers Seeking Jobs in Urban Areas The Ministry of Labour and Social Security announced the abolition of the certicate system which had targeted rural workers for over a decade, and local governments also scrapped various certicates

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required by rural workers to enter urban areas. This has reduced the cost burden on farmers migrating in search of work and improved their employment environment. 4. Improving Training for Farmers In September 2003, the Ministry of Labour and Social Security together with the Ministries of Education, Science and Technology, Construction and Finance drew up a national farmers’ training programme for the period 2003–2010, dubbed the Sunshine Project. In 2004, 2.5 million rural labourers received introductory training, vocational skills training and on-the-job training before transferring to non-agricultural industries and moving to urban areas. 5. Solving Education Problems for Rural Workers’ Children In February 2004, the General Ofce of the State Council published its Suggestions on Improving the Provision of Compulsory Education for Children of Farmers Working in Urban Areas, a document jointly drawn up by the Ministry of Education, the Ofce of the Committee for Organisational Establishment of the Central Committee of the Communist Party of China, the Ministry of Public Security, the State Development and Reform Commission and the Ministry of Labour and Social Security. Under this plan, the main facilities providing children of rural workers in urban areas with compulsory education would be full-time public primary and middle schools in the areas where the rural workers work. 6. Exploring Ways to Include Rural Workers in the Urban Social Insurance System Local labour and social security departments have been tentatively addressing this issue based on the situation of the rural workers. While some areas have established comprehensive insurance for rural workers, others provided case-by-case insurance for work-related or major illnesses and other items, and still other areas combined social insurance with commercial insurance to provide personal accident insurance for rural workers. The Ministry of Labour and Social Security issued Suggestions on Encouraging Employees in Mixed Nature Enterprises and NonPublic Economic Organisations to Take out Medical Insurance in June 2004, which required local labour and social security departments to provide medical insurance to rural workers who have established working relationships with employers.

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7. Pushing Forward Reform of the Urban Household Registration System In December 2004, the State Council issued an Announcement on Further Improving the Employment Environment of Farmers in Urban Areas, which required local governments to accelerate reform of the household registration system, and under which, rural workers with stable jobs and accommodation would have equal rights with local residents and take up appropriate responsibilities. 8. Publishing and Implementing Labour Protection and Oversight Regulations In November 2004, the State Council announced the Regulations on Monitoring Labour Security. Implementing these will have a signicant effect on pushing forward the country’s labour protection legislation and on improving the employment environment. Due to the huge surplus of labour supply in the market, the relation of labour to capital is seriously out of balance, resulting in rampant violations of workers’ legal rights, illegal activity and the outing of labour laws. To tackle this problem, the legal status of labour oversight need to be raised, and its implementation measures and forces strengthened. Once the Regulations are applied, labour protection laws, regulations and rules can be more effectively implemented. The law enforcement agencies responsible for labour protection oversight must also be empowered to crack down on, and prevent, violations of labour and social security laws, regulations and rules, so as to ensure their better implementation. Only through the imposition of sanctions for violations of labour protection can labourers’ legal rights to pay, contracts, vacation and leave, social insurance etc. be effectively protected. In 2005, during the peak period around the Spring Festival when rural workers return to urban areas for employment, the Ministry of Labour and Social Security in conjunction with public security, personnel and industry and commerce administration departments, organised and ran the Spring Wind Initiative and other special initiatives to adjust the labour force market. During these initiatives, over 11 million Spring Wind cards were issued to rural workers, over 4,500 job fairs were held, 1.1 million rural workers received free job referrals, and over 4 million positions suitable for rural workers were provided. At the same time, 59,000 job referral agencies and employer organisations were checked, over 19,000 law violations in job referrals were reported, investigated and punished, over 7,200 illegal referral agencies were closed down, as the result of which, labour market regulation showed an obvious improvement.

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B. Three Key Issues for Improving Rural Workers’ Migration and Employment in the Coming Period 1. The Employment Environment of Rural Workers Needs to be Further Improved On the one hand, the obstacles that hinder rural workers from coming to urban areas in search of work still exist. Although industry and work restrictions for such rural workers are being gradually abolished, other institutional restrictions still exist and discrimination in the employment of rural workers has not been completely eliminated. The opening up of the urban public employment management and service system to rural workers still requires the resolution of conceptual, system, physical and technical issues. Much work remains to be done to ensure that rural workers can access the same public employment service as urban residents. On the other hand, although the wage income of rural workers has risen to a certain extent in recent years, their living costs in town have also increased rapidly and there usually not much left of their income after expenditure on housing, children’s education and living expenses are subtracted. If rural workers are unable to access the same public resources and services as urban residents, the high additional expenses will to some extent inuence the desire of rural workers to migrate and work away from home. 2. Rural Workers’ Wages and Benets and the Protection of Their Rights and Interests Still Fall Severely Short of Their Need for Stable Employment Impelled by the greater importance which the government attaches to protecting the wages and rights of rural workers, more positive measures have been taken to improve the unsatisfactory situation of their wages, benets and labour rights and interests. However, it must be recognised that the severe problem currently remains that the labour rights and interests of rural workers are not well protected. The problems that appear to be most prominent include: underpaying or defaulting on wage payments, forced overtime and extra work, poor working and sanitary conditions, and avoiding concluding labour contracts with rural workers, all of which are in non-compliance with regulations. As indicated in the investigations conducted by the State Statistics Bureau in 2004, rural workers are on average required to work 9.4 hours a day, 6.4 days a week. According to relevant departments’ estimates, the total amount of rural workers’ wages in arrears reported in 2004 reached RMB 33.6 billion (98.4% of that amount had been paid off by the end of 2004). In another cursory investigation by the Ministry of Labour and

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Social Security in 2005, 28.7% of rural workers had concluded labour contracts, 13.8% were covered by the urban employee basic pension insurance scheme, 10.0% were covered by the urban employee basic medical insurance scheme, and 12.9% were covered by employment injury insurance. For reasons such as statistical range and possible degree of error, the actual number of rural workers covered by such insurance may however be lower, and greater efforts need to be made to solve problems in this area. 3. The Contradiction Between the Need for Skilled Talent and Rural Workers’ Poor Technical Skills is Becoming Prominent Upon accession to the WTO, the globalisation of the Chinese economy accelerated, and the global manufacturing industry is moving at a greater speed into China. The industrial structure is undergoing a process of constant upgrading and gradient transition, and the demand for skilled talent—especially highly skilled talent—is increasing drastically. However, although they are an important component of China’s industrial labour force, rural workers in general have lower educational quality and skill levels. The challenge therefore consists of establishing ways to provide rural workers with skills training more effectively in order to satisfy industrial development needs.

IV. Employment Policy Environment in 2006 The set targets for China’s employment and re-employment promotion initiatives for 2006 (LaosheBu Mingdian [2005] No. 11, Notice on Implementing the State Council Notice on Further Improving Employment and Re-employment Promotion Initiatives) are 9 million urban newly employed people, 5 million re-employed laid-off and unemployed people, 1 million re-employed employment-disadvantaged such as those between 40 and 50 years of age, and a registered urban unemployment rate below 4.6%. These combine to form the “95146” project. All indexes should be kept at the same level as last year. On 10 November 2005, the State Council issued the Notice on Further improving Employment and Re-employment Promotion Initiatives (Document No. 36), formulating employment policy for 2006 and even for the coming 3–5 years. The document identies the following main employment and re-employment promotion tasks as follows: the problem of laid-off and unemployed workers left behind during system

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transition should be comprehensively resolved. The re-employment of laid-off and unemployed SOE staff, laid-off workers from collective ownership enterprises, and workers who require relocation from shut-down and bankrupt state-owned enterprises should be handled effectively. Successes in re-employment promotion must be built upon and employment stability increased. Employment promotion initiatives for new additions to the urban labour force must be handled more effectively, with better initiatives. Employment promotion initiatives for college graduates should be pushed forward pro-actively, and workers’ vocational skills and entrepreneurial capacities must be enhanced while creating more employment positions. The employment environment of rural workers migrating to urban areas must be improved and consolidated urban-rural employment planning must be pro-actively promoted. Adjustments to and control of unemployment must be improved, and the registered urban unemployed population must be controlled within reasonable limits. Long-term unemployed numbers must be reduced. The development of employment legislation must be accelerated, and a joint-response mechanism for employment and social security must be gradually established. The document contains altogether six parts and 32 articles. The policy of employment and re-employment promotion is further boosted by guidelines which emphasise “Extension, Expansion, Adjustment and Improvement”. While the problem of laid-off and unemployed workers left behind during system transition is listed as a key issue, also mentioned is the need to improve the quality of employed personnel and to consolidate urban-rural employment planning.5 The required adjustments include the following: 1. Improving and Implementing Re-Employment Promotion Policy and Promoting the Re-Employment of Unemployed Workers Under current policy, tax preference is altered from originally having no set limits to providing progressing deductions and exemptions in four categories of tax, within set limits. The scope of loan interest subsidies will be expanded from the current 19 set items, and their scope will be determined by local authorities so that this is better suited to actual local conditions and to

5 Interpretations of employment and re-employment promotion policies by relevant managers of the Ministry of Labour and Social Security can be found on http://www. lm.gov.cn/gb, 11 November 2005.

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the re-employment of laid-off and unemployed workers. The application of tax preference is altered from pro-rata reduction and exemption to reduction and exemption in turn according to the actual number of recruited staff, mainly to simplify operations and prevent management error. Businesses are required to pay social security fees, while medical insurance is subsidised based on the original pension and unemployment insurance, mainly to give sick workers access to medical services. The coverage of this subsidy is to be expanded. 2. Promoting Consolidated Urban-Rural Employment Planning and Employment Promotion Services, and Improving Vocational Training Three major adjustments are made in this respect. First, the range of people eligible for free job referral services and vocational training subsidies now also include laid-off workers from collective ownership enterprises established by state-owned enterprises, other workers in unemployment registration records and rural workers migrating to urban areas who have themselves registered for work. Second, provision of free training is changed to subsidised training. Subsidies are provided according to training quality and post-training employment conditions, which better suits actual local working conditions. Third, workers holding Re-employment Preference Certicates who pass primary skill certication (limited to specied types of work which provide employment access in accordance with state regulations) can also be given a vocational skills certication subsidy in one lump sum, mainly to help workers in nancial difculties to improve their technical skills and nd stable employment. 3. Improving Adjustment and Control of Unemployment, and Enhancing Employment Administration The following main adjustments and improvements have been made: The time limit for separating businesses’ core and subsidiary activities is extended, mainly to consider the fact that the implementation of this policy began at a later time and it is necessary to continue its implementation to extend and expand its effect, and to keep this in line with the time limits for progress in SOE reform and re-employment promotion policy. It is further emphasised that relocation of workers due to the restructuring, system transformation, shutdown and bankruptcy of state-owned enterprises must be performed effectively. The three-step pre-, during- and post-event processes are further regulated according to actual work conditions, and strict review and supervision of implementation are required.

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4. Improving the Social Security System The policies for the establishment and promotion of the joint response mechanism for employment promotion mainly address pilot projects to expand the scope of expenditure on unemployment insurance funds in the eastern regions. The main purpose is to further extend the role of unemployment insurance funds in employment promotion. 5. Improving Organisation and Leadership, and Bringing Together Participants from Across Society to Participate in Employment Promotion Initiatives Adjustments and enhancements have mainly been made in three aspects. First, the main targets are to resolve the issue of laid-off and unemployed workers left behind during system transition, promote the employment of new arrivals to the urban labour force, push forward consolidated urban-rural employment planning, improve unemployment adjustment and control, and implement the joint response mechanism. This thus leads to further improvement in the system of targets for employment and re-employment promotion. Second, the joint cross-departmental re-employment promotion meeting system has been modied into a joint cross-departmental employment promotion meeting system. Local governments at various levels have adjusted accordingly to create a working mechanism ensuring unied leadership, division of labour, and cooperation. Third, budget expenditure items must be increased according to policy adjustments and improvements. Governments at various levels must pro-actively adjust nancial expenditure structures, increase fund investment, and list employment re-employment promotion funds in their nancial budgets. Adequate subsidies will continue to be provided from the central government nancial budget through special transfer payments, mainly to contribute to funds for subsidies for job referrals, vocational training, social security and small secured loan interest. At the same time, nancial departments at all levels should make reasonable arrangements for the funds to be used to establish labour markets and neighbourhood community labour security platforms, etc.

ADJUSTING THE MINIMUM SUBSISTENCE GUARANTEE SYSTEM FOR URBAN AND RURAL RESIDENTS Tang Jun and Zhang Shifei

In 2005, relevant government departments focused on preparation to implement the minimum subsistence guarantee system for urban and rural residents.

I. Current Situation In the rst three quarters of 2005, 9.75 million families, or 21.86 million people, were eligible for the minimum subsistence guarantee allowance. A total of RMB 13.88 billion was distributed, a monthly average of RMB 70 per person. During this period, the number of people eligible for the allowance decreased continuously, by 220,000 between January and September (See Table 6.1). An interesting phenomenon was the uctuation in the number of people who were eligible for the allowance. After decreasing in the rst three quarters, the gure rose again in the fourth. Statistical data from the Ministry of Civil Affairs show that the number rose in October to 21.96 million, 100,000 more than in September. Were the trend to continue, the gure would reach 22 million by the end of the year. A more detailed analysis shows that the number of traditional recipients, referred to as the “three lesses”, has been uctuating within a fairly small range, maintaining a dynamic balance, while the numbers of recipients in all four major categories—namely the employed, the laid-off, the retired and the unemployed—decreased. In 2004, however, the number of unemployed rose all of a sudden in the fourth quarter. In contrast, in 2005, the category that continued to grow was “Others”, increasing by 0.7 million from the beginning of the year, and 1 million more than in the rst quarter of the previous year. The number of families in urban areas eligible for the allowance also kept rising, from 9.36 million at the beginning of 2004 to 9.75 million at the end of the third quarter of 2005, up by nearly 400,000.

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Table 6.1. Number and Composition of Individuals and Households Eligible for Minimum Subsistence Guarantee Allowance, 2004–2005 Category Total Total Categories Individuals Households Employed Laid-off Retired Unemployed Others 2004 Q1 Q2 Q3 Q4

2248.93 2214.54 2199.45 2200.81

935.66 940.51 939.51 951.97

163.69 152.66 144.72 135.81

487.88 494.62 469.62 468.52

88.20 85.30 78.13 72.59

415.35 422.48 417.71 481.05

996.31 960.51 992.45 1009.54

2207.51 2188.26 2185.61

962.06 135.83 968.32 123.59 974.78 119.40

455.83 446.38 418.73

73.78 68.39 63.11

415.01 406.87 391.22

1029.41 1042.04 1098.58

2005 Q1 Q2 Q3

Source: Civil Affairs Statistics website, Ministry of Civil Affairs.

It is not easy to explain the changes in the data above. Generally speaking, “Others” indicates the small remaining percentage that cannot be classied into the main categories. Due its very nature, this section is always considered as requiring no further division, and as ignorable. However, very oddly indeed, “Others” accounts for as much as half of the total number of people currently eligible for the minimum subsistence guarantee allowance. Although some may argue that the major composition of this category must be family recipient members, statistics indicate that since 2004, as the number of recipients as declined, the number of recipient households has continued to increase, and the average population per household has fallen from 2.40 to 2.24. It therefore obviously makes no sense to ascribe the phenomenon to the recipient population. There are also still potential classication categories for recipients which have not been further divided, including landless farmers (whose land has been requisitioned), jobless people (whose work contracts have been cancelled after payment of a lump sum but who have not been registered as “unemployed”), and so on. Further dividing this group of people into sub-categories is worthwhile because changes to this group can help to analyse general changes and development trends of people eligible for the minimum subsistence guarantee allowance in the future.

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Table 6.2. Minimum Subsistence Guarantee Allowance Expenditure in Urban Areas, 2004–2005

Category

Total Expenditure (RMB billion)

2004

Q1 Q2 Q3 Q4

4.137 4.132 4.159 4.862

2005

Q1 Q2 Q3

4.628 4.627 4.626

Average Minimum Subsistence Guarantee per Capita (RMB)

Monthly Actual Payment per Capita (RMB)

154 154 154

70 70 70

Source: Civil Affairs Statistics website, Ministry of Civil Affairs.

According to information issued by the Ministry of Civil Affairs, as of September 2005, total minimum subsistence guarantee allowance expenditure in urban areas was RMB 13.9 billion. The rst three quarters of 2005 witnessed similar expenditure, at slightly over RMB 4.6 billion for each quarter (See Table 6.2). Regardless of changes in the number of recipient individuals and households, expenditure remained the same. However, data for 2004 shows that expenditure rose sharply in the fourth quarter, by 17%, or more than RMB 700 million. According to statistics for October 2005, minimum subsistence guarantee allowance expenditure remained approximately RMB 1.5 billion, no remarkable increase from the previous month. If this current trend continues, by the end of 2005, total annual expenditure on the minimum subsistence guarantee allowance in urban areas will be between RMB 18.5 and 19.5 billion. The two forms of social relief in rural areas remain the same, namely the rural minimum subsistence guarantee system and the rural xed-term, xed-amount relief fund. There are a total of 2.81 million households or 5.66 million individuals eligible for the allowance in rural areas where the minimum subsistence guarantee system has been implemented. As of October 2005, RMB 1.73 billion of the allowance had been allocated. The average minimum subsistence guarantee was

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RMB 76, while actual payment was RMB 33. A total of 5.57 million households or 9.48 million people receive rural xed-term, xed-amount relief. As of October 2005, RMB 1.59 billion of this part of the fund had been spent.

II. Adjustment “Adjustment” means that many cities raised the level of the urban minimum subsistence guarantee due to rising prices since the second half of 2003, especially in foodstuffs and public services, which markedly affect daily life. In accordance with current veried information, 29 of the 36 major cities (4 municipalities, 27 provincial capital cities and 5 special-status cities) have already adjusted the standard (See Table 6.3). However, a clear understanding of the urban minimum subsistence guarantee system is still required. The results of an investigation by the Social Policy Research Centre of the Chinese Academy of Social Sciences revealed that the following problems in the system still exist. The announced level equals to 22.2% of the per capita actual monthly income of local residents. Of the 36 cities, Haikou claims to have the highest percentage, approximately 30.3% and Urumqi the lowest, at approximately 16.2%. The average value is 22.2%. Further analysis shows that, in ten cities, the announced level is less than 1/5 of per capita actual monthly income. These ten cities, all located in central and western areas of the country, are: Xining, Guiyang, Taiyuan, Urumqi, Nanchang, Huhehot, Changchun, Zhengzhou, Lanzhou and Wuhan. However, ve of the cities—Haikou, Shanghai, Dalian, Xiamen and Guangzhou—have raised standards above 1/4 of per capital actual monthly income (See Table 6.4). The actual allowance equals 9.2% of the per capita actual monthly income of local residents. Of the 36 cities, Beijing claims to provide the highest actual allowance, at approximately 18.0%, while Changchun is the lowest, at about 6.3%. The average value is 9.2%. Further analysis shows that in nine cities, the actual allowance is 10% higher than the per capita actual monthly income of local residents; these are Beijing, Shanghai, Qingdao, Hangzhou, Ningbo, Guangzhou, Shenzhen, Nanjing and Lhasa. All but Lhasa are located in the eastern coastal areas (See Table 6.4).

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Table 6.3. Results of Adjustment to the Level of the Urban Minimum Subsistence Guarantee, 2004–2005 Unit: RMB City Beijing Tianjin Shijiazhuang Taiyuan Huhehot Shenyang Changchun Shanghai Nanjing Hangzhou Hefei Fuzhou Nanchang Jinan Guangzhou

March 2004 290 241 205 171 180 205 169 290 220 270–300 210 200–220 165 208 300

October 2005

City

300 Nanning 265 Chengdu 220 Chongqing 183 Kunming 190 Guiyang 220 Lhasa 205 Xi’an 300 Lanzhou 240 Xining 280–320 Yinchuan 230 Urumqi 210–230 Dalian 190 Qingdao 230 Ningbo 330

March 2004

October 2005

190 178 185 190 156 180 180 172 155 170 159 240–312 230 260

210 210 195 210 170 200 200 190 165 180 161 240–363 260 300

Source: Civil Affairs Statistics website, Ministry of Civil Affairs.

The announced minimum subsistence guarantee level is slightly lower than the per capita monthly foodstuff expenditure of local residents. Of the 36 cities, Dalian claims to have the highest percentage of foodstuff expenditure, at about 128.4% and Lahsa the lowest, at approximately 61.6%. The average value is 92.8%. In 19 cities, more than half of the 36 cities, the percentages are higher than the average value. This exceeds 100 in ten cities widely distributed all over the country, which are: Dalian, Zhengzhou, Shijiazhuang, Xiamen, Harbin, Jinan, Qingdao, Huhehot, Xi’an and Taiyuan. This indicates that the announced level is approximately equal to the per capita foodstuff expenditure of local residents (See Table 6.5). The actual allowance level is less than 40% of the per capita monthly foodstuff expenditure of local residents. Of the 36 cities, Beijing claims to provide the highest actual allowance, at approximately 62.9%, and Nanning the lowest, at about 24.4%. The average value is 38.4%. In 24 cities, two-thirds of the 36 cities, the ratio is lower than the average value. However, the ratio in seven cities is higher than 50%, these being Beijing, Qingdao, Zhengzhou, Huhehot, Ningbo, Urumqi and Shenzhen. This indicates that the relief level actually obtained by urban

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tang jun and zhang shifei Table 6.4. Per Capita Actual Monthly Income, Announced Level, Allowance Level and their Relationship Units: RMB, %

City

(1) Per Capita Actual Income

(2) Announced Standard

Haikou Lhasa Harbin Xining Guiyang Hefei Yinchuan Nanning Chongqing Changsha Shenyang Taiyuan Chengdu Shanghai Nanjing Urumqi Shijiazhuang Kunming Tianjin Xi’an Nanchang Huhehot Changchun Fuzhou Qingdao Dalian Zhengzhou Jinan Lanzhou Xiamen Wuhan Hangzhou Guangzhou Beijing Ningbo Shenzhen

729 804 843 859 873 890 899 901 907 920 938 940 940 959 969 962 968 984 991 1002 1004 1007 1024 1027 1039 1043 1060 1070 1071 1149 1188 1270 1278 1303 1357 1504

221 180 200 165 170 210 180 210 195 200 220 181 210 290 240 156 220 210 241 200 190 190 169 210–230 230 240–312 200 230 190 265–315 220 270–300 330 290 280 344

(3) Actual Allowance 60 85 57 66 78 60 66 60 77 77 70 86 72 149 108 94 74 92 98 73 68 100 65 87 138 89 89 67 72 109 77 166 165 234 176 185

(2) / (1)

(3) / (1)

30.3 22.4 23.7 19.2 19.5 23.6 20.0 23.3 21.5 21.7 23.5 19.3 22.3 30.2 24.8 16.2 22.7 21.3 24.3 20.0 19.0 18.9 16.5 22.4 22.1 29.9 18.9 21.5 17.7 27.4 18.5 23.6 25.8 22.3 20.6 22.9

8.2 10.6 6.8 7.7 8.9 6.7 7.3 6.7 8.5 8.4 7.5 9.1 7.7 5.5 11.1 9.8 7.6 9.3 9.9 7.3 6.8 9.9 6.3 8.5 13.3 8.5 8.4 6.3 6.7 9.5 6.5 13.1 12.9 18.0 13.0 12.3

Source: Civil Affairs Statistics website, Ministry of Civil Affairs. Note: Where different levels are used for household scale, single-household value is used to calculate percentage relations.

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residents who are eligible for the minimum subsistence guarantee allowance is less than 40% of the foodstuff expenditure of local ordinary residents (See Table 6.5). Most recipients believe that the allowance cannot meet minimum living needs. Of the 1,257 recipients interviewed in Liaoning Province, 62.0% complained that the allowance “cannot meet minimum family living requirements” or is “far too little”; 36.2% said that the allowance “can barely make ends meet” or that it was “acceptable”; only 1.5% thought that “they were relatively contented.” The two major functions of the allowance are to provide emergency funds and a living costs subsidy. Interviewees’ multiple-choice questionnaire responses showed that 63.2% said they “relied on the allowance to subsidise their living costs”; 47.1% said they “completely relied on the emergency fund for daily survival”. Very few chose the remaining three options. “Occasional work income”, “Support from parents, relatives and/or friends” and “Reducing daily expenditure” are the most common ways for people eligible for the minimum subsistence guarantee allowance to compensate for scarce household funds. Questionnaire responses showed that “Doing occasional work/doing small business” was most popular, accounting for 60.4% of all interviewees; “Relying on support from parents, relatives and/or friends” ranked second, accounting for 50.6%; and “Reducing daily expenditure” ranked third, or 46.5% of all interviewees. The other ve options all scored 20% or less. As an income support system aimed at ensuring a minimum standard of living, the minimum subsistence guarantee level for urban residents can only be maintained at a level equal to one-fth of the per capita actual income of local residents, or slightly below their per capita foodstuff expenditure. However the relief actually received by eligible recipients is actually far less than the level announced by local governments. In other words, the actual allowance is less than 1% of the per capita actual monthly income of local residents, or less than 4% of their per capita monthly foodstuff expenditure. This indicates that the ongoing minimum subsistence guarantee level can only solve eligible recipients’ needs for food and clothing. Therefore, for those who can no longer work, the allowance becomes an emergency fund; for those who still can, the allowance acts as a daily costs subsidy. The latter can only maintain an extremely low margin between income and expenses by “doing odd jobs”, receiving “support from parents, relatives and/or friends” or “reducing expenditure on

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Table 6.5. Per Capita Monthly Foodstuff Expenditure, Announced Level, Allowance Level and their Relationship Units: RMB, % City

(1) Per Capita Foodstuff Expenditure

(2) Announced Standard

(3) Actual Allowance

(2) / (1)

(3) / (1)

Haikou Lhasa Harbin Xining Guiyang Hefei Yinchuan Nanning Chongqing Changsha Shenyang Taiyuan Chengdu Shanghai Nanjing Urumqi Shijiazhuang Kunming Tianjin Xi’an Nanchang Huhehot Changchun Fuzhou Qingdao Dalian Zhengzhou Jinan Lanzhou Xiamen Wuhan Hangzhou Guangzhou Beijing Ningbo Shenzhen

236 292 188 182 193 218 192 246 271 211 243 180 224 414 270 182 196 268 317 197 196 187 203 295 224 243 165 224 196 295 225 335 360 372 335 360

221 180 200 165 170 210 180 210 195 200 220 181 210 290 240 156 220 210 241 200 190 190 169 210–230 230 240–312 200 230 190 265–315 220 270–300 330 290 280 344

60 85 57 66 78 60 66 60 77 77 70 86 72 149 108 94 74 92 98 73 68 100 65 87 138 89 89 67 72 109 77 166 165 234 176 185

90.6 61.6 106.4 90.7 88.1 96.3 93.8 85.4 72.0 94.8 90.5 100.6 93.8 70.0 88.9 85.7 112.2 78.4 76.0 101.5 96.9 101.6 83.3 78.0 102.7 128.4 121.2 102.7 96.9 106.8 97.8 89.6 91.7 78.0 83.6 95.6

25.4 29.1 30.3 36.3 40.4 27.5 34.4 24.4 28.4 28.4 28.8 47.8 32.1 36.0 40.0 51.6 37.8 34.3 30.9 37.1 34.7 53.5 32.0 29.5 61.6 36.6 53.9 29.9 36.7 36.9 34.2 49.6 45.8 62.9 52.5 51.4

Source: Civil Affairs Statistics website, Ministry of Civil Affairs. Note: Where differentiated standards are used for household scale, single-household value is used to calculate percentage relations.

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clothes and food”, indicating that the statement that “the minimum subsistence guarantee system fosters idleness” is baseless. Researchers often mention that China’s minimum subsistence guarantee level is still far below the 50–60% portion of middle-class or average income commonly used by developed countries (mainly OECD countries). However, while acknowledging China’s far lower level, we cannot simply compare ours with an “international standard”, because developed countries dene their target as allowing recipients to “live a life of self-esteem”. This ethical and morally inuenced denition sets a fairly high relief standard, resulting in problems of welfare reliance, which has now become the major reason for developed countries to reform their social welfare system. What we now need to do is to explore an appropriate standard based on “ensuring minimum living requirements”. During 1960s-1980s, the USA applied a standard of “Engel coefcient > 33%”. The actual relief standard calculated in this way was approximately equal to 37–40% of the income of medium-income families. Based on American experience, we should consider whether to dene our minimum standard at 30% of average income as a rst step. In recent years, the minimum subsistence guarantee system has been further improved, for instance, classied relief methods have been adopted where appropriate for the disabled, the sick, the aged, minors and single-parent families. Some support measures are also available for education, health care and housing. These have all made tremendous contributions to poverty relief in the target groups. Especially in economically-developed and nancially-successful cities, a comprehensive relief system based on the minimum subsistence guarantee system may provide the target groups with better benets than the subsistence allowance itself. The current situation suggests that an overwhelming number of urban target group members are strongly motivated. Those who can still work are condent that they can shake off their “destitute” situation themselves. Promulgating further favourable policies governing community organisations, sustainable subsistence, asset development and labour resource transfer will provide more assistance to those who are able to work.

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tang jun and zhang shifei III. Preparation

“Preparation” means that, although relevant government departments have not promulgated new policies in 2005 governing the urban and rural minimum subsistence guarantee, achievements this year have laid a solid foundation for the implementation of a series of new reform measures. Three major events which occurred in the second half of 2005 in particular may illustrate urban and rural minimum subsistence guarantee developments in 2006 or further into the future. First, the 11th Five-year Plan and the rural minimum subsistence guarantee system. The 5th Plenary Session of the 16th CPC Congress was held in Beijing on 8–12 October 2005. The proposals for the 11th Five-year Plan approved by the CPC Central Committee pointed out that “Areas with mature conditions should actively explore the possibility of establishing a rural minimum subsistence guarantee system.” This was the rst time that the supreme leadership had expressed a clear opinion toward the rural minimum subsistence guarantee system, and indicates that establishing the rural minimum subsistence guarantee system will become a major government task in the coming years. Results may be achieved in the next 2–3 years. Second, a national conference was convened on 18 November 2005 in Beijing to exchange experience in the social relief of the extremely poor in urban and rural areas. Minister of Civil Affairs Li Xueju chaired the conference and his deputy, Mr. Jia Zhibang, gave a progress report. The key tasks of the conference included: conscientiously carrying through the ideology of the Party’s 16th National Congress and its 4th and 5th Plenary Sessions, analysing and exchanging achievements and experiences from social relief work in various areas since the 2004 Qingdao Conference, analysing the current situation and problems facing social relief, improve and standardise various social relief systems, and further facilitating and improving the social relief system under the guidance of Deng Xiaoping Theory, the Three Representation tenets and the scientic concept of development. This conference set the basic guiding principles for urban and rural social relief initiatives in the coming years and placed signicant emphasis on the development of minimum subsistence guarantee policies during the 11th Five-year period. Third, the research report, Current Situation and Predicament of Orphans in China, was published on 29 September 2005. This was the Ministry of Civil Affairs’ rst fact-nding investigation and research document on orphans since the founding of the People’s Republic of

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China. The investigation indicated that, there were 573,000 minors below the age of 18 whose parents were deceased or who were not brought up by adults, of whom 30% received no regular system relief and 50% were in urgent need of relief. An overwhelming number of orphans live in rural areas and received far less relief than urban orphans, and in most areas, received only symbolic relief. Experts suggest that central nance must provide relief of RMB 100 per person per month to nearly 600,000 un-parented orphans. Total expenditure would be approximately RMB 700 million, a small amount when compared to the government’s current nancial capability. Its policy effects will also be of great importance. Meanwhile, some academics have raised warnings about urban minimum subsistence guarantee system trends, insisting that there are advantages and disadvantages to minimum subsistence guarantee policies. The social relief system is provided subject to household economic surveys, and would lose its basis for existence without such pre-conditions (thus becoming a social welfare or social allowance system). The ineffective application of these pre-conditions would foster social welfare reliance, and breed idleness. On the other hand, if these pre-conditions are over-emphasised, social conict will develop, causing clashes between grass-root cadres and the population, and thus countering the original intention of creating social stability through the implementation of the guarantee system. Therefore, the strategy to deal with this dilemma is not to rely on minimum subsistence guarantee policy as the sole tool to provide poverty relief. The policy should be integrated with other poverty relief measures, so as to counterbalance its side-effects by simultaneously implementing other more positive poverty relief policies such as community organisations, sustainable subsistence, asset development, and labour resource transfer, etc. Community Organisations People eligible for the minimum allowance should be brought together and provided with temporary or seasonal working opportunities. During their leisure time, they could also be brought together to participate in study and exchange seminars, and provide volunteer services to the community. This would effectively prevent their marginalisation due to long-term unemployment, and draw them back into mainstream society so as to attain the objective of increased capabilities.

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Sustainable Subsistence People eligible for the minimum allowance should be helped to break the traditional concept of employment, which is characterised by 8-hour workdays, regular shifts, monthly salaries, etc., and to adapt to the current social situation. Efforts should be made to help them nd a proper sustainable means of subsistence, mostly through self-employment. Meanwhile, government policies should enable their sustainable subsistence, rather than crudely crush subsistence in the name of urban construction. Asset Development People eligible for the minimum allowance should be encouraged to develop their own nancial assets, i.e. personal development accounts. The minimum subsistence guarantee policy will no longer “force” those eligible to remain in a quagmire of non-existent resources in terms of income and assets. On the other hand, the importance of government agencies not publicising their income and assets must be made clear to avoid confrontation and conict. Recipients should be helped to deposit money into designated accounts with specied indexes, such as children’s education, development of sustainable subsistence and health care, etc. The government should meanwhile provide a proportion of the subsidy when they spend deposited money from their accounts. Labour Resource Transfer Those eligible, especially those in towns with non-existent resources, should be encouraged to move to other areas to nd employment. In certain places, transfer is actually the only solution. The policy integration mentioned above aims to ensure the minimum living conditions of urban and rural poor people through the minimum subsistence guarantee system, so as to attain the goals of ensuring public calm and maintaining social order. On this basis, more active policies should be adopted to guide eligible recipients who are able to work to seek sustainable subsistence, and set up their own personal development account to pull themselves out of poverty. Unfortunately, certain government departments are not yet aware of the restrictive nature of the minimum subsistence guarantee system itself. Faced with problems such as health care, housing, children’s education, winter heating, etc., policy development still emphasises the continuous expansion of the scope of relief. This greatly increases the cash content of the relief system, and the actual benets obtained from matching

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measures are far greater than the relief allowance itself. This practice is actually unfavourable for encouraging working initiative, and on the contrary, easily leads to welfare reliance. It may meanwhile also lead to conict between grass-root cadres and the population, which is of course unfavourable to social stability. Therefore, the possibility that the minimum subsistence guarantee system has reached a turning point or cross-roads should also be considered. In rural areas, the role of poverty relief mainly powered by economic development has reached its limits, and is no longer effective for the existing destitute population, i.e. 1) orphans, widows, the disabled and minors; 2) people whose own land cannot support their subsistence; and 3) people in areas frequently affected by natural disasters. The best evidence of this judgement is the fact that in recent years, the numbers of rural poor have uctuated between 25 and 30 million with no improvement. A wiser alternative is therefore social relief, namely the minimum subsistence guarantee system. Poverty relief means should be used for relatively poor people who can be assisted to raise their living standard to the international standard of US$ 1 a day. So-called destitution is a result of the loss of working ability (due to personal physiological conditions or natural environment conditions), so the above-mentioned policy dilemma which exists in the urban minimum subsistence guarantee system will not appear in rural areas. The time is therefore ripe to widely promote this system in rural areas.

ADJUSTING THE SOCIAL STRUCTURE AND DEVELOPING A HARMONIOUS SOCIALIST SOCIETY Lu Xueyi

Since the 16th CPC National Congress, the CPC Central Committee has proposed two signicant strategic visions for the implementation of a scientic approach to development and the development of a harmonious society. This indicates that the social and economic development of China has entered a new historic phase. The 5th Plenary Session of the 16th CPC National Congress proposed the formulation of the 11th Five-Year Plan for national economic and social development and required that overall social and economic development be governed by a scientic approach to development to achieve sustained, rapid, coordinated and healthy economic development and push forward the growth of a harmonious socialist society. One chapter in the 11th Five-Year Plan specically deals with pushing forward the growth of a harmonious socialist society. This specically points out that “the promotion of social harmony is an important aim and a prerequisite for development in China”. The development of a harmonious socialist society is a new concept and a strategic goal proposed by the CPC on the basis of a review of decades of experience in the development of socialist modernisation. This goal is even more worthy than the overall development of a prosperous society, as it is a strategic task that can only be completed through long-term struggle. Viewed against the background of practical experience from the past two decades of reform and liberalisation, China is now working to meet the economic goals of the 11th Five-Year Plan, i.e. to double per capita GDP for the year 2000 by 2010, and quadruple it by 2020. However, achieving comprehensive social progress, developing a harmonious society and meeting social indexes will be more difcult. On 21 February 2005, Comrade Hu Jintao pointed out in the 20th collective study meeting of the Central Political Bureau of the CPC Central Committee that “CPC committees, governments and leaders at various levels should intensify practical investigation and study of the relevant conditions and work on the development of a harmonious society in their respective regions and departments, analyse and

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gain a comprehensive understanding of the development trends in social development and management, and lay a solid foundation for formulating policy and generating development. The investigation and study of developments and changes in the social structure should be improved and the developments, changes and trends in the structure of social classes, urban and rural areas, regions, population, employment and social organisation must be carefully analysed and understood so as to facilitate the further development of the socialist market economy and a deeper understanding of the characteristics and principles of social development in China as we develop a socialist market economy and open up to the outside world, and thus carry forward the better development and administration of society.” Comrade Hu Jintao’s proposal to “improve the investigation and study of developments and changes in the social structure” is an idea of extremely important theoretical signicance. It is also of crucial practical importance to improve the development of the socialist market economic system and to push forward the growth of a harmonious socialist society. Creating a reasonable social structure through reform and adjustment is the basis for the development of a harmonious socialist society. What is social structure? Along with economic structure, social structure is one of a country or region’s most important fundamental structures. Different economic and social structures appear at difference stages of a society’s development. In general, social structures depend on economic structures, and the two structures should complement and match each other. A modern nation should have both a modern economic structure and a modern social structure. At present, China is in a period of transition from a traditional rural, agricultural society to an industrialised, urbanised modern society and, simultaneously, from a planned economic system to a socialist market economy. Since the reform and liberalisation process began, the economy has been developing rapidly, and the economic system has experienced profound changes. These changes in the economic system are matched by the social structure, which is also undergoing tremendous changes. There have been many analyses of the achievements in economic structural adjustment and economic development spheres, with a large number of papers and works on this subject providing a good common understanding of the topic. This however contrasts with the paucity

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of analyses on the achievements in social structural changes. There is relatively little understanding of these changes, but there have also been noteworthy achievements in this respect in spite of the accompanying aws.

I. China’s Social Structure Has Undergone Historic Changes Since the Beginning of Reform and Liberalisation There have been numerous dynastic changes in China throughout the 2,500 years since feudal society emerged in the Zhou and Qin dynasties. Regardless of the prosperity, vicissitudes and downfalls of these dynasties, China always remained an agricultural country, in which a social class structure dominated by two social classes—farmers and landlords—never changed. A dynasty would rise to a pinnacle of prosperity and brilliance and then generally decline and fall within 200–300 years, to be followed by another dynasty which followed the same pattern. This cycle was endlessly repeated, yet the nations’ agricultural social structure remained unchanged. After the Opium War of 1840, China’s feudal social structure began to change. Following the Westernisation Movement, China started to develop a modern industrial base as well as a new working class and bourgeoisie. However, due to a combination of foreign invasions and domestic problems, China slipped into a semi-colonial, semi-feudal state where modern industry only developed very slowly, a pace matched by changes in social structure. As result, China remained an agricultural society in which farmers accounted for 89.4% of the population until the foundation of the People’s Republic of China in 1949. With the beginning of the 1st Five-Year Plan in 1953, large scale industrialisation began, which led to the mobilisation and use of vast amounts of manpower and materials, and produced a range of spectacular achievements. However, due to awed choices of development patterns and other reasons, farmers continued to make up 82.1% of China’s population in 1978—essentially, the country’s social structure remained agricultural. The real historic change to China’s social structure began with reform and liberalisation in 1978. Due to its limited length, this thesis will only address three aspects of this change, in employment, urban and rural areas, and social class structures.

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A. Changes in Employment Structure As proven by historical experience, the transition from a traditional agricultural society to an industrial society entails transferring large numbers of agricultural workers into the secondary and tertiary industries. As the agriculture-dominated industrial structure turns into one dominated by the secondary and tertiary industries, the employment structure changes correspondingly from one dominated by agricultural labourers to one dominated by workers in the secondary and tertiary industries. A transfer of the agricultural labour force into the secondary and tertiary industries is a general principle in the industrialisation process. In 1952, the total number of workers nationwide stood at 207.29 million, comprising 173.17 million agricultural workers, accounting for 83.5%; 15.31 million workers in secondary industry, accounting for 7.4%, and 18.81 million workers in tertiary industry, accounting for 9.1%. In 1975, the total employed population nationwide was 237.71 million, of which 193.10 million were agricultural workers, accounting for 81.2%; 21.42 million workers in secondary industry, accounting for 9%, and 23.19 million workers in tertiary industry, accounting for 9.8%.1 In 1978, the Chinese economy underwent great development, with spectacular changes to the economic structure. The country’s industrial structure that year was divided into primary industry, accounting for 28.1%; secondary industry, for 48.2%; and tertiary industry, for 23.7%. However, due to long-term separation of the urban and rural population by the residence registry system, and social policy that strictly restricted the transfer of the agricultural population into non-agricultural sectors, the employment structure failed to match the massive changes in the economic structure. In 1978, China’s total employed population reached 401.52 million, of which 283.18 million, or 70.5%, were employed in agriculture; 69.45 million (17.3%) were employed in secondary industry; and 48.9 million, or 12.2% were employed in tertiary industry. Despite noticeable changes, China’s employment structure still remained that of an agricultural country.

1

China Social Statistical Data. China Statistics Press, 1990, p. 15.

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Since the beginning of reform and liberalisation, the structure of China’s economic system has undergone market-oriented reform. The economy has experienced great development and profound change has occurred to the economic structure. As of 2004, China’s economy had reached the middle stage of industrialisation, but by comparison, the country’s social reforms in areas such as residence registration, employment, human resources and social security lagged behind. However, economic and social development is a natural historical process, the inevitable embodiment of natural laws. In the early 1980s, the household contract responsibility system operated in rural areas, which stimulated the productive initiative of farmers. As a result, agricultural productivity experienced great improvements, and the agricultural sector experienced successive bumper harvests, with products such as grain and cotton increasing by enormous amounts. At the same time, however, the surplus of agricultural labour also became a noticeable problem, farmers’ income increased greatly, and agricultural market demand expanded. This created a great opportunity for the agricultural industry to undergo drastic development. However, enterprise reform was just getting underway at the time, and because system reforms of areas such as residence registration did not keep pace, this forced the emergence and rise of township enterprises. With this appeared a workforce of rural workers who abandoned their farmland but remained in their hometowns. By the late 1980s, urban reform entered a new stage. The secondary and tertiary industries had greatly developed and labour was in great demand, luring rural workers not only to leave their farmland, but also to venture further aeld and leave their hometowns. In the years since 1992, the number of rural workers has increased by 10 million annually, prompting the appearance of a “rural worker wave”. There are currently a total of 120 million rural workers. In 2004, the total employed population nationwide was 752 million, with 352.69 million employed in primary industry, accounting for 46.9%; 169.2 million in secondary industry, accounting for 22.5%; and 230.11 million in tertiary industry, accounting for 30.6%. Of the total employed population nationwide, workers in non-agricultural industries accounted for 53.1%, exceeding the proportion of the agricultural labour force. International practice recognises that when over 50% of a country’s labour force is employed in non-agricultural industries, its employment structure is no longer agricultural, but industrial. An analysis of the statistical gures shows that, in 1978, workers in the secondary and tertiary industries in China totalled 118.35 million,

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or 29.5% of the total employed population. By 2004, workers in China’s secondary and tertiary industries amounted to 299.31 million, an increase of 280.96 million (or 2.37-fold), or an average annual increase of 10.806 million over 26 years. Such a large-scale transfer of tens of millions of agricultural labourers into workers in secondary and tertiary industries such as manufacturing, construction, trading and services, is unprecedented in the history of China and the world, and also marks a great achievement in China’s changing social structure since reform and liberalisation. B. Change of the Structure of Urban and Rural Areas As part of the industrialisation process, industrial enterprises are generally sited in locations with good communications infrastructure near coasts, rivers and roads. Cities then develop as industry thrives and large numbers of agricultural labourers become non-agricultural workers. Industrialisation thus generally goes hand in hand with urbanisation, a process in which large portions of the agricultural population add to the urban population—urbanisation actually refers to the urbanisation of farmers. The urbanisation rate refers to the proportion of the urban population to total population—the higher the urbanisation rate, the larger the urban population, and consequently the fewer the farmers. In the mid- and late 1950s, with the massive development of industry in China, large portions of the rural population rushed into the towns. During the 1st Five-Year Plan, the urbanisation rate rose by 1% annually. In 1960, due to the three-year economic crisis and in response to the scarcity of food, a social policy that strictly restricted agricultural workers from turning to non-agricultural production was implemented. This was meant as a temporary measure, but remains in force to the present day. After the three-year economic crisis had abated, industrialisation continued: funds, food and industrial materials from rural areas were allowed to enter the towns but the rural labour force and population were not. As time passed, a dual economic social structure featuring a division between the urban and rural areas came into being. In 1952, the total population nationwide was 572.84 million, of which 501.39 million were rural, and the urbanisation rate stood at 12.8%. In 1958, the total population nationwide was 659.94 million, including 547.04 million rural inhabitants, and the urbanisation rate had reached 17.2%, 4.4% higher than in 1952 with an average annual increase of 0.73%.

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In 1978, the total population nationwide was 962.59 million, comprising a rural population of 790.14 million and an urban population of 172.45 million, and the urbanisation rate stood at 17.9%. At this stage, the rate had only increased by 0.7%, an average annual increase of 0.035%. By 2000, the total population nationwide was 1.27 billion, with 808.37 million rural inhabitants and an urbanisation rate of 37.2%. From 1978 to 2004, adjustments were made to China’s residence registry system, but no radical reforms were underway. With the rapid development of the economy, the cities required a large amount of labour, so large numbers of rural people moved to the towns in search of employment and business. In 2000, the State Statistics Bureau changed its statistical indexes, such that people entering cities from rural areas and residing there for more than six months were considered part of the permanent population, and were statistically treated as urban residents. The urbanisation rate has thus seen great increases in recent years. In 2004, the population with urban residence registration and the permanent migrant population had reached 542.83 million, an urbanisation rate of 41.8%. During the previous 26 years, the urbanisation rate rose by 23.9%, an average annual increase of 0.92%, while the urban population increased by 370.38 million, an annual increase of 1.42 million. Farmers are entering the cities on a grand scale, where they undergo urbanisation and socialisation, and gradually turn into urban residents. This alters the structure of urban and rural areas, and has tremendous signicance for social progress. C. Change in the Social Class Structure In 1950, China implemented land reform: privately-owned land was conscated, the landlord class eradicated, and their lands given free to farmers with little or no land of their own. The revolutionary goal of giving each crop-planter his own land was achieved in the true sense. In 1955, the state transformed private industry and commerce by implementing public-private cooperative operations, and also transformed individual handicraft workers and individual small-scale farmers through agricultural cooperation, and also implemented public ownership of production materials nationwide. Thus was formed a social class structure consisting of the working class, the farming class and academia. Since reform and liberalisation began in 1978, a transition from the planned economy to a socialist market economic system has been implemented. Through the reform of the economic system, a new

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economic pattern has emerged in which multiple ownership systems develop alongside the dominant public ownership system, and multiple distribution modes co-exist with the dominant mode of distribution according to work. With rapid economic development have come great changes to the social class structure in China. The farmer class has become divided, while the worker class has also changed, and a batch of new social classes has emerged such as private entrepreneurs, individual industrial and commercial businesses, and middle management. Some classes have higher social status, while some have lower status. A social class structure suited to modern society is forming. The social class structure is the concentrated reection of various social structures as well as the most important and central component of social structure. The evolution and optimisation of the social class structure indicates that China’s social structure is evolving towards that of a modern society. In 1952 there were approximately 600,000 private industrial and commercial businessmen in China. The implementation of relevant policies as part of the reform and liberalisation process created approximately 160,000 private industrial and commercial businessmen as well as more than 4 million small-scale individual industrial and commercial businesses. As mentioned above, the country’s bourgeoisie was basically eradicated by transformations such as joint ventures between private and public entities. In 1981, the rst private enterprise owner emerged in China, a situation which has developed gradually. By 2004 there were 3.65 million private enterprises registered with the Industrial and Commercial Bureau, with almost 10 million investors and RMB 4,793.6 billion in registered capital. Average registered capital for each business reached RMB 1.31 million, approximately 30% of businesses had registered capital exceeding RMB 3 million and over 2,000 had over RMB 100 million in registered capital. Private enterprises employed a total of nearly 40 million people. Besides this, there were also individual industrial and commercial businesses. In 1978, there were only 150,000 individual industrial and commercial businesses nationwide, a situation which once again developed year by year, until by 2004 there were 23.5 million, employing 25.21 million people. The registered capital of these businesses reached RMB 505.8 billion.2

2

China Statistical Summary 2005, p. 27.

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In 1952, there were altogether 460,000 managerial staff in stateowned, collective ownership and private industrial and commercial enterprises nationwide. By 2001, there were a total of 10.95 million managers in publicly owned large- and medium-sized enterprises, and in joint ventures and private enterprises.3 Private enterprise owners and managerial personnel are the organisers and executives of the socialist market economy, and their numbers now exceed 20 million. Statistics indicate that the number of private enterprise owners alone has been increasing by approximately 810,000 each year since 1995. These two classes are mainly distributed in the provinces and cities along the south-eastern coasts. There is now one private enterprise owner for every 30 adults in Shanghai, and the proportion is even higher in places like Wenzhou, Zhejiang province. This is an important force for the development of the socialist market economy. In 1978, the numbers of commercial service personnel and industrial workers stood at 21.76 million and 70.67 million respectively, or a total of 92.43 million, accounting for 22.95% of total employed staff. By 2001, the number of commercial service personnel was 81.78 million, and that of industrial workers 127.79 million, or 209.57 million in total, accounting for 28.7% of all employees (according to calculations from a questionnaire survey by the social structure research group of the Institute of Sociology of the Chinese Academy of Social Sciences). In recent years, the two classes have experienced new developments: large numbers of rural labourers have transferred to the secondary and tertiary industries, a total of 250 million, of which 60% are rural workers. In terms of development trends, a large expansion in the numbers of the commercial service and industrial personnel classes can be expected in the future. These classes are those which directly generate national wealth and the social status of industrialised nations, and their expansion and development are the determinant forces for the future fate of China. This major change is still in progress, although China has already created the social class structure of an industrialised country. Of course, further development and improvement are needed, but the achievements which have been made in this respect cannot be overestimated.

3 Analysed from the 2001 questionnaire survey of changes in social structure by the research group of the Institute of Sociology, Chinese Academy of Social Sciences.

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II. Main Problems Currently Confronting Social Structure Evolution in China Countries or regions need to modernise for two main purposes: the rst is economic prosperity and development; the second is the comprehensive development of society. This requires the mutual adaptation of the social and economic structures. Over the last two decades, China’s socialist modernisation has been carried out with the focus rmly on economic construction. China has paid undivided attention to development and has achieved great successes in economic construction; but due to lack of experience in modernisation and of knowledge of social sciences, as well as insufcient understanding of the evenness of modernisation, economic development has at times been raised from a primary position to an exclusive one in certain regions. Reform of the social system, adjustments to the social structure and the development of social causes have failed to be given their proper prominence, engendering a situation in which the leg of economic development is long while that of social development is short. As was pointed out during the 16th CPC National Congress in 2002, “the prosperous society that we have created at present is still an incomplete, low level one which is also developing in an imbalanced manner.” This so-called incompleteness and imbalance mainly refers to the imbalance and lack of coordination in social and economic development. The 16th CPC National Congress therefore proposed a strategic goal of developing an overall prosperous society. The 3rd and 4th plenary sessions of the 16th CPC National Congress proposed the implementation of a scientic concept of development and the development of a harmonious socialist society. While economic development continues to be promoted, reform of the social system and innovation in social policies are to be improved, adjustments will be made to social structures, the development of social causes is to be accelerated, and the coordinated development of both the economy and society is to be planned as a whole. For the time being, adjustments of the social structure should be placed on the agenda, as several problems need to be solved, as explained in detail below. A. Adjustments to the Employment Structure Over the past 26 years, China’s employment structure has transformed from that of an agricultural society in which agricultural employment

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dominated into that of an industrial society in which employment in the secondary and tertiary industries dominates. A qualitative leap and enormous achievements have been made, but many problems remain to be solved in order to effectively adjust the employment structure. 1. The Employment Structure Itself is Not Rational Simultaneous changes to the employment and industrial structures are a reection of the regular pattern of development of the market economy. Together with constant improvements to the level of productivity, the proportion of agriculture in GDP is gradually decreasing, while that of the secondary and tertiary industries is constantly increasing. At the same time, the agricultural labour force is constantly shifting to the secondary and tertiary industries. These are the trends affecting the Chinese employment structure, but certain institutional barriers hinder the transfer of labour from agriculture to the secondary and tertiary industries, as yet preventing the smooth transfer thereof. In 2004, the contribution of primary industry accounted for 15.1% of China’s GDP, that of secondary industry for 52.9% and that of tertiary industry for 32%. In the same year, the proportion of primary industry in China’s employment structure was 46.9%, that of secondary industry was 22.5% and that of tertiary industry was 30.6%. 46.9% of the labour force in agriculture making a 15.1% contribution to GDP, indicates a structural difference of 31.8%, which is the structural reason for the poverty of farmers. The reason that the Three Rural Issues have not been resolved may be partly institutional, but these will not be resolved if structures are not properly adjusted, and farmers will never become wealthy. 2. Reform of the Social System is Lagging Behind According to State Statistics Bureau gures, the total urban employed population in 2004 was 264.76 million, of which 120 million were rural workers. Other calculations also indicate that rural workers account for 63.6% of the workforce in the manufacturing, construction and services industries. However rural workers and workers holding urban residence registration in companies and organisations often hold identical positions but with different rates of pay, work times and rights, a situation which is an important source of social conict. The rural worker issue must be resolved and its regulation radically overhauled through social mechanism reform.

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3. The Overall Employment Situation is Rather Serious The increase in China’s working age population is currently at a peak. Survey and calculations suggest that over 18 million people will enter the labour force annually in 2007–2010. After deducting the working population drop due to death and retirement and an increase in further education enrolment by students over 16 years of age, there will still be over 10 million new entrants to the labour force annually. Because the supply of agricultural labourers already greatly exceeds demand, the majority of these 10 million new workers will have to be employed in the secondary and tertiary industries. Furthermore, the agricultural labour surplus must also be transferred to the secondary and tertiary industries. However the employment elastic coefcient of secondary industry will continue to decrease, as it has since the mid-1990s, through the adoption of increasingly advanced technology and equipment. In the 1980s, each percent increase in China’s GDP created an extra 1.46 million new jobs, and the annual employment elastic coefcient was 0.3. Since the 1990s, however, each percent increase in GDP has only created an extra 0.72 million new jobs and the annual employment elastic coefcient has dropped to 0.11. In terms of the employment structure, the rural labour force will continue to transfer into the secondary and tertiary industries for the foreseeable future. Secondary industry will continue to develop, but has little room left for increasing employment opportunities. The issue will mainly need to be resolved through the development of tertiary industry. Based on China’s current situation, the best way forward appears to be the further development of labour-intensive industries in both the secondary and the tertiary industries. Employment is the source of people’s livelihoods. In an urbanised society, workers waiting for employment or unemployed lose not only their jobs, but also their source of income and nance. At present, China’s social security system is incomplete, and its coverage area is relatively small. Even where social security is provided, the level of such provision is relatively low. Any increase in the numbers of people waiting for work or unemployed will denitely cause social instability and negatively inuence its harmony, because sufcient employment is a precondition for social stability. The employment issue must therefore be resolved using all available means and measures, as this is also an important aspect of the development of a harmonious society. Various authorities have already proposed a very insightful argument to “place employment rst”.

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B. Adjustments to the Structure of Urban and Rural Areas Urbanisation and industrialisation occur simultaneously as part of the process of transforming an agricultural society to an industrial society. In some countries, urbanisation even occurred earlier than industrialisation. In China, a residence registration system strictly restricting farmers’ access to urban areas was implemented after the three-year economic crisis, whereby citizens were divided into agricultural and non-agricultural residence registration holders. Residence registration was later used as a basis for social policy, with one social policy being applied to non-agricultural residence registration holders living in urban areas, and another being applied to agricultural residence registration holders living in rural areas. A pattern of “dual policy, single country separated governance of urban and rural areas” gradually came into being, and dual economic and social structures formed in urban and rural areas. With the onset of reform and liberalisation, the economic system was reformed and the economy has developed rapidly. However, because social structures such as the residence registration system remained basically unchanged, the development of urbanisation has been lled with twists and turns, and the structure of urban and rural areas has remained rather irrational. 1. Urbanisation Lags Seriously behind Industrialisation China’s economic development level has already reached the middle stage of industrialisation, but its urbanisation rate in 2004 was only 41.8%, i.e. still at the initial stage of urbanisation. The serious lag of urbanisation behind industrialisation has hindered the entire modernisation process. Tertiary industry, in which modern service industries dominate, cannot fully develop, creating insufcient employment, thus developing an irrational employment structure (only 30.6% of the total employed population worked in the tertiary industry in 2004), and directly affecting the improvement of people’s living and consumption standards and purchasing power. Since 1995, the government has continuously emphasised that the goals of expanding domestic demand cannot be achieved. The irrational structure of urban and rural areas has actually obstructed the sustained, stable, healthy and rapid development of the economy. 2. The Dual Structure of Urban and Rural Areas Causes Conict in Urban Areas In 2004, of the urban population of 542.83 million, approximately 140

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million comprised rural residents residing in urban areas for over six months and migrant urban residents, of which 120 million were rural workers. Local governments applied one policy to local urban residents and another to rural workers and migrant urban residents, in other words, creating dual-policy cities. Some researchers have commented that the dual structure of urban and rural areas has entered the cities and triggered social conict and problems. For example, both the number of civil public security cases and the urban crime rate have remained high. 70% of arrests were of migrants (over 80% in some cities). This is a reection of the existence of a dual social structure of urban and rural areas within the cities. 3. Widening Differences Between Urban and Rural Areas In 1978, the difference ratio in the incomes of urban to rural residents was 2.57:1. This gure reduced to 1.8:1 in 1985, but has been widening once again since 1986. The gure rose to 2.72:1 in 1995, and reached 2.79:1 in 2000, 2.91:1 in 2001, 3.23:1 in 2003 and 3.21:1 in 2004. Agricultural production increased again in 2005 (although less than the increase for 2004), prices of the main agricultural products such as grain dropped, while those of agricultural production materials increased. It was estimated that the income difference ratio for residents in urban and rural areas will exceed 3.25:1. The 16th CPC National Congress proposed that the economic and social development of urban and rural areas be planned as a whole, and that the trend of widening differences between urban and rural areas will be reversed. In recent years, the state has adopted many reform measures to boost farmers’ income, and this has increased somewhat. However, the difference between urban and rural areas continues to widen, indicating that the existence and widening of such a difference are caused by the irrational structure of urban and rural areas. This structure must be adjusted in order to address the problem. 4. Widening Differences Between Urban and Rural Areas in the Development of Education and Medical Care Because China has implemented a policy of “dual policy, single country separated governance of urban and rural areas”, manpower, funding and materials resources for social causes such as education and medical care have been allocated with excessive preference given to urban areas, so that enormous differences are found in the education opportunities and the medical conditions of urban and rural residents. Since the promulgation of

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the compulsory education law, the children of urban residents enjoy a right to compulsory education, while the implementation of compulsory education has not been completed in rural areas. In previous years, many teachers in rural primary schools in the central and western regions would not ever receive their full wages on time. Although there has been a great improvement in recent years, the problem is however still not completely solved. In 2002, the average primary school graduation rate for children aged 12–14 in China was 89.4%. However, in provinces and autonomous regions such as Guizhou, Hainan, Gansu, Ningxia, Sichuan, Qinghai and Tibet, where the rural population are a majority, the primary school graduation rate was below 70%. In the same year, education investment nationwide amounted to RMB 580 billion. 77% of this was invested in urban areas, and only 23% in rural areas. There is also a great difference between urban and rural areas in terms of medical care: rural areas suffer from a serious lack of doctors and medicines. After the SARS outbreak, the authorities revealed that medical care funds are very limited, and that 85% of available funds are used in urban areas, with medical funding in rural areas only accounting for 15%. The differing incomes of residents of urban and rural areas has received attention in recent years, but the lack of access to education for farmers’ children and the widening difference between urban and rural areas in terms of social development have not yet received proper attention. This indicates that the problem of the difference between urban and rural areas will be more difcult to deal with. C. Adjustments to the Social Class Structure Different social development stages produce different social class structures. Since the reform and liberalisation process began in 1978, a basis economic system has been applied which simultaneously develops various ownership systems under a dominant public ownership system. The economy has seen great development, which has in turn pushed forward changes in the social structure. The original classes of workers, farmers and academics have become divided. New social classes and communities such as private enterprise owners, individual industrial and commercial businessmen, technical and managerial personnel of joint ventures, and rural workers have emerged, creating a new social class structure. According to research by the research group of the Institute of Sociology, Chinese Academy of Social Sciences, modern China has a social class structure of 10 social classes, including (1) state and

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social administration personnel, accounting for 2.1%; (2) managerial personnel, accounting for 1.6%; (3) private enterprise owners, accounting for 1%; (4) specialised and technical professionals, accounting for 4.6%; (5) ofce workers, accounting for 7.2%; (6) individual industrial and commercial businessmen and (7) commercial services staff, jointly accounting for 11.2%; (8) industrial workers, accounting for 17.5%; (9) agricultural labourers, accounting for 42.9%; and (10) urban unemployed or semi-unemployed workers, accounting for 4.8%. China has already created a modern social structure, but this is an embryonic form that is still growing and developing. It bears the following characteristics: (1) All social classes required by modern society are now present in China; (2) the order of the Chinese social classes has already been established, and there will be no major changes in the future, although movements of people will continue across the classes; (3) a modern social movement mechanism is taking shape and will gradually replace the old, traditional social movement mechanism. It was almost impossible under a planned economy for farmers to become workers, or for workers to become cadres, due to restrictions such as the residence registration system. This predetermined social movement mechanism limited people’s initiative to move upwards through their own efforts, and was neither fair nor rational, sapping social and economic development of their vigour and energy. (4) The social class structure is the most important core component of social structure, and also reects the overall social structure. The irrational status of the above structures of population, employment, urban and rural areas and regions affects and determines the current irrational social class structure in China. Therefore, the social class structure is also a reection of the overall social structure. As world history has shown, a modern nation must incorporate a rational, modern social class structure. The shape of this modern social class structure is generally olive-shaped, with “two small tips and a wide central part”. The so-called “small tips” indicate that the combined size of the social classes with plentiful social resources and a top or high social status, and those with scarce social resources and low social status, are small. The so-called “wide central part” refers to the formation of a large middle social class (or middle class) with considerable social resources so that they can lead a prosperous, high standard of life. Such a class is the backbone of social stability and is also an important force for economic and cultural development. Modernisation is achieved when a nation forms such an olive-shaped social class structure.

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China’s social class structure is presently still a certain distance away from a reasonable, open, modern social class structure. In terms of its structural form, it is still onion-shaped, in that its lower-middle portion is too large, its upper-middle portion is still not large enough, and its top and bottom levels are relatively small. The irrationality of China’s current social class structure can be summarised as follows: the classes that should shrink have not shrunk enough, while the classes that should grow have not yet grown enough. “The classes that should grow have not yet grown enough” refers to the fact that the middle social class is not yet sufciently large. According to statistics from our research group, China’s social middle class accounted for approximately 15% of the population in 1999. In recent years, however, this has developed well, with an average annual increase of about 1%, and the percentage reached almost 20% in 2003. If such a development trend continues, the middle class will reach approximately 38% in 2020. “The classes that should shrink have not shrunk enough” refers to the fact that the rural working class population has not shrunk because of limitations in the residence, employment and urban and rural systems. This class was as high as 42.9% in 2001, but fortunately it has continued to decrease gradually in recent years. It is expected to fall below 30% by 2020. In order to modernise China’s social class structure, reforms must be further deepened, appropriate economic and social policies must be developed and formulated, reform initiatives for the residence registration, employment, human resources and social security systems must be carried forward, the regional structures of urban and rural areas and employment should be adjusted so that the rural working class (which should shrink) will gradually decrease, while the middle social class (which should grow) will gradually increase so as to develop and form a reasonable, open modern social class structure.

III. Adjusting Social Policy and Building a Reasonable Social Structure As international experience has shown, a reasonable social structure based on economic development is vital for a country to achieve modernisation. If a nation’s social structure is not reasonable and structural transformation in the sense of modernisation is not achieved, the country cannot be construed to be modern even if it has achieved

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economic modernisation. Traditional social structures can co-exist with a modern economy, as is the case in some Middle Eastern and Latin American countries, but as long as the country’s social structure is not modernised, any disturbance will return it to its original state of poverty, regardless of its current prosperity. As has already been mentioned, China’s social structure has already experienced profound change since reform and liberalisation. However, as such changes normally develop naturally and spontaneously as part of economic structural adjustment and the promotion of economic development, China’s social structure remains relatively irrational and ill-adapted to changes in economic structure or to the development requirements of socialist modernisation. At present, the root cause of many of China’s most noticeable economic and social problems lie in the irrationality of its social structure. The country should therefore place the development of a rational social structure on the priority agenda, which should be accomplished through social system reform and social policy adjustment and innovation. 1. Implementation of Social System Reform Should Mirror Economic System Reform For several decades, China implemented a planned economic system. The planned system was not only applied in the economic area, but also in other areas such as politics, society and culture, and became a so-called “light that shines upon everything”. After 1978, China implemented economic system reform with enormous success, but system reform has made practically no realistic progress in areas such as the social system. Some social structures such as residence registration, employment, human resources and social security have been barely touched: some adjustments have been made, but there are hefty obstructions to reform and adjustment. In some areas, the administrative system reform of social causes such as education, medicine, scientic research and culture has already been proposed, but no real steps have yet been taken. The current social structure is therefore still not rational, and adjustments need to be made through the reform and innovation of social policies. After the SARS outbreak in 2003, the state analysed its experiences and identied discrepancies in social and economic growth, the development of urban and rural areas, the development of different regions, as well as the development of the man-nature relationship. In essence, the problem lay in the failure of the mutual adaptation of the social and economic structures, as well as the irrationality of the social structure.

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The 3rd Plenary Session of the 16th CPC National Congress proposed that the “ve comprehensive planning processes” be implemented, and the government has also adopted a range of measures with considerable results. For example, the taxation system was reformed in rural areas, and it was announced that agriculture taxes would be exempted within ve years, after which direct subsidies would be provided to graingrowing farmers. The rural cooperative medical care system has been reconstructed to accelerate the reform of the social security system, and so on. However, the continued widening of differences between urban and rural areas, between different regions and between the rich and poor have not been reversed. System reform of education and medical care has created much disagreement. The radical reason for this is that the socialist market economy is now basically established in the economic sphere (although it naturally still needs improvement), whereas various systems and institutions in politics, society and culture that were established to adapt to the planned economic system have not yet been reformed to meet the needs of the socialist market economic system. The co-existence of these two systems has resulted in many conicts and problems. The implementation of the “ve comprehensive planning processes” requires that these economic and social problems be resolved. Thus social system reform must be implemented in the same way as economic system reform, so that a rational social structure compatible with the economic structure can gradually be developed through the deepening of reform. As can be seen from the decades of progress in economic and social reform and development, system reform is more important than mechanism transformation. Many current social problems that appear on the surface to be problems with operation mechanisms are in fact caused by faults in social mechanisms. Therefore, the social mechanism must be reformed in order to solve these problems. Reform of social mechanisms and adjusting the social structure will denitely require help from the “intangible hand” of the socialist market economy. However, because social system reform and social structure adjustment affect multiple interests, the “tangible hand” of the government must play a guiding and regulatory role. At certain stages and in certain areas, the state should carefully consider the situation and adopt necessary or even unconventional measures and social policies to reform the social mechanism and thus regulate the social structures. For example, in early 1980s, the state rmly resolved to implement a “one couple,

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one child” social policy because of the serious dangers of population growth in China, established a new birth system and achieved good social results through long-term persistence. 2. Residential Registration System Reform and Structural Adjustment of Urban and Rural Areas The current residence registration system was established for the purpose of adapting to the needs of the planned economic system, and the system did play a useful role in times of economic scarcity. However, as the reform and liberalisation process deepens, as the socialist market economic system is set up and improved, the economy develops and the urbanisation process accelerates, the residence registration system has already become a fetter to the further development of productive forces and comprehensive social progress. The system stringently divided citizens into agricultural and non-agricultural residence registration holders, restricted reasonable movement between urban and rural areas, and became an institutional basis for the implementation of “dual policy, single country separated governance of urban and rural areas”. “Farmer” thus became an identity from birth, and citizens with such an identity encountered various forms of discrimination and limitations in employment, education, medical treatment, participation in social security, loans, movement and so on. The residence registration system is the institutional reason for the currently serious lag of urbanisation behind industrialisation, the everwidening difference between urban and rural areas, the ever-increasing conicts and contradictions between urban and rural areas, and its reform will be a key factor in settling all of these social problems. At present, eleven provinces including Guangdong, Jiangsu, Zhejiang and Hunan have promulgated their own local policies to reform the residence registration system, all of which have had benecial effects and have not triggered any of the major problems that once worried critics. However, as the residence registration system involves nationwide issues such as the alteration of residence registration and population migration, its reform must be determined and implemented nationwide by the state. The government and the appropriate departments will hopefully come to a decision and implement residence registration reform as soon as possible, because the system is unable to adapt to the times any longer. Moreover, only after the residence registration system is reformed can problems such as the reasonable adjustment of the structure of urban and rural areas be solved.

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3. Rural Worker System Reform and Employment Structure Adjustment If the residence registration system is reformed in the near future, and the nationwide treatment of farmers is restored, farmers will be able to enter the market economic system with equal status and will no longer be restricted due to their identity in terms of migration, employment, medical treatment and participation in social security, all social movement will be smoothed over, economic and social development will become natural and healthy, the dual structure of urban and rural areas will merge into one, the structures of urban and rural areas and employment will gradually coordinate with economic development, and the various structural conicts mentioned above will gradually be resolved. This is the best way forward. If however the residence registration system cannot be reformed due to various reasons, a compromise should be made and the second best way forward should be adopted, i.e. the current rural worker system should be reformed as a rst priority. There are currently 120 million rural workers who have moved to the towns and who are employed by various secondary and tertiary industry organisations. The majority of such rural workers have been living and working in a certain city for 3–5 years—some for over a decade. However, because their residence registration identity has not been changed, they are still deemed to be migrants. They also remain migrants in their own minds, causing various social problems. They are in fact already urban residents, and the problem is now how to accept, identify and assimilate them. Under current practice, they are accepted economically so that they can contribute to the development of the secondary and tertiary industries in cities, but are rejected politically and socially. Such practices are unfavourable to rural workers as well as to the rural areas and the entire country. In recent years, calls for the settlement of the rural worker problem have become increasingly strident. The appropriate authorities should formulate effective plans to resolve the problem and prescribe practical conditions. For example, rural workers who have moved to the towns and worked for 3–5 years, who possess certain technical skills or management capacities, and who are determined by their employer to be needed for long-term work or to be suitable for further training and development, may have their residence registration problems solved, and become ofcial employees. Pilot schemes may be carried out in certain cities or organisations, and these plans may then be gradually implemented in larger areas after

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experience has been gained. However, the rural worker problem involves such an enormous social community and accrues so many social problems that the assumption that one policy or a cure-all method will solve it is also impractical. Adopting a laissez-faire attitude to the problem, or even allowing it to become a normal or even desired state of affairs is unacceptable—we must adopt a positive attitude, thoroughly survey and research the issue, identify urgent and serious issues, establish the right conditions, and gradually provide step-by-step solutions to this major problem. Besides, as far as current conditions are concerned, the gradual settlement of the rural worker issue is also an important aspect of employment system reform and a necessary choice to gradually adjust and rationalise the employment structure. 4. Creation of a Rational Social Class Structure A harmonious socialist society should be one in which everyone can work to the best of their abilities, earn a salary, and live together harmoniously. China is still transitioning from a planned economic system to a socialist market economic system. A new initial social class structure has already come into being and is still in the process of changing. Impelled by economic development, new social class relations are also gradually taking shape. New classes of private enterprise owners, individual industrial and commercial businessmen, joint venture managerial staff and rural workers were all formed after the 1980s. Such classes are still developing gradually under the economic conditions of the socialist market, and establishing their own social positions. At the same time, a new social class relationship is also being established among these newly born social classes, as well as between them and their original social classes. At present, the socialist market economic system continues to improve. Some systems formed under the planned economic system have not yet been reformed, or such reform processes have not been completed. Against such a background, on the one hand, the resultant social class structure is not rational, and on the other hand, the relationships between several major social classes are neither rational nor normal. The increasing difference between the rich and poor in recent years is a reection of the irrationality of the social structure and of social class relations. Suggestions of the CPC Central Committee on Formulating the 11th Five-Year Plan for National Economic and Social Development, adopted during the 5th Plenary Session of the 16th CPC National Congress points out: “Our country is now at a key stage of reform. We must accelerate the implementation of reform more resolutely so

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that breakthrough progress can be made in the reform of signicant systems that affect overall economic and social development”. On the basis of the requirements of the overall goals for the development of a harmonious socialist society and through the reform of certain signicant social systems, innovative approaches should be brought to bear on social policies, a rational social class structure should be developed and formed, social class relations coordination and congruence mechanisms should gradually be set up, the various social classes should be guided and regulated so that they can fully harness their capacities, win their positions and earn an income, and live together peacefully. The combination of these factors is the substantial basis for the development of a harmonious socialist society.

A REVIEW OF REFORM AND EXPECTATIONS FOR THE NEXT FIVE YEARS He Xiaoming

2005 is the last year of the 10th Five-year Plan for economic and social development, and is also a year of periodic results since the start of overall economic reform. At the same time it is also a juncture year as the reforms of the 10th Five-year Plan come to an end and a new round begins as part of the 11th Five-year Plan. It is vital important to review the progress of reform during the 10th Five-year Plan, and visualise the prospects of reform during the 11th Five-year Plan.

I. Main Aims and Achievements of Reform during the 10th Five-Year Plan During 2001–2005, or the 10th Five-year Plan for economic and social development, a period which also marked ve years of transition after China’s accession to the WTO, reverse pressure to ease monetary conditions, brought about by the external global economic environment on domestic economic reform, forced China’s economic reforms to make a breakthrough. The overall support projects and the resolution of difculties in key areas and points are the highlights of reform during the 10th Five-year Plan. The 10th Five-year Plan started at the time when the socialist market economy was initially established. Further improvements to this economic system were on the agenda, and many reform measures were thus formed into complete sets and combined during the ve years of the 10th Five-year Plan. In addition, many areas that had not been touched or for many years had been difcult to handle experienced substantial breakthroughs. This was most notable in 2003, when the Decision on Several Issues on Improving the Socialist Market Economic System of the 3rd Plenary Session of the 16th CPC National Congress ofcially declared that the process of reforming China’s economic system had entered the stage of improving the socialist market economy. This marked the beginning of a milestone period similar to that triggered by the Decision on Several Issues on Establishing a Socialist Market Economic System of the 3rd Plenary Session of the 14th CPC National

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Congress in 1993. Therefore, during the 10th Five-year Plan, especially its later period, great progress was made and an unprecedented number of breakthroughs were made at difcult and key points. A. Reform of the Government Administrative System Produced Remarkable Effects In 2001, China’s accession to the WTO brought about an urgent need to adapt government functions to the practices of the free market. The State Council made comprehensive moves to accelerate the promotion of the administrative examination and approval system. That year the State Council Administrative Examination and Approval Reform Leadership Group was formed, initially under the personal leadership of Vice Premier Li Lanqing. Within ve years, 68 State Council bodies responsible for administrative examination and approval abolished or adjusted a total of 1,806 examination and approval items, accounting for 50.1% of the original examination and approval items. At the same time, the governments of 31 provinces, autonomous regions and municipalities directly under the central government abolished or adjusted more than 22,000 examination and approval items, accounting for over half of the original examination and approval items.1 This new round of government institutional reform in 2003 indicated the start of a radical transformation of government functions. The newly established government institutions allowed the government to move out of the micro-economic sphere and, at the same time, began to identify the contents and methods of government administrative functions. Meanwhile, the Administrative Permission Law of the People’s Republic of China, the investigation, research and drafting of which started at the beginning of the 10th Five-year Plan, was ofcially promulgated and implemented on 1 July 2004. This was an important sign of the transition of government functions, the promotion of administrative performance in accordance with the law, and the development of a government ruled by law. The Law afrms the need for administrative intervention and the monitoring of market activities to avoid malfunctions while at the same time limiting government administrative powers to a reasonable scope. It provides a clear directive for the government to further transfer functions and reform the administrative system.

1

Economic Daily, 12 October 2005.

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B. Break-Up of the State-Owned Administrative Monopoly of Strategic Industries was Placed on the Agenda Administrative industrial monopoly is closely related to government functions in a planned economy. In a government-dominated industrial structure, the government operates as both investor and administrator, a situation which naturally creates a large number of state-owned or administrative monopoly industries. Although the government has withdrawn from the majority of competitive industries during the last two decades of reform, the state-owned monopoly of strategic industries had been always an institutional threshold that was hard to cross, due to the government’s support functions in the national economy and their requirements for scale and technology. However, during the 10th Five-year Plan, reform of monopoly industries was put on the agenda. In 2001, Wang Qishan, director of the then Economic System Reform Ofce of the State Council, declared publicly that reforms would be implemented in traditional monopoly industries such as electric power, telecommunications, civil aviation, railways and postal services in the next few years. Five years have since passed, and the reform of several monopoly industries is now well advanced. In March 2002, the State Council published the Electric Power System Reform Programme, proposing that the goals of electric power system reform were “to break up monopoly, introduce competition, improve efciency, lower costs, complete a comprehensive electricity price mechanism, optimise the conguration of resources, promote electric power development, push forward the development of a national power network and create an electric power market system separating administrative from business functions, while ensuring fair competition, openness and orderly, healthy development under government supervision”. Although electricity shortages which lasted several years began to occur soon after the publication of the goals, causing severe difculties for electric power system reform, the goals and direction of reform were basically correct. Major measures such as the separation of the power plants from the power grid, the establishment of a National Electric Power Supervision Commission, the promulgation and implementation of the Electric Power Supervision Ordinance, and pilot schemes for a regional electric power market as well as for the direct purchase of electricity by major users, all conformed to the requirements of the reform goals. Of course, in order to radically resolve the contradictions between supply and demand in the electric

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power market, reform should continue to deepen in areas such as the electricity pricing mechanism, the investment and nancing system, and the implementation of modern supervision methods on the natural monopoly of the electricity transmission and distribution network. After being split up and restructured along vertical lines in 1999, the telecommunications industry underwent a further north-south split and restructure in 2001–2002 in accordance with the State Council’s telecommunications system reform plan, in order to create initial market competition within the industry. In 2003, the political and investment functions of the telecommunications industry were separated. In 2004, a draft Telecommunications Law was submitted to the State Council. In 2005, ownership reform and stock market listing of the four major telecommunications operators was completed, thus stimulating further competition in the telecommunications market. Since the State Council published the Civil Aviation System Reform Programme in 2002, reform of the civil aviation system has been completed in areas such as merging and restructuring the aviation transportation companies and service enterprises, the localisation of airport management, the administration system,and aviation freight, as well as the separation of political and business functions, and regulations governing domestic and foreign investment in the civil aviation industry have been promulgated. The railway system reform programme is still under consideration and deliberation. On 20 July, the Postal System Reform Programme was adopted during an executive meeting of the State Council, emphasising that the basic aims of postal system reform in China should be to separate its political and business functions, enhance government supervision, create a complete market mechanism, guarantee general and specialised services, ensure communication security, reform the management systems of the main post and postal savings businesses, promote the development of modern postal industry methods, re-establish the State Postal Bureau as the state postal supervision body, establish the China Postal Group to engage in various postal businesses, and accelerate the establishment of the postal savings bank to regulate operation of the post ofces’ nancial business. The postal system reform is thus substantially underway. In recent years, under the guidance of the Ministry of Construction’s Opinions on Acceleration of the Marketisation Process of Municipal Utilities published in 2002, the reform process to open up industrial markets such as city water and gas supply, sewerage and urban garbage disposal as well as public transportation, to establish franchise systems

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and reform government management methods, has been completed smoothly, resulting in a dismantling of the monopoly pattern. During 2002–2004, approximately RMB 149.5 billion in capital entered the municipal utilities industry.2 Initial levels of competition have been initiated among businesses with different economic structures, including foreign-funded, private and state-owned ownership. A base pattern of operations in which the franchise system dominates has also been initiated, with franchise agreements concluded among 263 enterprises and projects in over 100 cities in 26 provinces, districts and cities.3 C. Reform of the Finance, Public Finance and Taxation, Investment and Pricing Systems and Improvement of the Macro-Economic Control System Finance, public nance and taxation, investment and prices are all important components of macro-economic control. Since the 10th Five-year Plan, the government has made constant achievements in the macro-economic control of economic growth, partly due to deepening reform of nance, public nance and taxation, investment and pricing. 1. Reform of the Financial Industry, Starting with Restructuring the Ownership of Solely State-Funded Commercial Banks, has Achieved Important Breakthroughs At present, as China’s nancial market is not yet mature, the key focus for improving nancial regulation and control lies in banking administration. Whether reformed state-owned commercial banks can become real nancial businesses is based on whether they can become macro-economic control tools for controlling the scale of fund input and adjusting economic structures. Therefore, since the 10th Five-year Plan, important breakthroughs have already been made in the reform of the nancial industry, starting with restructuring the ownership of solely state-funded commercial banks. In 2003, the State Council initiated pilot schemes for share ownership reform of the Bank of China and the China Construction Bank, and invested US$ 45 billion in a series of reforms including nancial restructuring and optimising corporate governance. The two banks have now 2 Li Dongxu: “Steady Implementation of City Utilities Industry Reform”, Economic Daily, 30 September 2005. 3 Li Dongxu: “Steady Implementation of City Utilities Industry Reform”, Economic Daily, 30 September 2005.

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already found strategic investors, and the China Construction Bank has been listed on the Hong Kong stock exchange. Share ownership reform of the Industrial and Commercial Bank of China has basically been completed, and a share-limited company ofcially incorporated. Together with the restructuring of the ownership of solely state-owned commercial banks, the establishment of the China Banking Supervision Commission in 2003 indicated an overall step forward in nancial system reform in China, and the full launch of modern supervision of the nance industry. Their level of control over various risks has now been enhanced through internal control and supervision of the commercial banks. Thanks to capital adequacy rate supervision, bank assets with a satisfactory capital adequacy rate now amount to 71.4% of total commercial bank assets.4 Opening China’s nancial industry to foreign investment has also made unprecedented progress during the 10th Five-year Plan, with 69 foreign banks from 20 countries and regions having set up 232 operational institutions in China with total invested assets of RMB 660.66 billion, accounting for 2% of all nancial institution assets in China’s banking industry.5 138 foreign banks have also received approval to engage in RMB trading, while foreign banks such as Citibank and HSBC have bought shares in more than 10 Chinese-funded banks. In 2003, China also raised the permitted share investment proportion for individual foreign institutions in Chinese nancial institutions from 15% to 20%–25%.6 Another nancial industry reform of important signicance was the reform of the Renminbi exchange rate mechanism. On 21 July 2005, an administered oating exchange rate system based on market demand and adjusted with reference to a currency basket began to come into effect. This was the most important reform measure since the restructuring of ownership of large commercial banks, the relaxation of foreign currency controls, and the launch of forward selling and settlement of foreign exchange, and is a good indication of the gradual improvement and increasing maturity of the market economic system of the nancial

4 “Economic System Reform Attained New Progress This Year”, Economic Daily, 12 September 2005. 5 Liu Mingkong: “Comments on Banking Reform in China”, China Economic Times, 19 October 2005. 6 See Note 2. Chinese and foreign banks can mutually benet from competition and cooperation.

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industry in China. A more exible Renminbi exchange rate has also enhanced the effectiveness of the government’s currency policy. The implementation of pilot schemes for equity division reform in listed companies started in the rst half of 2005 and gave the stock market, which had been depressed for several years, a new boost of energy. However the more important task is to rst resolve the equity division issue that currently signicantly affects the capital market, gradually correct the market’s “dual track system”, and resolve various deep-seated contradictions and structural problems that restrain its longterm development. Those are the true aims of this signicant reform. At present the pilot schemes have been carried out in 2 consecutive batches of 46 listed companies. 2. The Reform of Public Finance and Taxation, Investment and Prices Continues to Progress Public nance and taxation reform during the 10th Fiveyear Plan placed primary emphasis on the subject of public nance, i.e. the public nance expenditure structure was further adjusted, and the proportion of expenditure on public products and services was increased. The nance departments of regional governments above the county level took on more responsibilities, especially in terms of guaranteeing a steady increase in funding for rural compulsory education. At the same time, the development of the public nance system was put on the agenda. Another major initiative in public nance and taxation system reform were the pilot schemes implemented in certain industries in Northeast China to gradually transfer VAT from a basis on production to one on consumption. Development of the nance and taxation legal system was also further intensied, with the new Law on the Administration of Tax Collection coming into effect in 2001. The Detailed Rules for the Implementation of the Law on Tax Collection Administration was promulgated and implemented in 2002. The Government Procurement Law came into effect in 2001 and the Personal Income Tax Law of the People’s Republic of China was proposed to the Standing Committee of the National People’s Congress for discussion and adoption in 2005. All of these marked important advancements in the areas of nance and taxation law. The Decision of the State Council on Investment System Reform (hereinafter referred to as the Decision) was promulgated in July 2004. The new reform planned rst to distinguish between different investment subjects against different project properties using different management patterns. The Decision stipulated that examination and approval would

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continue to apply to government investment projects, and that such examination and approval would no longer apply to projects not subject to government investment. A verication and approval system and record registration system would instead be applied based on a variety of different conditions. The Decision also reects the policy of encouraging private and institutional capital investment, proposing to “relax private and institutional capital investment restrictions and permit such capital to be invested in infrastructure, public utilities and other industries and areas that are not prohibited by laws and regulations.” The promulgation of this reform plan marked a signicant step in investment system and administrative examination and approval system reform. The detailed rules for the implementation of this reform are gradually being implemented, with step-by-step promulgation of the Notice on Relevant Regulations for Improving and Perfecting the Verication and Approval Procedures of Enterprise Investment Projects, the Interim Measures on Administration of Projects with Investment and Interest Subsidies from Central Government, and the Interim Measures on the Administration of Investment Projects with Loans from International Financial Organisations and Foreign Governments. By the end of 2004, the number of commodities and services whose prices are decided by central government had been reduced to eleven types, with the prices of 96% of commodities now being regulated by the market. Government control over resource and production factorrelated product prices is also under gradual reform. On 5 April 2005, the National Development and Reform Commission promulgated interim measures for the administration of electricity prices for sale to networks, electricity transmission and distribution prices and its sale price, which precluded electricity price reform. At the same time, local coal and electricity linkage programmes were promulgated one by one and contributed to the gradual liberalisation of electricity and coal prices. D. A New Wave of Rural Reform Over two decades had passed since the reform and liberalisation process began, when the Three Rural Issues—“Rural areas are truly poor, Rural farmers are truly suffering, and Rural agriculture is truly in danger”—were once again brought to the fore, the 16th CPC National Congress proposed a strategic concept of “planning the economic and social development of the urban and rural areas as a whole”. The 3rd

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Plenary Session of the 16th CPC National Congress made further specic progress in this area, producing an important strategic decision and a breakthrough in policy adjustment. At the beginning of 2004, the CPC Central Committee and the State Council issued a second White Paper in response to rural problems, and the Opinions of the CPC Central Committee and the State Council on Several Policies to Promote Increased Income for Farmers was ofcially published. This marked the start of profound changes in China’s agriculture during the 10th Five-year Plan. The document proposed nine categories or 22 items of policy to promote increases in farmers’ income: the special local agricultural product tax on products other than tobacco leaves would be cancelled, the agricultural tax reduced, and three further subsidy policies would be implemented: a direct subsidy for grain-growing farmers, a good seed subsidy and a large agricultural machinery and tools purchasing subsidy. Four further guarantee measures on the effective protection of farmland, the expansion of agricultural investment, strict control of agricultural prices and minimum grain purchase prices were also implemented. With this series of reform measures, 2004 became an important turning point. The actual increase in average farmers’ per capita income in China turned around from falling consecutively during the rst three years of the 10th Five-year Plan, and made a single leap from a very low 4% last year to 6.8%. In the rst half of 2005, it also exceeded the increase of the average per capita income of urban residents, reaching 12.5%. In 2005, another White Paper, the Opinions of the CPC Central Committee and the State Council on Policies to Further Improve Rural Area Initiatives and Overall Agricultural Productivity, listed a total of 27 major policies and measures in 9 categories. Improving overall agricultural productivity was its main focus, providing overall plans and guidance for managing agricultural production, increasing farmers’ income and improving rural area initiatives for 2005. The promulgation of a series of guiding concepts, guidelines, policies and measures favourable to farmers with the central government’s two White Papers in 2004 and 2005 provided the basic framework for the agricultural policy structure. The basic orientation of this policy structure adheres to the guideline strategy of promoting the economic and social planning and development of urban and rural areas as a whole, with the basic goal of increasing farmers’ income. The two central government White Papers have achieved remarkable results, with 28 provinces having cancelled the agricultural tax, and the remaining

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three provinces that impose the tax having lowered its tax rate to below 2%. In the last two years, farmers’ income has seen a large increase and their lives have seen a remarkable improvement. In order to consolidate the results of these reforms, the State Council rapidly deployed a range of comprehensive pilot reform schemes mainly aimed at institutional organisation of rural areas, rural compulsory education and the county and township nancial system. Furthermore, reform of the grain distribution system and the rural land system were also simultaneously implemented more effectively. Minister of Finance Jin Renqing publicly announced that, by the end of 2005, China would completely abolish agricultural tax, which has a long history of over 2,600 years. The central government nancial department will pay RMB 100 billion annually for such a measure. E. Implementation of State-Owned Enterprises Reform and Advancement of State-Owned Asset Supervision and Administration System Reform The study of state-owned enterprise reform has undergone many stages, including the relaxation of rights and concession of prots, contracting systems and leasing operations, pilot schemes for modern enterprise and share ownership systems, the sale of small- and medium-sized enterprises (SMEs) and the share cooperative system. At present, the proportion of SMEs stands at nearly 90%, and real effects have been achieved in the adjustment of the structure of the state-owned economy, and re-employment and social security systems have gradually been established. This period also saw the initial establishment of state-owned enterprise supervision and management institutions, individual investment in state-owned assets began, and state-owned enterprise reform took a new leap forward. Therefore, the 10th Five-year Plan saw new traits emerge in state-owned enterprise reform, especially after the 16th CPC National Congress. The rst is that responsible bodies have been identied. The stateowned asset supervision commissions at various levels are the bodies responsible for regulating restructuring of ownership and preventing the loss of state-owned assets. At present, over half of all cities (prefectures) have established state-owned asset supervision bodies. The second is that reform is progressing in a more regulated way. The State-Owned Asset Supervision and Management Committee of the State Council promulgated a succession of documents including Opinions on Regulating Ownership Restructuring of State-Owned Enterprises, Interim

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Measures on the Administration of Title Transfer of State-Owned Enterprise Assets, Interim Measures on Operational Performance Evaluation of Central Government Enterprise Managers and Measures on State-Owned Enterprise Asset Verication and Capital Assessment, all of which have played a restraining role on reform procedures and state-owned asset loss prevention. The third is that system innovations have been explored to guarantee investors’ rights and interests. At present, there are two approaches to this innovation in large state-owned enterprises: The rst is ownership restructuring and stock market listing, especially on foreign stock exchanges. The standardised and transparent rules of foreign stock exchanges can benet state-owned enterprises by forcing them to regulate their corporate governance structure. The second is the appointment of outside directors to the boards of directors of solely state-funded state-owned companies to guarantee the companies’ objective decision-making processes and prevent any emergence of the practice of “what I say counts”. During the 10th Five-year Plan, strategic adjustments to the distribution and structure of the state-owned economy made important progress and the overall concept in this respect has basically been established. The basic concept regarding resource integration and the restructuring of enterprises under the central government in 21 industries such as petroleum, petrochemicals and metallurgy has also been set. At present, the number of enterprises under the direct supervision of the State Asset Supervision and Administration Commission of the State Council has dropped from 189 to 169 through restructuring or mergers. Regions and departments are carefully implementing the guideline of “well-dened aims and orderly withdrawals” and are positively managing policy-led state-owned enterprise shutdowns and bankruptcies. Local governments still need to take into account actual conditions and explore various possibilities such as restructuring, alliances, mergers, leases, contracting and equity cooperation, and sales to release and revitalise state-owned SMEs. F. Overcoming Institutional Roadblocks to the Development of a Non-Public Ownership System China’s understanding of the non-public economy has been constantly improving ever since the restoration of the non-public ownership economy at the outset of reform and liberalisation, the recognition

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of the non-public ownership economy as an important component in the development of the national economy, the proposal by the 15th CPC National Congress to promote the joint development of different ownership forms under the dominance of public ownership, and the 16th CPC National Congress proposal of wholehearted encouragement, support and guidance for the development of the non-public ownership economy. The non-public ownership economy has developed rapidly for these reasons and now generates 60% of GDP, over 70% of urban employment and over 60% of export trade. In March 2004, Premier Wen Jiabao gave his opinion of the Suggestions on Promoting the Development of the Non-Public Ownership Economy drafted by the Economic Committee of the National People’s Political Consultative Conference, and requested appropriate bodies to explore signicant policy issues in the promotion of non-public ownership economic development and formulate appropriate guidelines. On 25 February 2005, the State Council ofcially promulgated Various Opinions on the Encouragement, Support and Guidance of the Development of the Non-Public Ownership Economy. As there are altogether 36 articles in the document, it is abbreviated to “36 Articles on the Non-Public Economy”. The 36 Articles on Non-Public Economy is the rst policy document devoted to the planning of the non-public economy. The document clearly points out that “non-public capital is encouraged and supported in infrastructure, monopoly industries, public utilities and other industries and areas not prohibited by law”. Domestic non-public capital investment will also be permitted into industries and areas in which foreign capital investment is permitted, and restrictions on the proportion of equity and other aspects will be relaxed. Non-public ownership enterprises will be given the same treatment as other forms of ownership with regard to investment verication and approval, nancing, public nance and taxation policies, land use, foreign trade and economic and technological cooperation. Non-public ownership enterprises are thus granted access by the state to areas that had long been inaccessible to them, such as monopoly industries, public utilities and infrastructure, social services, the nancial services industry, and the military science and technology industry. Relevant state departments have been working to formulate the specic measures and supporting procedures for the implementation of the 36 Articles on the Non-Public Economy. Of these, the access conditions and relevant regulations for non-public ownership enterprises investing

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in mineral resources are already mature and ready to be promulgated. The central government is further implementing the responsibility system, and promulgating detailed rules for the implementation of the 36 Articles on the Non-Public Economy in set steps, promulgating each set of regulations once they are ready, including access conditions and relevant policies and regulations for non-public ownership enterprises entering monopoly areas such as public utilities and infrastructure, and opinions on encouraging the establishment of small-sized enterprises and the creation of new employment. In August 2005, the Several Decisions on Non-Public Ownership Capital Entering the Culture Industry were published. The document comprised ten articles which identify in principle the areas in which investment is encouraged, permitted, restricted or prohibited by the state. By the end of September, ten departments and organisations had already distributed specic measures complementary to the 36 Articles of the Non-Public Economy. The State Administration of Industry and Commerce promulgated over 20 measures, while the Ministry of Commerce, the Ministry of Railways and the General Administration of Civil Aviation of China respectively formulated specic opinions on non-public owned assets entering the insurance, railway and aviation industries. The local governments of Beijing, Tianjin, Anhui, Shandong and Sichuan successively promulgated appropriate implementation opinions. Non-public ownership capital is beginning to enter a new stage of comprehensive access in the true sense, and development prospects are really promising. G. Improvement of Social Security System During the 10th Five-year Plan, social security system reform of pension, unemployment and medical care for urban residents continued. By the end of 2004, basic pension, medical care and unemployment insurance coverage nationwide had respectively reached 160 million, 120 million and 110 million people. Based on the expansion of coverage of the new urban medical care and pension systems, the 16th CPC National Congress proposed a further concept for the development of the social security system. This involved all sectors of society, and proposed that urban employees should be incorporated into the basic pension insurance, that multiple methods should be used, including the transfer and allocation of a portion of state-owned assets in accordance with the law to supplement social security funds, and that locations with

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the proper conditions should explore the setup of a rural minimum subsistence guarantee system. With regard to further public health system reform, it particularly noted that a new rural cooperative medical care system should be pro-actively established and medical assistance should be provided to poor farmers. Pilot schemes to improve urban social security systems in the two provinces of Jinlin and Heilongjiang are currently making good progress. Urban social insurance coverage nationwide continues to grow, as eleven provinces have now established the rural minimum subsistence guarantee system. The new rural cooperative medical care system that began to be implemented on the basis of pilot experiments in 2003 was expected to incorporate extensive rural areas and farmers into the medical care guarantee system. In October 2002, the National Rural Health Work Conference proposed for the rst time that a new rural cooperative medical care system mainly focusing on the comprehensive treatment of serious illness should be established. It was also planned that the rural cooperative medical care system should be basically set up by 2010. Since 2003, the nancial departments of the central government have provided funds for cooperative medical care subsidies at an annual rate of RMB 10 per capita to farmers participating in the new cooperative medical care system in non-urban areas of the central and western regions. Local nancial department subsidies to farmers participating in the new cooperative medical care system will be no less than RMB 10 per capita annually. At present, there are already 620 cooperative medical care pilot scheme counties nationwide with a population coverage of 226 million and a total of 156 million farmers participating in the cooperative medical care system. In August 2005, an executive meeting of the State Council decided that the new rural cooperative medical care pilot scheme should be expanded. In 2006, county pilot schemes will increase, from 21% to 40% of all counties nationwide. The nancial departments of the central government will invest further funds as the subsidies to farmers covered by cooperative medical care will be increased by a further RMB 10 above the original annual per capita RMB 10 sum. Local nancial departments will increase their subsidies correspondingly. It is planned that the new cooperative medical care system will be essentially set up in rural areas nationwide by 2008.

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H. The State Council has Approved Comprehensive Supporting Reform of the Pudong New Area of Shanghai On 21 June 2005, the executive conference of the State Council approved a pilot scheme by Shanghai’s Pudong New Area to implement comprehensive supporting reform. The scheme was required to focus on the transformation of government functions, of economic operation modes, and of the dual economic and social structures of urban and rural areas. An integral approach was requested: reform and development should be combined organically; the resolution of actual local problems and of common difculties in the project should be combined; the implementation of breakthroughs in key areas and overall innovation should be combined; reform of the economic system and in other respects should be combined. The aim was to establish the rst complete socialist market economic system nationwide in order to provide an example in the comprehensive reform of other regions of the country. Selecting Pudong as the rst national comprehensive supporting reform pilot scheme will play a signicant leadership role in implementing overall reform. This pilot reform scheme also avoids the traditional route, in which the central government provides preferential policies, projects and funds. Instead, Pudong must implement system innovation through its own efforts. This is the direction of system reform nationwide. In summary, economic system reform during the 10th Five-year Plan was characterised by pressing needs and a rapid pace of change. The frequency and strength of reform measure promulgations were both unprecedented. Substantial reform progress was made in many areas, especially in 2005, the last year of the 10th Five-year Plan, which the State Council set as the year in which major reform obstacles were to be settled, thus providing a good system environment for the smooth implementation of the 11th Five-year Plan for the national economy and, at the same time, laying down a solid foundation for the further progress of the 11th Five-year Plan.

II. Analysis and Visualisation of Prospects for Economic System Reform During the 11th Five-Year Plan The Suggestions of the CPC Central Committee on Formulating the 11th Five Year Plan for National Economic and Social Development

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(hereinafter referred to as the Suggestions) is a document of immense signicance, because it not only indicates the direction and specic paths of development over the next ve years, but also—for the rst time in a Central Committee document—changes the ve-year development “plan” into a ve-year development “programme”. This change indicates that China aims to completely escape from the system restrictions of the planned economy and work to optimise the socialist market economy. The 11th Five-year Plan places a very heavy emphasis on economic system reform, as continuous further reform and liberalisation is one of the “Six Musts” mentioned in the Suggestions. A. Accelerating the Improvement of the Socialist Market Economy System through Transformation of Government Functions and the Deepening of Enterprise, Public Finance and Taxation and Finance Reform The Suggestions specically pointed out that the system guarantee for implementing the scientic concept of development should be improved. As far as the current reform situation is concerned, the improvement of the system guarantee will help implement system innovation in accordance with socialist market economic principles in the areas of government administration, state-owned enterprises, public nances and taxation and nance to form a mechanism favourable to the transformation of the modes of economic growth and the promotion of comprehensive, coordinated and sustainable development. 1. Reform of the Government Administrative System In accordance with the requirements of the Suggestions, the separation of administrative and corporate functions, of administrative and investment functions, and of government and market referral organisation administrative and institutional functions will continue, and administrative examination and approval will be reduced and regulated. In accordance with the requirements for the development of modern government, economic regulation, market supervision, social administration and public service functions, government administrative function transformation and innovation, and government development must be performed under the rule of law and the concept of a service government. Breakthroughs in government administrative system reform must be achieved in the following main aspects.

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a. Government institutions should undergo further adjustment and function transition Firstly, the setup of government institutions should be further adjusted. Institutions engaging in economic adjustment and social administration should be enhanced and improved, while institutions directly engaging in or intervening in micro-economic activities and social affairs should be abolished. The government administrative framework should dene the following functions: investment, industry (market) supervision and public policy. The objective of reform is to separate functions within government, i.e. to transform government institutions that traditionally exercise these three major functions into institutions that handle each of the three major functions separately and establish an operation mechanism that corresponds to its function. Secondly, administrative levels should be reduced. At present, velevel administrative institutions mark the highest number of administrative levels in China’s history. The breakdown of administrative power into different levels not only makes it hard to ensure the integrity of central government decrees, but also to an extremely large degree limits local government initiative and places a heavy burden on citizens at the grass-root level. b. The relationship between the central government and local governments should be rearranged The Decision of the CPC Central Committee on Enhancing the Development of Party Governing Capacity adopted during the 4th Plenary Session of the 16th CPC National Congress proposed that the relationship between central and local government should be addressed properly. The unied leadership of the central government should be pro-actively maintained and local government initiative should also be better applied. This proposal indicates the direction for the adjustment of the relationship between the central government and local governments as well as that of government administrative system reform, i.e. the authority of the central government in macro-economic regulation must be established and, at the same time, the powers and duties of central and local governments must also be clearly divided. The authority and duties of central and local governments in economic and social affairs must be divided in a reasonable manner in accordance with the principle of the unication of nancial and executive powers. However, the specic method by which the powers are divided must be through system innovation, taking into account actual conditions in China, and

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with due consideration to the simultaneous implementation of public nance and taxation system reform. c. Administrative monopoly must be eliminated At present, there are certain problems with administrative monopoly in some industries and state-owned enterprises. The root cause of this lies in the improper and excessive application of government functions. Therefore, the elimination of administrative monopoly requires advocating the liberalisation of industry and the implementation of a modern supervision system. 2. State-Owned Enterprise Reform and Improvement of the State-Owned Asset Supervision and Management System The State-Owned Asset Supervision and Management Committee of the State Council has proposed that state-owned enterprise reform and improvement of the state-owned asset supervision and management system require further in-depth work in seven areas. The rst is to establish a top-down state-owned asset management and supervision institution; the second is to formulate laws and regulations for the supervision and management of state-owned assets; the third is to promote state-owned enterprise share ownership reform; the fourth is to establish and complete a corporate governance structure that can adapt to the modern enterprise system; the fth is to nalise an achievement evaluation system for state-owned enterprises; the sixth is to make adjustments to the distribution and structure of the state-owned economy, and the seventh is to separate major and minor businesses and restructure the latter to effectively lighten enterprise burden. Two overall goals will thus be fullled: the rst is to establish the fundamental framework of the new state-owned assets supervision and management system by the year 2006. The second is the strategic adjustment and reorganisation of the state-owned economy, which is to be essentially completed by the year 2010 to create a fairly rationally distributed and structured state-owned economy and to develop a relatively effective modern enterprise management system. However, there are several difculties in state-owned enterprise reform and state-owned asset supervision and management system innovation that have not yet been addressed. Although the tasks have been identied, careful consideration still needs to be given to the specic paths to take. This is a long-term systemic project that must be implemented in conjunction with government administrative system reform and public nance and taxation and nance system reform. It will not

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yield quick successes and instant benets, nor can it be completed in a single jump. 3. Public Finance and Taxation System Reform The Suggestions on the 11th Five-year Plan propose reform tasks in ten areas, including the following key points: The rst is to determine the division of executive power between the various government layers and set out the nancial power and resources that correspond to the executive power. This includes dividing executive and nancial power between the central and local government, as well as among local governments at various levels. Pilot reform schemes for the administration of a county’s nancial affairs should be handled by the provincial government, and those of a township should be handled by the county government. The second is to improve the public nance system. The main tasks involve adjusting the nancial expenditure structure, and increasing the proportion of expenditure on public products and services on the one hand while strengthening transfer payments and improving the transfer payment system on the other hand. It is particularly worth noting that the Ministry of Finance has announced that in 2006, state nancial departments will pay for the actual provision of nine-year compulsory education to 800 million farmers. The government will also provide children from impoverished farming families with free textbooks and pay for meals at boarding schools. The aim of such measures is to give farmers’ children an equal opportunity to education. Another public nancial system issue is the adjustment of its income structure: this should focus on the transfer of value added tax, the merger of income tax for domestic and foreign-funded enterprises, tax reform in rural areas and personal income tax reform. At the same time, government revenue and expenditure classication reform will be used as a basis for carrying forward budget administration system reform. The separation of the two revenue and expenditure lines, departmental budgeting, centralised collection and payment of national treasury and government procurement should also continue to be improved. Third is to implement a public nance and taxation system favourable to the changing growth mode, science and technology development and energy and resources savings. The main task is to adjust and improve the resources tax, implement the fuel oil tax, promote the property tax and regulate measures for the administration of income from land transfer.

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4. Financial System Reform The Suggestions on the 11th Five-year Plan propose ten tasks for nancial system reform. These can be summarised as follows. The rst is to continue nancial enterprise reform. The main aims of recent nancial system reform announced by the central bank are to endeavour to complete the nancial restructuring of state-owned commercial banks, introduce strategic investors, establish a complete corporate governance structure and basically complete share ownership transformation. At the same time, the capital restructuring of small- and medium-sized nancial institutions should be pro-actively implemented, non-public investment funds should be gradually introduced to participate in the transformation of small- and medium-sized nancial institutions, and the nancial institutions under various forms of ownership should be developed in a stable manner. Policy-level banks should also implement reform according to the updated situation, with the overall aim of establishing development-oriented nancial institutions. The second is to optimise the structure of the nancial market, i.e. to deepen reform measures by comprehensively implementing equity division reform, issuance mechanism reform, developing a multi-level market system and establishing an independent system of directors, to gradually resolve various deep-seated conicts and structural problems that restrict the long-term development of the capital market, to expand the scale of the capital market and improve the proportion of direct nancing. The third is to complete the nancial regulation and control mechanism, enhance indirect regulation and control of the money supply through the steady development of the money, insurance and futures markets and the completion of a nancial market registration, trust, trading and settlement system, and base fund prices on market regulation through interest rate marketisation reform so as to further promote marketisation reform of the production and scientic elements of macro-economic control measures. The fourth is to adhere to the principles of initiative, controllability and progressiveness, continue Renminbi exchange rate reform, complete the regulated oating exchange rate system and gradually implement convertible Renminbi capital accounts. The fth is to complete the nancial supervision system, enhance capital adequacy rate constraints on nancial institutions, prevent and eliminate nancial risk, regulate the market exit mechanism of nancial institutions, establish an appropriate deposit insurance, protection,

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insurance and guarantee system for investors, and build up a standard, exible and effective nancial risk emergency response mechanism. The central bank recently announced state support for the reform of large commercial banks and agricultural credit cooperatives. However, the credit and loan service to SMEs should not be overlooked, especially that for non-public owned SMEs. A set of six measures will be implemented to solve SME loan problems. B. Accelerating Rural Reform and Development of the Social Guarantee System and Building a Congruent Society by Focusing on the Population The problems with agriculture, rural areas, farmers and social security that involve employment, medical care and pension are all weak points that affect economic development and social congruence. The Suggestions on the 11th Five-year Plan identify the improvement of the socialist market economic system as an essential goal and pay special attention to the resolution of these problems. 1. Several Issues in Resolving the Three Rural Issues and Accelerating Rural Reform The development of the new socialist countryside is focused on in the Suggestions on the 11th Five-year Plan of the CPC Central Committee, and it formulates a series of policies and arguments on the Three Rural Issues, the crux of which is industry’s support for agriculture in return, and urban areas’ support for rural areas. This is the radical guideline for the resolution of the Three Rural Issues, which combines the following three levels of meaning: a. Gradually implementing the integration of urban and rural areas by deepening rural tax reform and supporting reforms The rst is to promote the reform of nancial and administrative systems at the county and township levels, regulate the nancial transfer payment system and consolidate the results of tax reform. The second is to improve the rural land system, continue implementation of the effective farmland protection system and complete a reasonable compensation system for farmers whose lands have been requisitioned. The third is to pro-actively explore the rural market and provide support in terms of price, fund investment, information channels and industrialisation. The fourth is to complete the rural public service system and gradually implement rural area infrastructure and basic subsistence guarantees such as compulsory education, medical care,

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pensions, transportation, water and electricity supply, communications, environment, ecological and basic farmland construction and hydropower. The fth is to complete the rural nancial system, dene and improve functions of policy-level nancial institutions supporting agriculture such as the agricultural development bank, develop agricultural insurance and agricultural product futures markets, and regulate and develop non-governmental nancial institutions that are adaptable to the characteristics of rural areas. b. Adhering to the principles of giving more and taking less, liberalising and invigorating, and improving the self-sustainability of agriculture and rural areas In the next few years, governments at various levels should adhere to the above principles, increase investment in agriculture and rural areas, concentrate funds on the protection and improvement of overall agricultural productivity and the enhancement of basic agricultural development, promote agricultural structure adjustment and develop ecological agriculture with high production, excellent quality and high efciency to increase farmers’ income. c. Encouraging farmers to industrialise and urbanise to reduce the rural population and enrich farmers Of course, this also requires a series of reforms to national policy, such as removing the residence registration system that separates urban and rural areas, abolishing various residence registry-based treatment inequalities between urban and rural residents, abolish a range of policies which discriminate against farmers migrating to cities in search of work, and provide farmers with equal working opportunities, opportunities to education and rights to social security. Although not all of these issues may be resolved during the 11th Five-year Plan, the Plan can still initiate an ongoing process. 2. Several Reforms that Need to be Adhered to in the Development of a Congruent Socialist Society a. Developing a reasonable income allocation and regulation mechanism The Suggestions of the 11th Five-year Plan stress the reasonable regulation of income distribution. It proposes that “special attention

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should be paid to equality in employment opportunities and the income distribution process, improving regulation of income allocation and improving supervision of the results of distribution”. This regulation and supervision of income distribution should embody the principles of equity and rationality in both the re-distribution and initial distribution processes. That is, “to endeavour to improve the income standards of the low-income population and gradually expand the proportion of the medium-income population” through the establishment of a reasonable regulation mechanism. In the area of re-distribution, the government may make income distribution more reasonable through such policies as taxation, minimum subsistence guarantee, social relief and cheap rented housing. b. Accelerating improvement of the social security system First, the social security system should be gradually developed to cover all of society, not only the urban areas. It is a goal of the 11th Fiveyear Plan to construct a social security system which provides extensive coverage, multiple levels and assorted support systems. Second, basic social security should include basic medical care, basic pension, as well as unemployment, work injury and maternity benets. Education and housing should also be included in social security. The implementation of compulsory education, housing subsidies and the housing provident fund within a certain scope is already a kind of social security, but the problem is that current coverage is rather limited and the legal enforceability of these measures is still insufcient. The social security system should also include the development and implementation of provision, relief, welfare and charity assistance to socially disadvantaged groups. These are all clearly proposed in the Suggestions on the 11th Five-year Plan and will therefore be important contents of the 11th Five-year Plan. c. Enhancing the government’s public service functions and allocating public service resources in a reasonable manner Public service functions mainly include public health, public security, disaster prevention and mitigation, and improvement of the production and living conditions of deprived areas. The Suggestions specically suggest that during the 11th Five-year Plan, problems with the nonavailability and prohibitive prices of medical treatment for the general public should be carefully studied and gradually resolved. Supervision

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of production safety should be completed and supervision of transportation security should also be improved. Supervision of food, medicine and dietetic hygiene should also be enhanced. In summary, the Suggestions of the CPC Central Committee on the 11th Five-year Plan contain plentiful reform ideas, focusing on human orientation and the scientic concept of development. The proposed significant reform measures fully take into consideration the vital interests of the wider general public and social tolerance. At the same time, effectively improving the mechanism and system, accelerating the pace of reform and managing the relation between reform, development and stability good way are the main theme of the Suggestions. Prospects for reform during the 11th Five-year Plan give us much to look forward to.

2005: NON-GOVERNMENTAL DEVELOPMENT AND TRANSFORMATION OF RURAL AREAS IN CHINA Xu Xinxin

In 2005, the Three Rural Issues (i.e. issues concerning agriculture, the countryside and farmers) were, as part of a proposal for the development of a harmonious society, placed on the agenda of the CPC Central Committee as of the rst priority, and become an important component of the plan for the overall construction of a prosperous, harmonious socialist society. The central government has posited that the development of the Chinese economy has turned from the rst stage, in which “agriculture supports industry and rural areas support urban areas”, to the second stage, in which “industry in return supports agriculture and urban areas in return support rural areas”. Undoubtedly, the suggested “two stages” and “two supports in return” play an important role in the transition of the national strategic decision-making process. Accordingly, non-governmental development and transformation of the rural areas of China have also entered a new stage. As an increasing number of people focus on the Three Rural Issues and become involved in the development and transformation of rural areas, the forms of non-governmental intervention in rural areas will also become increasingly diverse.

I. Growth of Non-Governmental Development and Transformation in Rural Areas A. Organising Farmers’ Associations and Implement Rural Development and Transformation Planned and Run by Farmers For a long time, there was a popular saying: “Chinese farmers know little about cooperation”, and it was widely believed that the structure of Chinese rural society was similar to that of a potato plant—unitary. In contrast, Europeans and Americans appeared to cooperate better, because rural areas in some parts of Europe have hundreds or even thousand years of cooperative tradition. However, the setup

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and development of the Shanxi Yongji City Puzhou Town Farmers’ Association puts the lie to such a judgment, and its story clearly indicates the way in which Chinese farmers organise themselves in order to transform and develop their homeland as a group. The Farmers’ Association’s legal representative, Zheng Bing, was once an ordinary citizen-managed teacher in Zhaizicun Village, Puzhou Town. An insignicant event occurred that changed her life forever one day in the spring of 1998, when she visited the technical service centre run by her husband, which mainly sold fertiliser and agricultural pesticides. A villager came to buy some fertiliser for his two and a half mu of asparagus, a task for which RMB 300 worth of fertiliser would sufce. No matter how hard Zheng Bing tried to dissuade him, however, the villager insisted on buying RMB 800 of fertiliser, because he believed that “the more fertiliser, the more asparagus”. On seeing this, Zheng Bing was rather concerned, because she remembered a scene when her pupils were scolded for asking for one more pencil from their parents. She felt guilty for earning money from the farmers in this way, so she put some thought into “providing technical services to the farmers”, and invited relevant experts to give technical lectures in the village at her own expense. From 24 December 1998 onwards, lectures were held twice a month for two years, during which time hundreds of farmers came to listen, even travelling from many surrounding villages. Zheng Bing resigned from the citizen-managed school at the beginning of 1999 in order to concentrate on her service to the villagers. The Puzhou Town Farmers’ Association was ofcially registered at the Yongji Civil Affairs Bureau on 7 June 2004, and now has 3,800 members from 35 villages. However, the farmers’ association has a longer history—the name became popular locally and was recognised by the local government one and half years prior to the actual registration, because this home-grown grassroots organisation was solving many difculties that village committees were failing to tackle, and had thus beneted the villagers. The Farmers’ Association’s was also originally called the Women’s Association, due to its origins with the women of Zhaizicun led by Zheng Bing, who attempted to adapt their thousand year-old lifestyle to a more urban model, such as with dance classes studying forms such as yangko folk dance. Words of admiration from neighbouring villages that “those women of Zhaizicun know how to enjoy life” indicates the role that this edgling “Women’s Village” began to play in a wider area beyond the village community.

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The association developed from running dance classes to organising cultural, practical knowledge and skills seminars, holding debates, sports events, and even mediating in village disputes and helping the poor. The women’s intellectual and cultural awareness gradually improved, and their spirits greatly improved. Family and neighbourly relations improved accordingly. Many male villagers were then attracted to participate, and the name “Farmers’ Association” started to catch on. In the past, Zhaizicun had been a “pigpen” village where mahjong gambling was extremely popular (the public security department once notably arrested dozens of gamblers), pilfering was a severe problem, the village committee was paralysed, and deep-seated conicts raged between different cliques in the village. The roads were muddy and difcult to use, and sanitation conditions were poor. In a bid to improve the village’s appearance and everyday life, the Farmers’ Association began with improvements to the residential environment, and sent out a detailed proposal outlining its plan to all residents. Backbone members of the Association then gathered villagers by visiting each household, and formed disposal teams to deal with the garbage that had amassed in areas of the village for decades—this was completed in three days. They then organised a Village Development Council (with all council members being ordinary villagers). Despite the fact that no outside funding was available, that the village committee refused to get involved, and the village party secretary’s repeated assertions that “this will be a very difcult task”, the Association organised further teams of villagers to level up the roads in the village, a task which took 76 days of back-breaking work, and which would have otherwise needed an estimated RMB 198,000 to complete. The Farmers’ Association thus gained popular trust—of Zhaizicun’s 213 households, the number of the households participating in the Farmers’ Association grew rapidly from 105 before the road renewal scheme to 175 after that. The original village party secretary also joined the Farmers’ Association, and a friendlier atmosphere emerged and eventually came to dominate in the village. In the words of one of the leaders of the Farmers’ Association, “changing the appearance of this rural area not only means teaching farmers about production technology, but also developing them as modern citizens and getting them to understand that, as the true owners of this land, it is their responsibility to organise and develop their homeland.” The Farmers’ Association continued to run study seminars every Tuesday and Friday for its members (except during the

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busy farming season), but it also continued to send backbone members elsewhere to learn new skills. In July, 2005, the Association organised a single expedition of over 140 members to visit and study in Nanjiecun, Henan Province. The Puzhou Town Farmers’ Association now includes several subsidiary institutions such as an environment protection association, a fruit tree association, a women’s association and a science and technology association. It has also established economic cooperative organisations such as the Environment-Friendly Painting Engineering Co., Ltd., a Grain Farmers’ Economic Cooperative, a National Handicraft Development Centre, and a Handmade Steamed Bread Workshop to assist farmers to organise to protect themselves from market risk and take the path to wealth together. The Puzhou Town Farmers’ Association has bold plans for the future, including raising funds to establish a farming academy for 1,000 students, holding technical training workshops in apple, persimmon, apricot, peach, and sundry grain, providing professional management training and education for backbone members of the Association, holding family education and handicraft training courses, marketing village handicraft products during the 2008 Olympic Games, establishing a “Farmer’s Home Inn” tourist attraction, integrating the elds into 100mu plots and establishing a 1,000 mu ecological garden (later expanded to 40,000 mu), all of which would serve to establish Zhaizicun as a leading village nationwide in terms of overall quality within a decade. In a small village beside the Yellow River, a village construction and transformation movement planned and implemented by the farmers themselves is in progress. B. Initiating Village Development and Transformation by Starting with Rural Financing System Reform One of the main bottlenecks in rural economic development is the problem of funding investment, a major task which the current rural credit cooperative administration system is completely unable to undertake. Therefore, the State Council’s 2005 Opinions on Deepening Economic System Reform stressed as a key point that “ways to develop new rural cooperative nance organisations should be explored”. This opinion had a decisive impact on breakthrough achievements in rural nancial reform and the setup of a fully functional rural nancing system as well as a competitive rural nancial market. However, one vital issue

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is appointing the main party to explore ways to develop new rural cooperative nance organisations. As Deng Xiaoping once said, the key to rural reform is “whether farmers advocate and agree”. Over twenty years of rural reform in China also indicates this truth: rural reform cannot succeed without active participation from a majority of farmers. Because of this, Jiang Bolin, a clerk at the Jilin Siping Banking Supervision Bureau, has attempted in recent years to run an experiment to guide and support farmer-led initiatives to develop a new cooperative nance organisation and a rural cooperative economy. On the basis of his experiences of rural life since childhood and the sharp sense gained from years of working in the nancial system, Jiang Bolin realised that if nance cannot support the expansion of production, the enrichment of farmers in the true sense can never be achieved. However, small-scale household farm production methods and the mass market are hard to integrate. In order for rural nance to realistically meet the needs of farmers and rural areas, certain approaches must be found to control risk in rural credit cooperatives. Furthermore, the risks taken by farmers when they enter the market in the rst place must be controlled. To this end, he invented an “equity credit and loan” pattern, the specic concept of which was to rst organise farmers into a new type of cooperative.1 In this way, their funds (as cooperative members) are gathered so that the combined shares of local credit cooperatives play a part in the overall cooperative. The cooperative functions as an organisational shareholder of the credit cooperatives so as to facilitate the obtainment of loans from the credit cooperatives. The previous “farmer-credit cooperative” credit and loan relationship thus changed into a “farmer-cooperative-credit cooperative” equity credit and loan relationship. As the cooperative is a real farmers’ organisation with more effective organisation, management and supervision capacities and with higher repayment capability, the more funds are invested in share participation, the lower the risk of large sum investment by the credit cooperatives. Thus the large-scale loans needed for village development are thus guaranteed. As the majority of interest and risk undertaken by the cooperative and credit cooperative is consistent, 1 These differ from cooperatives in the traditional sense in China. The new type of cooperative applies the seven principles of the International Committee for the Promotion of Chinese Industrial Cooperatives and adheres to the guideline of “run by the people, managed by the people and beneting the people”.

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it is possible to establish an effective, symmetrical organisation and supervision mechanism. A new pattern of economic organisation for farmers’ cooperatives can be developed on such basis, consisting of a majority of farmers whose business aims focus on cooperation in production as well as in purchasing and sales in order to seek new avenues for rural development. The Jilin Province Lishu County Taipingbaixin Cooperative, a farmer cooperative established under such an equity credit and loan pattern, operates well, with a relatively standard set of procedures and regulations. As of May 2005, the cooperative had a total of 300 household members and 1,053 individuals. The total participating share capital in the local credit cooperative had increased from RMB 2,800 when the cooperative was established to RMB 634,700 at present. Since its establishment in 2001, the cooperative has obtained a sizeable number of loans from the credit cooperative, with total loan amounts reaching RMB 980,000. Now, the Taipingbaixin Cooperative has not only established a foodstuffs processing plant with an area of 10,000 m2 but also an ecological breeding and husbandry park with an area of 18,400 m2 with xed assets of RMB 3 million. The cooperative brings farmers together so that not only is their market trading and bargaining power greatly improved, but also their degree of organisation and market access. Because cooperatives provide an excellent way for farmers to organise, the Lishu County Taipingbaixin Cooperative became the rst organisation to be selected when Changchun Anhua Insurance Co. began a project to provide pig farming insurance in China in 2005 supported by national funding. After months of consultation and negotiation, 14 household pig breeding members of the Taipingbaixin Cooperative Ecological Breeding Park ofcially concluded a contract with Anhua Insurance to provide insurance for over 1,000 swine. The farmers’ breeding risk was thus effectively eliminated and, at the same time, the concerns of other breeding farmers were also resolved. At present, a high number of households in the cooperative are individually taking active steps to receive the same insurance coverage. Following several years of trial implementation, this equity credit and loan pattern has both expanded farmers’ credit capacity and satised their demand for funds, and also contributed to the achievements of local rural credit cooperatives in eliminating decits and producing surpluses so as to provide a good point of reference in the exploratory development of credit cooperative reform. The interaction

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between—and resultant win-win situation for the credit cooperative and farmers—the Lishu County Baixin Farmers’ Cooperative and the rural credit cooperative has received recognition from CPC committees and governments of various levels in Jilin Province, but due to the lag in national nancial system reform and in the promotion of the equity credit and loan pattern, problems are often encountered due to asymmetrically or insufciently implemented policies, which hinder to a certain extent the development of this new initiative. In response to this, Jiang Bailin and local farmers explored another farmer-led mutual assistance nancial pattern, naming it the “rural fund mutual assistance cooperative”. The farmers would prefer to call it the “farmers’ own bank”. In July 2004, the Baixin Farmers’ Cooperative was the rst to establish a fund mutual assistance sub-cooperative. Its principles and main foci include: (a) The applied principle of independent operation, self-management and self-assumption of responsibilities. (b) Mutual assistance funds may only serve the production and life needs of cooperative members. An appointment must be made before withdrawing any loan (except in special conditions), without limitations on time or season. (c) The capital constraint proportion control principle is applied to loan limits. Mutual assistance fund loans must be issued according to the share capital amount held by the member and the cooperative’s total share capital. (d) At year-end, the dividend is distributed to members according to the base share capital amount held, after reserve and public welfare fund deductions. As of July 2005, the mutual fund assistance sub-cooperative had a total of 150 members in 42 households. The members’ invested share capital amounted to RMB 31,200. The cooperative has helped resolve 10 members’ difculties with insufcient production and life funds. The Baixin Farmers’ Fund Mutual Assistance Cooperative is a typical new type of farmers’ fund mutual assistance nancial organisation. Although it is still in the early stages of growth and many aspects require improvement, we can still foresee the main direction in which this small cooperative will develop. It is an example for the growth and development of new cooperative nancial organisations reecting the creativity and originality of the farmers and the community, and this type of organisation has already spread across regions such as Jilin, Shandong, Henan and Chongqing. From feedback from cooperative members, it is clear that mutual fund assistance is a very responsive way for farmers to effectively avoid risk and meet their demand for funds.

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C. Developing a Harmonious Society Based on Village Development China remains a large agriculture-based nation, with almost 70% of the population holding residence registration documents for rural areas. During the last two decades of reform and liberalisation, China’s industrialised capital has seen a drastic expansion and created employment for over 100 million people. But the speed of the expansion of industrialisation exceeds that of the urbanisation of the population by a large margin. At the current speed of urbanisation, even once the total population reaches 1.5 billion after another two decades of development, about half of China’s population will still retain some connection to the countryside. This disregards the fact that China’s industrial growth will not be able to sustain the same high speed for the next two decades. Reform and liberalisation have brought about rapid growth in China’s economy and, at the same time, caused a relative depression in rural areas. Funds and labour are constantly concentrated in the cities, and as a consequence rural areas have become less and less attractive to the young. Together with the widening gap between urban and rural areas and between rich and poor, China has begun to witness the growth of slums and resulting crime in large cities—issues which have hindered the national economic development of countries in Latin America and South Asia and seriously damaged their social stability. The conicts in the basic system of a dual structure of urban and rural areas have already become the main obstacles to the development of a harmonious socialist society. It is against the background of this complex situation that a group of academics in China started to explore the redevelopment of rural areas. They dened the “contemporary new village development initiative” that they were engaged in as “a practical improvement initiative in a period of rapid industrialisation led by academics and students with the active participation of various sectors of society including grassrootslevel and village-educated farmers, with the purpose of arresting the divide between urban and rural areas and the decline in rural areas that may further endanger national sustainable development.”2 They endeavoured to implement this nationwide as a “social movement going

2 Wen Tiejun: Questions and Answers on New Village Development in China, downloaded from the website of the Village Development Centre of the China Renmin University.

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against the logic of the market economy” involving the vital interests of 900 million farmers. Adhering to the basic principle of “human orientation” and stressing the basic purpose of ensuring “people’s livelihood, social harmony and cultural diversity”, they raised their own funds over recent years and have completed the following three main steps with no state funding whatsoever. 1. They established the “Yanyangchu Village Development College” as a Practice and Exchange Platform for New Village Development In July 2003, the Yanyangchu Village Development College was ofcially established in Zhaichengcun, Zhaicheng County, Dingzhou City, Hebei Province, the birthplace of the China Village Construction Movement. For over two years, the concrete work they engaged in concentrated on the following: (a) Performing comprehensive development experiments in Zhaichengcun, the location of the college. They not only helped village to set up various farmer-led organisations, such as women’s arts and entertainment teams, a farmers’ evening school, an elders’ association and a farmers’ cooperative, but also provided training on refuse classication, agricultural technology and computerised information retrieval technology, along with working in other areas such as publicity and education. The purpose of this work was to make the village a key experimental area for new village development, and to promote the village’s overall harmonious development so as to summarise the practical experience gained and promote this on a large scale at the appropriate time. The village was also intended as a site for village development workers from across the country to undergo practical village development training. (b) Providing farmers with comprehensive specialised training. Since its establishment, the Yanyangchu Village Development College has successfully run over ten training seminars on various subjects. The trainees mainly comprised leading members of the farming community and youth volunteers from various locations, and the training content took into consideration different perspectives, skills and methods required for village development. Over 800 trainees of various types and over 500 volunteers have so far undergone training, and the college now has a faculty of over 10 full-time and 200 part-time teachers.

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(c) Performing on-campus experiments on ecological agriculture and development. (d) Publishing academic studies and literature related to village development and setting up an internet-based village development bulletin board system (BBS). 2. They Trained and Organised College Students to Participate in New Village Development Nationwide through the Following Measures (a) Launching the College Student New Village Initiative. This project has been ongoing for ve years and has received nationwide response, with students from over 150 colleges and universities participating in the initiative. Rural support participants from over 100 colleges and universities have established their own rural development groups on campus, organising eld trips into rural areas during the summer and winter vacations and the May Day and National Day holidays to carry out rural support surveys and studies, provide rural education support and poverty assistance, provide nancial aid to school dropouts, community training, and set up information resources as well as farming cooperation and cultural groups. Many colleges and universities have now set up one-to-one support relationships with villages. (b) Organising dozens of college students and graduates to implement a village development skills training plan, which requires them to take a one-year sabbatical to live in and support rural areas, with the aim of developing young students into real social leaders. 3. They Set up a New Village Development Experimentation Base The Yanyangchu Village Development College’s new village development initiatives have been underway for over two years now, during which there have been some wrong turns, but which, through two years of investigation, analysis and reection, have eventually developed a new concept. This three-step process starts with the development of prospects in the rural area, followed by the formation of a farmers’ organisation, and eventually the area’s comprehensive re-development. A basic pre-supposition of this concept is that, at present, poor prospects are universal in rural areas. Besides the lack of an effective inow of outside information, a more radical reason for this lies in the area’s lack of organisation. At present, motivation capabilities at the grassroots level in the rural areas in China have become practically non-existent.

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Although this depends on the local government and the existing rural organisation force, it is now impossible to unite farmers and generate the internal driving force that will move a rural area forward on its development path. Once the agricultural tax was abolished, conicts between farmers and the subsidiary official organisations of local authorities tended to ease. However, this poses the threat of lacunae in rural organisation and functions. If villages are to be prevented from falling victim to un-orthodox organisations such as secret societies, family oligarchies and illegal religions, effective orthodox organisations must be established and village development must proceed apace. To this end, they began to set up new village development experimentation bases nationwide in order to improve the degree of organisation of farmers. There are now almost 30 such new village development bases in 14 provinces. The general development principle of these bases is grounded in the farmers’ independent growth and self-support and the establishment of various cooperative organisations in which farmers can voluntarily participate. The method specically begins with cultural initiatives by helping farmers form various arts and entertainment teams (such as waist-drum or yangko dance teams), elders’ associations, women’s associations and adult learning centres, etc., then to establish various economic cooperation organisations at the appropriate time, such as specialised planting and breeding associations and community cooperatives and, where conditions allow, to introduce rural mutual assistance nancial cooperation, establish science and technology associations and publish a community newspaper. Effective, healthy and orthodox organisations thus gradually replace un-orthodox, unhealthy organisations, thus generating a widespread change in farmers’ morale on the experimentation bases, and laying a good foundation for the sustainable economic and social development of the village. Currently, nine experimentation bases scattered across Hebei, Shandong, Anhui, Henan, Shanxi and Chongqing have received focused assistance from the Yanyangchu Village Development College. Over two years’ practice has already helped them to gain valuable experience in village development that is worthy of note: (a) Purchasing as an association poses minimum risk. Farmers are helped to organise and to purchase production materials directly from the manufacturers, thus saving 30%–40% of the cost. Even Spring Festival goods are purchased as an association, at prices 20% lower than those of village vendors. This is the rst step in training farmers to form economic organisations. (b) The fund mutual assistance system is vital to success, as farmers

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want to develop but are unable to obtain loans. Advocating fund mutual assistance is the answer, but this requires villager democracy and a guarantee that the system operates in response to popular requirements. Therefore this should only be attempted after one year’s experience of organised purchasing. (c) Cultural development provides the greatest benets. If organisation cannot be applied to a specic location, the organisation of an elders’ association or women’s association can be benecial, as members can perform, and enjoy themselves, in this way helping to resolve issues. Practice has proven that the development of cultural activities in villages requires little investment but provides great benets, as, besides food and clothes, farming communities also require spiritual nourishment. More importantly, the current inltration of the market economy and modern values is causing the marginalisation of traditional farming values. The leadership position that farmers hold in their own communal lives is being suppressed and rejected by powerful external forces, to the extent that they no longer control their lives. This thus generates a strong internal desire to demonstrate the meaningfulness of their lives. D. Implementing Village Development and Transformation through Improved Development of the Rural Community Health Service System In 2003, the state began to implement new cooperative medical care pilot schemes which mainly focused on comprehensive arrangements for serious illnesses. Problems with a small number of people becoming impoverished or returning to poverty due to illness in rural areas have to a certain extent been resolved, however the new type of cooperative medical care pays more attention to the “top level” (serious illness) and less to the “bottom level” (prevention, health care and minor illnesses) and overlooks the basic health service that rural residents need. In response to this, the Research Report on Medical and Health Care System Reform issued by the State Council’s Development and Research Centre proposed opinions and suggestions for new types of cooperative medical care programme. The Report states a belief that the current concept focusing on comprehensive arrangements for serious illness does not meet national requirements, because “the priorities in rural areas that need the most attention and are more relevant to the basic health of the majority of farmers are common and frequently seen diseases, so the current position of ‘providing guaranteed treatment for serious illness’ does not agree with the basic goals of rural primary health care.”

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In fact, before the publication of the Development and Research Centre’s report, people had foreseen the problem and begun to seek practical improvements. In November 2003, a research group from the Social Policy Research Centre of the Chinese Academy of Social Sciences arrived in Jiuxian Town, Luochuan County, Shaanxi Province and started experiments on “overall provisions for basic health services”, mainly focusing on rural community disease prevention and health care as well as basic medical and health care services (hereinafter referred to as minor overall provisions, to distinguish these from major overall provisions, which mainly provide insurance against serious illness in the new state cooperative medical care pilot schemes). The basic concept of the minor overall provisions is: to base these in rural village and township communities, create a village or town farmers’ medical cooperative to take over the local government’s role as provider and administrator, to convince farmers to make voluntary contributions for their entire household (currently a per capita cost of RMB 10 annually) to nance the basic health service overall provision fund. The town farmers’ medical care cooperative (hereinafter referred to as the “farmers’ medical cooperative”) then concludes a contract on behalf of all members to purchase basic health services provided by town health centre community health service branches, and also supervises the service provided by the community health service branches. On 7 March 2004, with the support and permission of the Luochuan County government, the county health centre and Jiuxian town government, and with funding from the British Department for International Development (DFID) and the Amity Foundation, the Jiuxian Town Community Health Service Pilot Scheme was formally launched. The scheme has now been running for one year and eight months, and can be divided into two major phases. In the rst phase (from March 2004 to March 2005) the basic framework for the overall provision of basic health services was developed and built, essentially supporting community health service operations through what is known as the “Three Pillars”. The rst pillar is the community health service station, which is the re-generated provider of community basic health services. To achieve this, the town health centre divided the town’s 34 administrative villages into sectors and established six reasonably distributed community health service branches, to create a basic network for the community-oriented rural basic health service. Each community service branch is staffed with one doctor and one nurse, and provides services to an average of approximately 2,300 people. The community service branches provide

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farmers with a uniform level of the following seven basic health services: (a) low-priced quality medication priced 10% lower than wholesale and retail prices, with standard prices and clear labelling; (b) free-to-use family health records, together with a full tracking service for chronic illness, and recovery follow-up visits; (c) free physical examinations and X-rays scans, X-ray lm development, B-type ultrasonic examination, liver function examination and CEG for a fee; (d) year-round medical service (registration, diagnosis, physical check-up, treatment and patient visits); (e) community doctor medical consultation services and dualdirection hospital/clinic transfer services; (f ) year-round free health education, consultation, epidemic prevention, women and infant illness prevention and health care services; (g) 24-hour community service branch service. Statistics show that from 1 April 2004 to 31 March 2005, the twelve community doctors and nurses in the six community health service branches treated over 13,000 farmers from the entire township, including 10,146 initial clinic diagnoses, 28 referrals, 180 emergency calls, 191 emergency patient visits and 2,880 transfusions. They created family health records for 3,270 households of 13,080 persons, provided 11,118 individual health education sessions and over 70 broadcasts and promotional bulletins, 1,733 individual woman and infant epidemic prevention inoculations, tracked 1,265 instances of chronic illness, and 306 individual health consultations, as well as 9 concentrated business training sessions for community doctors. The second pillar, the farmers’ medical care cooperative, was established as the supervisory body for the community basic health service. Farmers’ participation was specially emphasised from the beginning of the pilot scheme. The Jiuxian farmers’ medical cooperative had three levels. The bottom level comprised farmers’ medical cooperative representatives, a total of 34 individual villagers selected to represent each administrative village. The middle level comprised 6 farmers’ medical cooperative teams of representatives from each community health service branch. The top level was the town farmers’ medical cooperative representative conference, with a part-time cooperative director selected by democratic election. A full-time conference secretary was also hired to handle everyday administration. These village, branch and town-level cooperative representatives not only carried out monthly satisfaction surveys of the farming households using information and feedback cards, but also held quarterly review meetings, in a structure in which the farmers’ representatives acted as

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health supervisors. In its 20 months of operation so far, the scheme not only explored and established a method for the user to supervise the provider and the buyer to supervise the supplier, but also played an important role in raising farmers’ social and public consciousness, social status and supervision capabilities. The third pillar, the town consultative conference, was established as a consultative body for the community basic health service. In order to coordinate relations between the health service provider and its users, the town consultative conference, a tri-partite consultative body representing the town government, the town’s central health centre and the farmers’ medical cooperative representative conference, was formed. The town leader was appointed director of the town consultative conference, with the president of the town health centre (the director of the community health service centres) and the director of the farmers’ medical cooperative appointed deputy directors. The town consultative conference is the body responsible for communication, coordination and policy-making on major issues. It played an important role in the trial scheme and developed the balance and cooperation mechanism between the government-supported farmers’ organisation and the health organisation. The second phase (April 2005 to the present) aimed to improve the basic framework for the overall provision of basic health services. On 1 April 2005, the pilot scheme entered its second, critical year. The main task of this phase is to further complete the basic framework of basic health service operations and truly implement the transition of farmers’ contributions from “simulated” to “actual” payments, so as to make the pilot scheme “real”. Firstly, set up a project administration ofce to improve on-site guidance and monitoring of the project. In order to improve Jiuxian Town basic health service overall provision project administration, a project management ofce was set up in April 2005 to specically handle the organisation and implementation of various pilot scheme tasks. The project management ofce was the on-site management body for the Jiuxian Town basic health service overall provision pilot scheme of the Social Policy Research Centre of the Chinese Academy of Social Sciences, and is directly responsible to the Social Policy Research Centre’s research group. Secondly, improve the supply system to the community basic health service and increase supply capacity and quality. On the one hand, management of the community service branches was revised and

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improved, and the level of management standardisation and institutionalisation of the social health management branch was increased. On the other hand, the number of community doctors and nurses was adjusted, increasing community service station working staff (this currently stands at 14 persons). At the same time, technical consultants should be engaged to improve on-site operational leadership and business training for community doctors and nurses, as well as improve service skills and quality. Statistics indicate that during April–June 2005, the six township community service branches saw a total of 3,960 patients, treated 1,304, handled 78 emergency cases and transferred 14 seriously or dangerously ill patients. These branches also made village and household visits to 708 patients, 2,124 chronically ill patients and 45 recovery follow-up visits. They also provided special card and book system management for 86 pregnancies and deliveries, and for 113 infants less than a year old. As well as providing an effective visiting service, the branches provided 120 consultations to patients who visited the stations for treatment, based on their individual illness needs. By the end of June 2005, a total of 36 health education columns had been published, and over 24,000 individuals had received health education. Total business revenue for the rst half of 2005 amounted to RMB 31,964.46. There was a total of RMB 1,632.93 in drug expense discounts, and approximately RMB 6,720 in doctors’ visit, registration and diagnosis charges were exempted. For the 14 months since the start of the pilot scheme, business revenue totalled RMB 151,964.46. RMB 6,078.5 in drug expenses for cooperative members were discounted, and RMB 14,673 in doctors’ visit, registration and diagnosis charges for cooperative members were exempted. Thirdly, adjust the organisation of the farmers’ medical cooperative to enhance its autonomy. March 2005 saw the second election of the farmers’ medical cooperative. New farmers’ medical cooperative team leaders and directors were elected, as well as a second town farmers’ medical cooperative representative conference. At the same time, the management and operations of the farmers’ medical cooperative were further modied and improved, ofce conditions were improved and allowances for the representatives were improved. Fourthly, implement a “try before you buy” mechanism and change farmers’ “simulated payments” into actual contributions. In line with the pilot scheme plan, farmers’ contributions were subject to “try before you buy”. During the rst year of the pilot scheme, the annual

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basic health service per capita contribution of RMB 10 was paid by the Amity Foundation on behalf of the farmers, so that the farmers of Jiuxian Town received a year’s social basic health service without paying a dime. However, as of August 2005, the farmers had to pay an annual per capita overall provision contribution of RMB 10 to receive the seven social health services provided by the social health service branches. After making sufcient preparations, the Jiuxian Town government held a town-wide “minor overall provision” payment initiation meeting in mid-June 2005 and issued the necessary instructions. On 1 July, farmers started to make actual payments and were issued with Jiuxian Town Farmers’ Medical Care Cooperative Membership Certicates. On 1 August 2005, the dual-price system came into formal effect at the community service branches, whereby cooperative members, i.e. the farmers who had paid the fees to join the medical care cooperative, were charged a member’s price to use the basic health services provided by the community health service, whereas those who were not cooperative members, i.e. who had not paid the fees, were charged a non-member’s price to make use of the basic health services. As of 27 October, a total of 1,009 households or 4,225 individuals in Jiuxian Town had paid the fees and participated in the “minor overall provisions”, 30.9% of the town’s farming households and 32% of the town’s rural population respectively. Total income amounted to RMB 44,250, for which 1,309 Jiuxian Town Farmers’ Medical Care Cooperative Membership Certicates were issued (one per household). Although the number of members was by no means large, this was a spectacular achievement for a region where the new cooperative medical care “major overall provision” mainly focusing on serious illness was simultaneously available, and where average annual personal income is only RMB 2,000. Farmers would not pay another RMB 10 in addition to the RMB 15 charged for the “major overage provision” contribution if they did not see and obtain real benets.

II. Reections and Suggestions A. Village Development Must be Government-Led In recent years, because the state has stressed so many times the utmost importance of the Three Rural Issues, village development activities

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have been initiated by farmers, students and others in various sectors of society as well as the government at various levels. A multitude of new village development bodies combining theory with practice have emerged in many regions of the country such as Hebei, Henan, Shandong, Hubei, Zhejiang, Fujian, Sichuan, Guizhou, Chongqing, Jilin and Hainan. However, village development is a cause that requires the shouldering of heavy responsibilities, the greatest difculty lying in the shortage of funds, which currently restrains the implementation of many projects urgently needed for rural areas. But to date, the government has barely invested any funds, a fact apparently at odds with its emphasis on the Three Rural Issues. The New Village Movement promoted by Korea during the 70’s and 80’s was government-led, as was China’s Village Construction in the 30’s and 40’s. New village development includes a wide variety of aims, and is a systematic social project that requires the support and joint efforts of the government and all sectors of society to complete. Therefore, it is suggested that the government form a “new village development guidance committee” combining experts, academics and farming organisations into a powerful collaboration of government and society for the development of a harmonious rural society. B. Improving the Degree of Organisation of Farmers must be Placed on the Agenda The lack of organisational structures and functions in rural areas is an important reason for the multiple problems and conicts in rural society. Therefore, optimising these structures and functions is an inevitable requirement of a harmonious rural society—almost all rurally developed countries have various farming cooperation organisations. Since the application of the household contract responsibility system in China’s rural areas, farmers have basically operated in a discrete, mutually independent status with a very low degree of organisation. These small-scale, dispersed household operations have not only resulted in a lack of effective contact between farming households and the market as well as between government and farmers, such that farmers’ rights and interests cannot be properly guaranteed and that public welfare causes cannot be established and maintained in rural areas, but they have also seriously constrained Chinese agriculture from undergoing sustainable development through increased industrialisation, specialisation and mass operations. Therefore, the promotion of solutions to

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the Three Rural Issues by organisational means has become a basic common aim among government bodies at various levels. Experience from abroad can be useful in the process of developing various organisations in rural areas. Take Japan for example, where agricultural organisation is split into approximately three types: The rst are self-government organisations for the administration of rural areas such as village parliaments, headmen and their ofces. The second are rural collaboration and integration organisations (farmers’ associations). The third are the large number of non-governmental mutual assistance groups that are active in rural areas. Statistics indicate that, in a village of only 600 residents, there were over 30 associations and, on average, there was one organisation to every 30 people. With this in mind, what type and number of rural organisations should be developed in China? Farmers must be allowed to make these choices by themselves, as the growth of rural organisations depends on the leeway given them by government. Certain experiments can be performed beforehand, but the key to success lies in not turning the process into another mass movement or administrative procedure. High organisation costs are inevitable when an organisation is rst launched, and under the present system, we should assist the benecial rather than harmful process of farming households organising themselves, with the government providing the necessary organisation funding. C. Village Development Initiatives in Various Forms should be Permitted and Encouraged At present, the Three Rural Issues are faced with a situation where the authorities are enthusiastic, but farmers are indifferent. A major problem lies in the fact that structures and concepts drawn up based on urban citizens’ ideas and outlooks cannot adapt to the demands of extremely disadvantaged groups or farmers. It is commendable that an increasing number of academics are venturing deeper into rural areas to learn more about farmers and to consider questions and draw up proposals based on farmers’ perspectives. The equity credit and loan pattern and the Rural Fund Mutual Assistance Cooperative in Lishu County, Jilin, the pilot schemes for the overall provision of a rural basic health service in Luochuan County, Shaanxi, and the rural cooperative entrepreneurship pattern in the Nanchong regions of Sichuan are typical cases in this respect, and the government should continue to encourage initiatives of this kind. Not

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only should further sectors of society be encouraged to participate, but sufcient policy space and the necessary nancial and material support must also be given. In many developed countries, an important component in the development of “small government and large social groups” is that the government purchases services from non-governmental, non-prot organisations. The government cannot and should not be omnipotent. Therefore, at the current time in which Chinese government ofcials at various levels are accustomed to performing an intervening function and have no idea of how to transform to a service function, it might be benecial to turn to non-government entities and attempt a policy of purchasing services from well-operated non-prot organisations.

CHINESE WORKERS: LEGAL PROTECTION AND EXERCISE OF LABOUR’S RIGHT TO ORGANISE Qiao Jian

The right to organise generally means the right of labour to create a temporary or permanent organisation whose fundamental aim is to improve their employment and working conditions. It specically refers to the right of labour to organise and participate in trade unions. The term is either broadly dened as the right of workers to organise a trade union and defend their interests through collective bargaining and labour disputes via the trade union, typically including the rights to organise the union, to bargain collectively, and to dispute and strike, namely the so-called “triple rights of labour”, or narrowly dened as the right to organise trade unions. Since 1999, China has launched an extensive campaign to establish trade unions in non-public enterprises, initiating the development of trade unions under the market economy. Research on the legal protection of labour’s right to organise not only contributes to the establishment and normalisation of trade unions in non-public enterprises, but is also signicant in exploring unions’ working methods in a market economy.

I. Legal Protection of Labour’s Right to Organise in China China’s laws clearly stipulate labour’s right to organise. The Trade Union Law of the People’s Republic of China (hereinafter referred to as the TUL) was promulgated to protect labour’s right to organise in June 1950, just after the People’s Republic of China foundation. In its opening chapter, the Law states that “all manual and intellectual employees, under xed employment or otherwise in enterprises, government departments and schools within the borders of China who rely on wages or salaries as their sole or main source of livelihood have the right to organise trade unions.” The TUL adopted in 1992 further elaborates on this right. It stipulates that “all manual and intellectual workers in enterprises,

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institutions and government departments within the borders of China who rely on a wage or salary as their main source of income, irrespective of their nationality, race, gender, occupation, religious belief or educational background, have the legal right to organise or join a trade union.” Compared with the TUL of 1950, “the right to organise trade unions” was modied into “the right to organise or join trade unions”, together with additional contents governing inequity. This change was due to the consideration that an established and relatively complete organisational framework of trade unions already existed in China, with trade unions operating in most locations and companies. The exercise of labour’s right to organise mainly meant joining an existing trade union. Researchers argue that the consideration then did not anticipate the future practice of the right to organise trade unions in non-public enterprises instead of joining them.1 Since the start of reform and liberalisation, economic restructuring and the growth of non-public enterprises have promoted China’s development. However, labour relations in non-public enterprises have become a serious social problem, as they constitute a marketized labour relationship of conicting interests between labour and capital. Infringements upon workers’ rights and interests became a common practice in these enterprises, due to the extremely imbalance of power of employers as opposed to individual labourers, non-public enterprises’ irregular handling of labour relations and the connivance of local governments to aid economic development. These are underlined by the following facts: a large number of workers received neither secure employment nor unemployment compensation, as a good number of enterprises signed no legal trade agreements with their workers in order to avoid paying their social insurance dues; there was a sharp contrast and conict between the interests of labour and capital, especially in outward processing rms where the minimization of staff salaries is a major instrument for growing the enterprises and enhancing their products’ competitiveness on the international market;2 overtime work is widely and commonly seen; the lack of work protection is phenomenal, and

1 See Chang Kai, The Theory of Labour Rights: Research on the Legislative Regulation of Contemporary Industrial Relations in China, p. 227, China Social Security Publishing Company. I would like to extend my sincere gratitude to Mr. Chang Kai as I referred to the relevant part of his work when working on this chapter. 2 Shortages of rural migrant workers, widespread in outward processing areas in southern China in 2004, were a byproduct of this industrial policy.

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seriously endangers workers’ lives and health; improper management by some managers who arbitrarily and illegally beat, insult and physically punish their workers tramples on the human rights and dignity of workers. Non-public enterprises frequently suffer from labour disputes and high staff turnover because of the evidenced existence of these issues. Work slowdowns, stoppages and strikes are also commonplace. These have had a severe impact on the normal operation of business and hinder the sound development of non-public enterprise and social stability. An important reason for the problems emerging in these non-public enterprises is that no trade unions are established in them and workers are not organised. By 1998 there was a total of almost 175,000 trade unions in foreign-invested enterprises, township and village enterprises and private-invested enterprises, covering 14.458 million employees and encompassing 12.275 million union members. They existed in 35.5% of the non-public enterprises, covering 7% of total employees, and in only 4% of private enterprises, covering 7.3% of employees. The percentage averaged 7.3% in the above sectors, covering only 11.5% of their employees. Trade union members totalled 86.89 million by 1999, a historic low. In the meanwhile, trade unions’ inuence and legal defence mechanisms have also been weakened. Major causes include signicant staff cutbacks due to economic restructuring in the industrial sectors where workers used to be highly organised, in contrast to the substantial growth of employees in the tertiary industry, the service sector, where employees are generally hard to organise in trade unions, the increased variety of labourers including highly-skilled white collar, migrant and temporary workers who are likely to exclude themselves from trade unions, the increasingly elastic and exible labour relations due to reduced state restrictions over the labour market and increased mobility of human resources, the exible production methods adopted by enterprises and their increased dependence on subcontracting. The All-China Federation of Trade Unions (ACFTU) put forward a requirement to “establish trade unions wherever workers work” and prioritised the establishment of trade unions in non-public enterprises to redress the situation. A temporary plan was drawn up to establish 1 million trade unions in non-public enterprises and increase their members to 36 million by 2002. A better understanding of the articles of the TUL is therefore vital in order to regulate this process.

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A. Physical Requisites for Setting Up a Trade Union The physical requisites indicate the legal conditions necessary for setting up a trade union. These include the qualication of its members, the qualication of its leaders and the validity of the organisation. 1. Qualifications for Trade Union Members Chinese laws and regulations such as the TUL and the Labour Law clearly stipulate that the legal organisation of trade unions is a worker’s essential right. The TUL denes the conditions for becoming a member of the trade union as “all manual and intellectual workers in companies, institutions and government departments within the border of China who rely on a wage or salary as their main source of income, irrespective of their nationality, race, gender, occupation, religious belief or educational background, shall have the legal right to organise or join a trade union”. This stipulation connes the members of trade unions to a) those working in enterprises, institutions and government departments within the borders of China; b) those relying on a wage or salary as their main source of income; c) those identied as workers, including manual and intellectual workers, as opposed to those identied as employers. A member of trade union must also be a Chinese citizen and have reached the legitimate minimum age for admission to employment. 2. Qualifications for Trade Union Leaders Trade union leaders must rstly meet the requirements of a member, such as relying on a wage or salary as their main source of income, being a worker, being a citizen and enfranchised. However they must also meet more conditions than ordinary members. They must have reached their age of majority in order to be responsible for their legal liabilities. Moreover, according to the spirit of the Trade Union Constitution of the People’s Republic of China, leaders should be endowed with considerable statesmanship, intellectual education, organisational and social activity skills, desire to serve the masses and also an ability to motivate workers. 3. Validity of the Organisation Since the establishment of the People’s Republic of China, the TUL has insisted on the unity of trade unions. A unied All-China Federation of Trade Unions was established at the national level, and trade unions not included in the ACFTU system were deemed illegal. “The establishment of basic trade union organisations,

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local trade union federations, and national or local industrial trade union organisations shall be submitted to the trade union organisation at the next higher level for approval”, as provided by the 1992 TUL. Moreover, the TUL also states that trade unions shall “observe and safeguard the Constitution, take this as the fundamental criterion for their activities . . . and perform their duties independently in accordance with the Trade Union Constitution”. B. Procedural Requisites for Setting Up a Trade Union The procedural requisites for setting up a trade union refer to the relevant legal processes which have to be gone through when setting up a trade union. Whereas specic regulations governing these procedural requisites vary by country, they generally encompass the processes of application, registration and appeal. China has applied a monolithic trade union system. The procedures for establishing basic trade unions mainly include application and approval. 1. Application Generally speaking, the applicants to establish a trade union should be workers of the enterprise concerned. However, due to the consideration that workers may have formed no organised group, and either lack the awareness or dare not/do not want to take the initiative because of apprehension, the ACFTU provides different application options, such that the application may be submitted by a) candidates of the trade union preparation team nominated by the CCP organisation in enterprises where such a CCP organisation exists; b) workers’ representatives selected by the workers themselves; c) the trade union preparation team set up under the guidance of the higherlevel trade union organisation with both employees’ and employer’s representatives. The application shall be submitted to trade unions at the next higher level. There are three types of entities legitimately qualied to submit the application. First, there is the CCP organisation: this is a specically Chinese characteristic, as Chinese trade unions are mass organisations under the leadership of the Chinese Communist Party. Secondly, there are the workers who should play a dominant role in applying to set up a trade union. Thirdly, there are the higher-level trade unions, which are entitled to develop trade unions at lower levels.3

3 “ACFTU Organisation Department”, A Practical Textbook on the Establishment of Trade Unions in Enterprises, China Workers’ Publishing Company, 2001, p. 68.

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2. Approval It is stipulated in the TUL that “the establishment of basic trade unions . . . shall be submitted to the trade union at the next higher level for approval”. The trade union preparation team shall identify the union members and convene a members’ congress to democratically elect the chairman and vice-chairman, and subsequently report the outcome to the trade union at the next higher level for approval. A newly established trade union shall not be legitimated or enjoy the rights and obligations of a basic trade union until it is approved by the higher level trade union and registered. An Amendment to the TUL adopted in 2001 also provides a legal guarantee for the following issues concerning the establishment of trade unions: Firstly, it legally authorises higher-level trade unions to function in assisting and guiding workers to set up their trade union. Article 11 of the TUL stipulates that “Trade Union organisations at higher levels may dispatch their members to assist and guide workers and staff members of enterprises to set up a trade union; no units or individuals may obstruct this effort.” Workers may join trade unions voluntarily rather than spontaneously. This requires higher-level trade unions to promote their activities among the workers. As the relationship of administrative subordination was lost with the development of multiple economic sectors under a market economy, the legal basis for higher-level trade unions to embed their work in enterprises was lost. The inability of higher-level trade unions to launch activities in enterprises resulted in workers’ lack of knowledge of and access to trade unions. Article 11 of the TUL legally legitimates the authority of higher level trade unions in helping to establish trade unions in enterprises, and clearly points out the illegitimacy of obstructing such efforts. Secondly, it puts forward specic legal requirements for enterprises to support the establishment of trade unions. Article 10 of the TUL clearly stipulates that a trade union may be set up in an enterprise, institution or government department irrespective of the size of their staff. The form of the trade union may vary according to this size. Article 45 stipulates that enterprises, institutions and government departments shall make available necessary material means such as facilities and locations for trade unions to operate and conduct their activities. This is a vital step to creating a better internal environment for setting up trade unions.

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Thirdly, it offers a signicant legal guarantee to the functioning of trade unions as an intermediate link at the neighbourhood, township and town levels. Article 10 of the TUL clearly stipulates that “joint basic-level trade union federations may be set up in townships, towns or in urban neighbourhoods where enterprise workers and staff members are relatively large in number”. This stipulation fundamentally addresses the intermediate process of launching a trade union and provides a legitimate birth certicate for trade unions at the urban neighbourhood, township and town levels. Fourthly, it legally protects the various forms of trade union. From a national perspective, most non-public enterprises operate on a small scale. 80 percent of them have a membership of less than 25. In this case, it is obviously unpractical to insist on conning the necessity for basic trade union committees to enterprises with staff numbers exceeding 25. In view of practicality, the TUL identies the various forms of trade union. Article 10 stipulates that “a basic trade union committee shall be set up in any enterprise, institution or government department with a staff of twenty-ve or more; where this staff is less than twenty-ve, a basic trade union committee may be separately set up, or a basic trade union committee may be set up jointly by the members of two or more work units, or an organiser may be elected to organise the members in various activities”. This stipulation meets the practical realities of non-public enterprises. Fifthly, it legally secures the obligations to set up a trade union. Three cases are listed in Article 57 as follows: any organisation or individual that obstructs workers and staff members from joining or organising a trade union in accordance with the law, or the efforts of higher-level trade unions to assist and guide workers and staff members in establishing a trade union shall be ordered by the administrative department for labour to correct this; if they refuse to do so, the said department may apply to the people’s government at or above the county level for a solution; where there are grave consequences as a result of the obstructive use of means such as violence and threats, thus constituting a crime, criminal activities shall be investigated under applicable laws.

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A. Overall Experience The Ningbo Conference at the end of 1999 marked a new era in the drive to establish trade unions in non-public enterprises. The conference resolution required the following: 1. Accomplishing the goal of “including the majority of staff of newly established enterprises in trade unions within three years”, which was placed on the agenda by the ACFTU. The previous passive normal approach—“not launching until fully prepared”—was to be changed. In line with the principle of “establishing trade unions wherever workers work”, processes would be improved with a positive view to “moving forward holistically and leaving no margins or dead corners”, to organise the maximum of workers in the various forms of basic trade unions for individual enterprises, joint basic trade unions for groups of small enterprises, and basic trade union federations for various regions and trades. The operation of trade unions was equally prioritised and were the focus of the same attention as their organisation (a factor which used to be addressed separately) so as to allow the proper operation of trade unions interact with the organisation of trade unions and thus create a favourable development cycle. 2. Adopting an overall plan by initially erecting a framework and then improving and implementing it step by step, instead of replicating the procedural method used in state-owned enterprises (SOEs). This means that a trade union federation should rst be established, which would then guide enterprises to establish trade unions, and their staff to join these unions. 3. Adopting a “mobile membership” system different from that operating in SOEs to address the greater mobility in non-public enterprises in terms of membership management, thus allowing the membership to be transferred together with the member’s employment and be active wherever the member works. It was estimated by the political research unit of the ACFTU that there were 1.02 million basic trade union organisations nationwide by the end of 2004, including 459,000 in non-public enterprises. Membership

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had grown to 136.949 million, including 55.463 million members in non-public enterprises.4 The following practical experience was gleaned from the organisation of trade unions in non-public enterprises: Firstly, four mechanisms have been established: a) An accountable goal-oriented assessment mechanism at each level. The attainment of the goal of setting up a trade union in a newly registered enterprise are one of the items that hold veto power in the annual performance assessment. Processes such as regular meetings of the management board, regular circulation and publication of information, and documentation of the trade union setup have all been established. b) A cooperative mechanism to manage procedural obstacles. A governing board for organising trade unions in newly registered enterprises shall be established, leading to a situation whereby the trade union acts as a focal point, with the support from leaders of the CCP committee and local governments, and collaboration from all stakeholders. c) An innovative governing mechanism combining the vertical and horizontal approaches. On one hand, a local network of trade union organisations should established, extending vertically to all levels and in all directions. On the other, trade union federations for non-public enterprises and private enterprises must be set up at various levels based on enterprise ownership, integrating vertical and horizontal development while also focusing on horizontal development, according to the management principles provided by the trade union constitution. d) A cooperative linkage mechanism to take advantage of external support. This includes approaches such as seeking the close collaboration of CCP leaders and other relevant bodies, spontaneously participating in local legislation to legalise these processes, taking opportunities to verify the enforcement of the TUL to raise awareness, implementing exible organisational measures and preferential policies to harness the initiative of the various parties concerned,

4 ACFTU, “2004 Blue Paper on the Protection of Workers’ Rights and Interests by Trade Unions in China”, Workers’ Movement Research, Issue No. 18, 2005, p. 4.

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qiao jian and utilising the “enterprise rules” implemented by multinationals in their subcontractors to promote the setup of trade unions.

Secondly, six patterns have been identied: a) The independent pattern. Independent basic trade unions are directly established in new enterprises with a staff of more than 25 in line with the traditional pattern, which accounts for onethird of all practices. In view of the specialisation of these newly registered enterprises, it is proposed in some places to normalise operations in enterprises with over 100 staff, while minimising procedures in enterprises with a staff of 25–100, in accordance with the enterprise’s practical conditions. b) The joint pattern. Joint basic trade union committees are established in two or more enterprises each with less than 25 staff in the same locations, trades, specialised markets and ofce buildings according to their geographical proximity. Taking Jiangsu province as an example, more than 2,000 joint basic trade unions have been established, covering over 100,000 new small enterprises. c) The afliation pattern. For certain independent, scattered small enterprises which do not meet the conditions for establishing a joint basic trade union, trade union teams and their members can be afliated to a trade union or trade union federation at the next higher level. d) The mission pattern. In certain non-public enterprises and large private enterprises, places such as Jiangsu and Hubei have attempted to select and put forward energetic, pro-active young cadres from SOEs, collective enterprises, government agencies and institutions as candidates for the chairmanship of the trade union, who would assist the enterprise in its preparation for the establishment. The local area trade union would be responsible for paying a salary to the chairman so as to avoid the subordination of the trade union to the enterprise. e) The integral pattern. The idea was mooted to establish unied trade union organisations in villages and urban communities so as to allow their inuence to radiate in organising trade unions in the region in view of economic restructuring and the trend of

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many newly registered small enterprises to move to villages and urban communities. f ) The locality pattern. The great number of enterprises that become registered within economic development zones and yet operate outside the zones shall be managed according to their location. Economic development zones would provide a list of all enterprises, and the actual locations of their businesses. Local trade unions would establish basic trade unions to absorb extremely mobile rural migrant workers working for private construction teams. B. Existing Challenges Trade unions in non-public enterprises have been growing rapidly in China. Whereas these were mostly created using a top-down approach, the good and the bad are likely to become mixed up. Established trade unions currently have the following main problems: Firstly, new problems have emerged concerning the membership, i.e. whether the proprietors of private enterprises or senior managers of private enterprises and non-public enterprises should be admitted to trade unions. There is one school of thought that states that since private business has become an essential component of China’s socialist market economy, “outstanding” private enterprise owners are thus “builders” of Chinese socialism, and should therefore be admitted to a trade union if they can become a member of the Communist Party. It is also suggested that this will contribute to promoting unity in labour relations and strengthening trade union power. Certain higher-level trade unions practically entrust the preparation of basic trade unions to the owner rather than to the workers. In some situations, the owners’ performance of these tasks has been awarded and even singled out as a good example. It is not uncommon to see a favourite of the boss or a relative such as a brother or wife appointed as chairman of the enterprise trade union. This theory and practice is actually a violation of Chinese law and regulations. The socio-economic identity of a private enterprise owner is as the owner of capital and surplus value holder. They are the opposite side of the labour force in industrial relations. A certain portion of their income arises from their labour, as payment for their

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management, to compensate for the intellectual and manual labour that they have expended. However, their main source of income is from prots or surplus value—private enterprises would not exist or develop if they did not generate such prots or surplus value. From this perspective, private enterprise owners do not rely on a wage or salary as their main source of income, do not possess a legal identity as a “worker” and thus do not qualify for membership of a trade union. A trade union is a mass organisation of the proletariat, and the proletarian quality of its members is essential. This means that anyone who is not proletarian should not be admitted to a trade union. This issue must be clear-cut, otherwise trade unions cannot be trade unions in the true sense. If an owner is allowed to join a trade union, the union loses its class nature. The unity of labour relations cannot be promoted at the cost of altering the nature of the trade union. The admission of an owner will make a trade union unworthy of the name, or transform it into a “company run union” controlled by the employer, instead of strengthening its own power. Union membership for senior managers of private enterprises and non-public enterprises appears to be a more specialised, complex problem. There are those who say that senior managers should be given membership for they are not owners of capital but labourers. This interpretation is however not accurate: senior managers in private enterprises and non-public enterprises are management staff directly accountable to their employers, i.e. players with an opposite stance to the labour force in labour relations. They do not belong to the “workers” in this sense. Management as a form of labour embodies dual properties—the general characteristics of labour, but also the embodiment of the special characteristic of capitalism, of pursuing surplus value. Managers’ identities as embodied representatives of capital are contradictive to the characteristics of trade unions. The admission of senior managers of private enterprises and non-public enterprises to trade unions not only affects the form and nature of the trade unions, but also directly inuences the exercise of collective bargaining. There are currently clear restrictions on the admission of senior managers to trade unions in labour legislation in market economy countries. For example, Japan’s Trade Union Law stipulates that the “persons in charge; any person who has direct authority over the employment, dismissal, promotion or transfer of staff members and who thus holds a supervisory position; any person whose ofcial duties and obligations directly conict with the loyalty and obligations of a

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trade union member because of his or her involvement in condential areas such as employer’s work plans and policies, and thus holds a supervisory position; any other person who represents the interests of the employer” shall not be admitted to a trade union.5 Moreover, it is also an established principle of the International Labour Convention that employers and senior managers shall not generally be admitted to trade unions. As provided by the International Labour Convention, employers also enjoy the right to organise, but by organising employer’s organisations which differ from trade unions. They should never be engaged in trade unions. Convention Article No. 98 deems employer interference and control in trade unions to be “unfair labour practice”, and strictly forbids this practice. The 2001 Amendment to the TUL included specic articles restricting the admission of the head of an enterprise to a trade union—“no close relatives of the leading members of an enterprise may be membership candidates for the enterprise basic trade union committee”. Nevertheless, the amendment does not impose restrictions on senior management staff. This shows that Chinese labour legislation is catching up with international standards, but there is a long way to go before employers’ attempts to control trade unions are eliminated. Next, “illegal trade unions” that do not meet procedural requirements must be specically analysed and regulated. According to Chinese law, only those trade unions that are approved by a trade union belonging to the ACFTU are deemed legitimate. However, certain unapproved organisations were spontaneously established by workers across the country as the non-public economy grew and industrial conict emerged. Government agencies also initiated institutions defending the rights of workers and accordingly registered these with the Civil Affairs Department—these organisations bear very similar characteristics to trade unions. The proper handling of these illegal trade unions will affect the trade union system as well as workers’ rights, has strong policy implications and must be done very carefully. Trade unions organised by workers on an illegitimate basis should be reviewed on a case-specic basis, as they were set up for a variety of different reasons. Some are due to a lack of knowledge on the procedural requirements for setting up a trade union. In some cases,

5 Collected References for Amending the Trade Union Law, compiled by ACFTU Legal Department, for internal use, 1999, p. 392.

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migrant workers spontaneously set up organisations to protect their rights and interests under the guise of Dagongmei (female migrant workers) associations, employees’ associations, or countrymen’s associations. The trade union system should not neglect these, nor punish them: the correct approach is to provide positive guidance and instructions to channel these activities onto a legal track and make them afliates of the ACFTU. Migrant worker management associations or people’s intermediation associations—some of whom receive funds from foreign bodies—established as an expansion of government functions by government agencies should be shut down in accordance with the law. Efforts should be made to bring their staff, functions and funds under trade union administration in line with President Hu Jintao’s notable comments on further improving mechanisms for the defence of rights under the guidance of trade union organisations, aimed at maintaining the unity of trade union organisations. Certain spontaneously organised trade unions can be attributed to the inability of the existing enterprise trade union to represent the workers’ interests or to function, or because the trade union is run or used by the owner (a company run union), which leading workers therefore spontaneously organised to reject. These situations must be more carefully handled: on one hand, issues with the original trade union should be investigated, identied and resolved; on the other, spontaneously organised trade unions should be guided and controlled rather than excluded and punished, as this may intensify the conict. As a fundamental principle, the establishment of trade unions in non-public enterprises should focus on mobilising and organising workers and staff to raise their class and organisational consciousness and encourage them to organise and bargain for their interests. Trade unions at various levels are obligated to support and assist in workers’ efforts to establish a trade union, especially workers’ spontaneous activities, which should be better supported and protected. The enthusiasm of workers’ campaign leaders should be protected, and their suppression or exclusion is inexcusable. Trade unions shall be established in a top-down manner by trade union organisations; but it should also be conducted in a bottom-up manner by groups of workers. The worker is the subject of the right to organise, and the right to organise is by its very nature a worker’s right. Thirdly, trade unions in non-public enterprises can only barely perform their function in defence of rights due to the lag and restrictions in institutional reform. A trade union’s main function is to defend

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the legitimate rights and interests of workers and staff. However, the use of craft and industrial unions has been basically abandoned in non-public enterprises. Instead, a trade union is usually established within an enterprise, and trade union workers are all enterprise employees. They rely economically on their employers and are thus incapable of independently defending workers’ interests, thus crippling the trade union’s function to defend rights. Trade union workers who dare to defend staff interests are not accepted by their employers and are open to retribution or even dismissal.6 This connes the activities of trade unions to organising parties, research tours and visits to the poor and sick on statutory holidays. Trade union organisations and cadres are thus extremely unstable, and it becomes very hard to collect membership fees.

III. Improving Policies and Measures that Secure Workers’ Rights to Organise A. Promoting the Normalisation of Trade Unions in Non-Public Enterprises Since 2002, a large number of problems have been uncovered connected with the large-scale increase in trade unions, which has led to extensive reection within the trade union system. It is widely recognised that workers will not be attracted to a union unless trade unions in non-public enterprises become normalised and their internal cohesion is enhanced. If trade union organisations are established but do not function, the promise that trade unions will help defend workers’ rights becomes an unpractical commitment that hurts trade unions’ image. The ACFTU must therefore recognise that the organisation of trade unions and the recruitment of trade union members is an arduous longterm task to further consolidate and build on existing achievements, and to energetically seek instruments that are effective in the long run. Both bottom-up and top-down approaches should be incorporated to prevent and eliminate instances of “relying on the bosses to establish trade unions”; the percentage of workers joining trade unions should be receive as much or even more emphasis than the percentage of 6 See “A Trade Union Chairman Fired for Defending Legal Rights”, Workers’ Daily, 6 February 2004. The newspaper held discussions on the subject every year thereafter. An increasing number of readers believe that the rights and interests of basic trade union workers should be protected through institutional reform.

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established trade unions. Since 2003, the ACFTU has been required to shift its development focus to off-farm rural workers, seasonal workers and contracted workers in state-owned enterprises and institutions and government agencies, and to accelerate the organisation of trade unions in towns, townships and other urban communities. Trade unions in towns, townships and urban neighbourhoods have a dual function, both as basic trade unions and local trade unions. Directly faced by an increasing number of basic trade unions, they stand at the forefront of basic-level trade union development. The ACFTU held an on-site workshop in the city of Yiwu in 2005 to recommend the socialised approach to the defence of rights taken by Yiwu Trade Union, which involved registering legal service institutions at the Civil Affairs Department. The management of members should be improved by implementing a mobile membership system that can move with the member to his or her new place of work. Furthermore, the focus of existing trade unions should be upgraded from the current minimum standard of “a single set of staff, a single name, a single authorisation seal, a single set of records, a single task and a single account” to provide effective functions and improved normalisation. The vitality of basic-level organisations should be “a key criterion when reviewing and assessing the performance of newly registered enterprises in supporting trade unions”. Taking the example of Zhejiang province, where the private sector is better developed, the provincial trade union prepared a set of criteria for the normalisation of basic-level trade union organisations. The following elements are required of basic-level trade unions in enterprises and institutions: 1. A healthy framework. Trade union members should account for over 80% percent of all staff. A members’ congress should be regularly convened, with xed terms for each session. The trade union should be under sound leadership, with each leader assigned clear and specic responsibilities. The constitution of the leadership should imply a participatory and representative character. Units for reviewing expenditure, for female members and for the mediation of labour disputes shall be established. Membership should be dynamically managed. 2. Effective operating systems. A trade union committee members’ post responsibility system and a regular trade union operations meeting system should be established. Plans and summaries should be drawn up, with complete and intact documentation.

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3. An established mechanism for the defence of rights. The following systems should be established—for collective agreement, salary bargaining, supervision and review of professional safety and health, and labour dispute mediation. Democratic institutions such as a staff members’ congress and dissemination of enterprise information should be implemented. The authority of the staff members’ congress in non-public enterprises should be recognised and gradually improved in light of relevant regulations and the enterprise’s circumstances. The chairman of the trade union and staff representatives are legally entitled to seats on the board of directors and the supervisory board in incorporated enterprises. 4. Normal operations and activities. Various activities should be launched focusing on the development and environmental improvement of the enterprise. Arrangements should be made to engage staff in economic and technical innovation, encourage them to put forward feasible proposals and provide them with educational and technical training opportunities. Necessary space should also be provided for staff activities and as a stage for the advocacy and publicity of trade unions. 5. Support from political and Party leaders. Communist Party organisations and government leaders should support trade union operations and maintain the coordination of the relationship between the three parties. The funding of trade unions should be contributed, allocated and drawn in accordance with relevant laws and regulations. Time for trade union activities should be ensured. 6. Support from the general membership. A trade union should work pragmatically and effectively on behalf of its members and other staff members. The members’ congress should hold an annual democratic evaluation of the performance of the trade union and its chairman. The satisfaction rate must exceed 65%. Basic-level trade unions still require various reinforcements. Here are certain key components that are currently of special importance: promoting basic-level trade unions in accordance with the law, democratically electing chairmen of basic-level trade unions who best represent and defend workers’ interests; and establishing and improving the democratic institutions of basic-level trade unions.

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B. Reforming the Organisational and Leadership Systems of Trade Unions The promotion of the effective operation and normalisation of trade unions in non-public enterprises requires the reform of trade unions’ organisational and leadership systems in line with the objective needs of the globalised and marketised economy. The author holds that denite guidelines should be identied aiming at achieving a comprehensive improvement in trade union operations and achieving a constant, coordinated and balanced development in industrial relations within the enterprises through a leadership, operational approach of “higher-level trade unions representing lower-level trade unions”, focusing on strengthening the initiative and independence of trade unions in line with the protection of staff members’ legitimate rights and interests. The following policies are recommended in the ongoing institutional reform of trade unions: 1. in terms of structural arrangements, current barriers between departments and regions must be broken down, and regional and sectoral trade unions set up as the basis for future craft or industrial unions, in accordance with the principle that structural arrangements must be suited to the necessary tasks and duties; 2. in terms of organisational patterns, the establishment of trade union federations and basic-level trade unions should be accelerated by combining the top-down approach of establishing trade union federations with a bottom-up approach of establishing basic-level organisations and the wide-spread recruitment of new members; 3. in terms of the distribution of functions, the traditional line separating the functions of governmental trade union organisations and basic-level trade unions must be broken down, and the enthusiasm of leading members of basic-level trade unions must be protected, together with the requirement that tasks in defence of rights which are beyond the capabilities of basic-level trade unions shall be entrusted to craft and industrial unions, depending on the on-the-ground situation in non-public enterprises; 4. in terms of personnel, to prevent nepotism and select trade union ofcers who have the technical capacities required and who are keen on serving the workers to replenish the basic-level trade unions, to attempt to introduce vertical management of trade

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union leaders in order to reduce their subjection to the management of the enterprises, to enhance trade union democracy and mass participation and rely more on activists and part-time ofcers; and 5. trade union reform and emphasis on defence of rights should be supported and recognised by government and CCP leaders. They should also correctly recognise the relationship between the defence of rights and the defence of stability, i.e. that unless trade unions function effectively in defending workers’ rights, not only will they not be able to operate as a bridge connecting the CCP and ordinary workers, but this may also lead to the creation of various spontaneous organisations and inltration by foreign powers, which will adversely affect future Communist Party initiatives. From the perspective of long-term development, the author believes that the objective of institutional reform of trade unions should transit step by step from the current local trade union-based system by combining these with industrial unions into a system which combines industrial unions with local unions and highlights the dominant role of industrial and craft unions. A point of consensus within the trade unions in discussions on trade union reform in the transition towards a market economy is that the role of the industrial and craft unions in highlighting workers’ rights should be strengthened, because workers individually cannot bargain on an equal footing and sign equitable and mutually benecial trade agreements with employers in a market economy. They must rely on a trade union to reach a balance of power and achieve their goals. Trade unions on the other hand should organise in a way that best unites workers’ strengths. The industrial and craft unions are endowed with natural advantages in this regard. Their division by craft and industry is more suited for strategic planning in defence of rights that is better adapted to the different effects on various industries brought about by China’s accession to the WTO and subsequent structural adjustments. Furthermore, the organisational approach of trade unions also closely relates to their levels of democracy and participation. Only through institutional reform can trade unions implement a bottom-up approach to develop their organisations and membership, and establish union members as dominant players in trade unions. Reform must of

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course advance step by step instead of in spurts with due consideration for political and social stability. C. Improving Trade Union Legislation and Securing Workers’ Rights to Organise The National Congress has launched a review of enforcement of the TUL since 2004. Launching such an activity less than three years after the promulgation of the TUL explicitly shows the attention paid by the legislature to its enforcement. It also implies that problems still remain with this law, and that it needs to be further amended and improved. It is recommended that the TUL be amended in the following two respects to secure workers’ rights to organise: Firstly, by introducing the concept of “unfair labour practice” to prevent employers or their agents from infringing upon labour’s right to organise. The criteria for the membership of trade unions should be more clearly dened according to the progress of marketisation and the current situation of the restructured economy and its divergent interests. Employers and senior managers above a certain rank should be strictly forbidden from joining trade unions. Financial contributions to trade unions from employers should be restricted in order to prevent their control over and interference in trade unions and their activities. Secondly, by adding a new chapter on membership which explains in detail the rights and obligations of members, differential treatment for members and non-members, with a view to further enhancing the appeal and cohesion of trade union organisations. The concept that the members’ congress is the main authority of a trade union should be established and its administrative and bureaucratic focus should be weakened, so as to strengthen the dominant role of trade union members and promote trade unions as a solid democratic and participatory champion of interests.

References ACFTU, “2004 Blue Paper on the Protection of Workers’ Rights and Interests by Trade Unions in China”, Workers’ Movement Research, Issue No. 18, 2005. ACFTU Legal Department (compiled), Collected References for Amending the Trade Union Law, for internal use, 1999. ACFTU Organisation Department, A Practical Textbook on the Establishment of Trade Unions in Enterprises, China Workers’ Publishing Company, 2001.

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Chang Kai (compiled), Industrial Relations and Labour Policies under Globalization, Zheng Yushuo, Qiao Jian and Fu Lin, China Workers’ Publishing Company, 2003. Chang Kai, The Theory of Labour Rights: Research on the Legislative Regulation of Contemporary Industrial Relations in China, China Social Security Publishing Company, 2004. Huang Yueqin, A New Theory on the Labour Law, China University of Political Science and Law Publishing Company, 2003.

REPORT ON DEVELOPMENTS IN CHINESE FARMING IN 2005 Fan Ping

2005 brought great progress, but also various problems in the issues of agriculture, rural areas and farmers. Great progress lay in the government’s initial attempts to deal with these issues harmoniously from different perspectives and using different measures. A series of policies were implemented to encourage increases in farmers’ income, and investment from a range of nancial sources intensied in rural infrastructure development and public services, which generated positive results. Certain agriculture-related government bodies and research institutions nalised a series of special reports, the results of investigations and studies in 2005. These investigated and analysed current rural development and farmers’ needs, and their data and views have drawn widespread attention across the country. The underlying reasons for various problems lay in the fact that rural development has entered a new stage of rural-urban interaction, as well as the appearance of new problems to join old ones, and the increase in social pressure. Village social diversication continued to expand, rapid urbanisation started to affect rural areas, and certain new features appeared in village social relations.

I. Farmers’ Income: An Overall Approach to Solve the Issues of Agriculture, Rural Areas and Farmers Drastic changes are occurring in rural areas, an important sign is that China has, in general, entered a new development stage where industry feeds agriculture, and the cities support the countryside. 2005 was a year of outstanding results in agricultural support and rural development. A. Both Incomes and Expenditures Increased One of the striking features of 2005 was the adoption of an overall approach to attempt to resolve the “Three Questions” of agriculture,

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rural areas and farmers, where the key issue is to increase farmers’ incomes. The overall approach aimed to combine the increase in farmers’ income with the development of rural infrastructure and the ecological environment, and the improvement of production and living conditions; to combine the transfer of laid off rural labour with the development of a new socialist countryside; and to combine the development of farmers’ organisations with the prosperity of rural social initiatives. Farmers’ income continued to increase, with per capita income in 2004 reaching its highest level since 1997. During the rst three quarters of 2005, the per capita cash income of Chinese farmers reached RMB 2,450, an actual increase of 11.5% over the same period the previous year after deducting price increases, an increase rate 1.7 percentage points higher than that of urban per capita disposable income. 1. Increase in Farmers’ Incomes From 2004 onwards, the Central Committee circulated a prime directive for two consecutive years to protect farmers’ initiative to grow grain, to reduce the burden on farmers, and to increase their income through various nancial, tax and pricing levers and mechanisms. The government implemented a direct subsidy to grain-growing farmers from 2004 onwards, beneting more than 600 million farmers. The 2005 No. 1 Document promulgated 27 farmingoriented policies to further promote stable increases in agricultural production and in farmers’ income, accelerating the overall rollback of agricultural tax, and increasing subsidies to farmers. 29 provinces implemented direct subsidies, for which an annual amount of RMB 13.2 billion was laid aside, an increase of RMB 1.6 billion from 2004. Farmers in certain areas even received subsidies for picked seeds and the purchase of agricultural tools. In some grain producing areas, farmers’ investments grew rapidly—statistics from 13 grain producing areas indicate that in the rst half of 2005, of the total investment in xed assets, the investment in primary industry increased by 25.6% over the same period from the previous year, far higher than the growth rate of 6.1% for the same period of the previous year. In 2005, when grain prices in some areas were comparatively low, the government implemented a minimum price purchasing plan. The taxation burden of farmers was relieved to a large extent, with 28 provinces cancelling the collection of all agricultural taxes, and Hebei, Shandong and Yunnan provinces reducing their tax rates to below 2%. A sample survey by the

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State Statistics Bureau of 68,000 rural households shows that farmers’ per capita agriculture tax totalled less than RMB 1 for the rst half of 2005, 87.2% lower than the same period of the previous year. All agricultural taxes will be cancelled in 2006, although this does not mean that farmers can grow grain free of tax. Current preliminary estimates suggest that the VAT paid by farmers purchasing production materials ranges from RMB 400~500 billion, a per capita tax of more than RMB 200. 2. Income Structure The results of a survey by the Rural Area Division of the Ministry of Agriculture to 68,000 rural households in 31 provinces and autonomous regions show that farmers’ per capita cash income in the rst half of 2005 reached RMB 1,586, an actual increase of 12.5% after deducting the effect of price increases, and 1.6 percentage points higher than the same period of the previous year. This is mainly due to the following reasons: a) Income from the sale of agricultural products increased by a large margin. The cash income from the sale of agricultural products reached a per capita total of RMB 707, an increase of 20.3% over the same period of the previous year; b) salary incomes increased at a fair speed. Per capita salary incomes increased by 16.6% compared to the same period of the previous year; c) income from second and tertiary industry production and operations maintained a steady increase. Per capita cash income from second and tertiary industry production and operations increased by 14.7% compared to the same period of the previous year; d) assets and transferable income increased. Per capita asset cash income increased by 20.9% compared to the same period of the previous year, while per capita transferable cash income stayed at the same level as the previous year, of which RMB 8 was a direct grain subsidy, a subsidy for purchasing and improving large-scale agricultural tools and machinery, and a picked seeds subsidy, which all maintained the same level as the previous year; e) the taxation burden continued to drop by a large margin. Per capita tax expenditure was RMB 5.6, a drop of 51.1% over the same period of the previous year, of which per capita agriculture tax accounted for less than RMB 1, a drop of 87.2%. The rst half of 2005 notably say an increase over the same period of the previous year of the various fees paid by farmers and funds raised through “issue-by-issue discussion”. Of these, various charges reached a per capita total of RMB 2.6, an increase of RMB 0.4 (17.1%), and funds reached a per capita total of RMB 0.8,

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an increase of RMB 0.4 (90.9%). Various charges accounted for 43.3% of fees and taxes, while funds raised through “issue-by-issue discussion” accounted for 13.7%. 3. Increasing Agricultural Material Prices Investigations showed that, in 2005, the retail prices of chemical fertilisers such as urea, phosphate and carbon ammonia rose by 25.8% compared to the same period of the previous year; the average retail price of agricultural lm rose by 42.1%; that of rice seeds rose by 76.7%; that of maize seeds rose by 33.3%; and that of pesticide rose by 15.86%. The production investment level of farmers in Deyang of Sichuan Province shows that an average of RMB 165.18 was needed to plant 1 mu of rice or maize, an increase of RMB 37.37 per mu (or 29.2%) from 2004. 78.3% of national support funding was offset by price rises in agricultural materials. Moreover, the inuence of serious animal diseases had a serious impact on the domestic fowl industry and on income from husbandry. 4. Rapid Increase of Farmers’ Cash Expenditure The results of a survey by the State Statistics Bureau of 68,000 rural households across 31 provinces and autonomous regions showed that farmer’s per capita cash expenditure on daily life in the rst half of 2005 reached RMB 996, an increase of RMB 166 (20%) over the same period of the previous year. The rate of increase, after deducting an actual price increase of 16.6%, was 8.9 percentage points higher than the same period of the previous year. All types of life expenditure increased overall, of which per capita expenditure on commodities reached RMB 674, an increase of RMB 108 (19.2%); the gure for services reached RMB 322, an increase of RMB 58 (21.8%). a) Foodstuff expenses increased by a large margin, mainly due to the purchase of grain and meat; b) expenses on clothing increased by 19.2%; c) expenses on housing increased at a stable rate; d) expenses on household appliances, items and services increased by 27.6%, the fastest increase of all life expenditures; e) expenses on transportation and telecommunication increased rapidly, second only to the increase rate in foodstuffs; f ) expenses on education and recreation also increased to a certain degree; g) expenses on medical care increased by 27.1%; h) expenses on other commodities and services increased slightly. Farmers’ per capita cash income in the rst half of 2005 reached RMB 1,586, an actual increase of 2.5%.

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B. Agricultural Industrialisation and Rural Brokers Promoted Farmers’ Rise in Income The increase in agricultural income was due to two factors: the rst was that agricultural industrialisation stimulated the development of household businesses, and the second was the promotion of rural area brokers. 1. Agricultural Industrialisation Organised the Production and Operation of Dispersed Households to Meet Market Demand In an historic step in industrialised agricultural operations, “dragonhead” enterprises have generated strong growth potential and sustainable power for the development of the rural economy. During the tenth Five-year Plan period, primary processing was gradually extended to include ne and extensive processing operations, and labour intensive production was gradually shifted to integrate labour, technology and capital development. As of September 2005, there were 114,000 industrialised operation organisations nationwide, with total xed assets amounting to RMB 809.9 billion, respective increases of 70.9% and 91.7% over 2000. 84.54 million households were involved in these organisations, employing 33.332 million people, an increase of 24.93 million households over 2000, which generated increased income for each household of RMB 1,202. The combination of production, sales, trade, industry and agriculture produced a remarkable improvement in the organisation level of farmers. Industrialisation not only encouraged farmers to seek work in these dragonhead enterprises, but also laid the way for them to participate in transportation, marketing and other business activities, all of which increased their incomes. Industrialised agricultural operations have highly improved the organization level of farmers, and can be split into three types: dragonhead enterprises, specialised markets and intermediary organisations. 2. Rural Brokers Combined Agricultural Production with Market Demand Statistics from the State Industrial and Commercial Bureau covering 31 provinces and autonomous regions showed that there were a total of 380,000 rural brokering households in 2005, with 610,000 brokering practitioners generating business worth RMB 170.7 billion. Rural brokers can be mainly divided into agricultural product brokers, handicraft product brokers, science and technology brokers, and labour

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resource brokers. Rural brokers were mainly engaged in the trade of grain, vegetables, fruit, animal husbandry and aquatic products, totalling 50,000, 63,000, 40,000, 25,000 and 20,000 households respectively. Intermediate and professional broking were the prevalent business means. The rural brokering industry has three features: a) the number of brokers has increased rapidly, brokerage organisations and business modes are diversied, and brokering efciency has seen a remarkable improvement; b) their business has begun to affect production materials and industrial consumables, etc.; and c) the development of rural brokering industry is unbalanced. 3. Wealth Gap between Rich and Poor Continues to Grow While farmers’ incomes saw an overall increase, the income gap became more and more apparent. The extremely poor population in rural areas decreased from 250 million in 1978 to 26.1 million in 2004. The survey by the rural investigation team of the State Statistics Bureau of 68,000 households across 31 provinces and autonomous regions showed that, in 2004, the per capita pure income of the rural poor population was only RMB 579, one-fth less than the national average. The rural poor population displayed ve characteristics: a) two-thirds of their pure income came from farming, and 89.4% were farming households. Their salary income was only RMB 115, accounting for 19.9% of pure income, and 14.1 percentage points lower than the national average; b) the degree of monetarisation of the rural poor was low. In 2004, their per capita cash pure income was RMB 257, accounting for 44.4% of per capita pure income, 7.6 percentage points lower than 2003. The degree of monetarisation of income of the rural poor was 34.5 percentage points lower than the average for rural residents nationwide; c) the proportion of income of the rural poor to total rural resident income decreased. In 2004, the rural poor accounted for 2.8% of the rural population, but total income of the rural poor accounted for 0.5% of all rural resident income, indicating a further expansion of the income gap; d) the income of 70% of the rural poor exceeded RMB 500; e) half of poor households could not make ends meet, because they were short of cash. In 2004, the per capita life expenditure of the rural poor was RMB 602, RMB 23 more than their per capita pure income, an overrun of 4%; their cash consumption expenditure was RMB 322, RMB 65 more than their cash pure income, an overrun of 25.3%. In terms of single households, per capita family life expenses of 54% of families exceeded their pure income.

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A survey by the Chongqing Rural Investigation Team discovered, rstly, that the gap between the rural rich and poor is widening as an overall trend. The per capita pure income of the 20% lowest income rural households and the 20% highest income rural households were RMB 741 and RMB 4,529 respectively, a 6.1-fold gap. The per capita life expenditure of high-income households was also 3.5 times higher than that of low-income households. Most low-income households could not make ends meet, their expenditure on food accounting for 60.0% of living expenditure, thus placing them below the poverty line. In comparison, expenditure on food in high-income households accounted for 37.6% of living expenditure, already reaching a fairly comfortable level. Secondly, rural poverty has changed from “overall poverty” to “partial poverty” or “individual poverty”, while previously “poor areas” have become “mixed poor and rich areas”. Thirdly, relapses into poverty have become a notable phenomenon. Residents who had escaped poverty were returning to it, due to: a) the lack of qualications of rural households, or their lack of self-motivation; and b) sudden events such as disease, natural disaster, market uctuations, etc. Finally, the poverty of certain poor households had worsened, the main reasons for which included shortages of breadwinners due to disease, handicaps, old age or weakness, or their inability to adapt to market demands due to their low education. With no social insurance, they could only rely on scant support from the government, thus worsening their poverty. The main factors behind the widening of the gap between rich and poor are: a) policy factors, b) different natural environments, c) the number of income earners, d) diseases and handicaps, e) education. Tuition per semester in primary school was over RMB 200, over RMB 400 for junior high school, almost RMB 1,000 for senior high school, and almost RMB 10,000 for college. The high cost of education places some low-income rural households in a quandary: facing long-term poverty if they do not send their children to school, and immediate poverty if they do. f ) Loss of arable land. Farmers who lose their land become jobless and fall into poverty. They normally lose their land for two reasons, the rst being construction, the second being migration. g) Low educational qualications. The income of farmers engaged in traditional planting was far lower than that of those who upgraded their working skills. h) Unhealthy consumption habits. Excessive entertaining and gambling were also factors causing a widening of the gap between rich and poor.

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4. Farmers-Turned Industrial Workers Besides agricultural production, urban work became the main employment form and source of cash income for farmers. According to the survey by the Rural Investigation Team of the State Statistics Bureau of 68,000 rural households across 31 provinces and autonomous regions, in the rst half of 2005, 88.45 million farmers worked in urban areas, an increase of 3.75 million over the same period of the previous year, and an increase of 4.4%. This migrant labour force had the following characteristics: a) labour from the country’s central provinces increased rapidly. In the rst half of 2005, the trans-provincial outward work force reached 46.26 million people, an increase of 2.27 million over the same period of the previous year, or 5.2%, accounting for 52.3% of all farmers-turned industrial workers, an increase of 0.4 percentage points; b) migrant labour forces were mainly employed in medium-sized or large urban areas above the district level, and the number of these areas is increasing. In the rst half of 2005, 60.06 million migrant workers were employed in medium-sized and large cities above the district level, an increase of 5.67 million people over the same period of the previous year, or 10.4%, accounting for 67.9% of all migrant workers, an increase of 3.7 percentage points. The number of farmers-turned industrial workers working in municipalities increased by 190,000, or 2.3%; the number of workers working in provincial capitals increased by 690,000, or 4.2%; the number of workers working at the district level increased by 4.78 million, or 16.3%; the number of workers working in county areas and smaller towns was 28.39 million, a decrease of 1.92 million. Migrant workers not only increased family income, but also improved their personal abilities and skills. They also had a strong impact on the industrial structure, family structure and family relations: a) a large number of young people left home to work in urban areas, leaving only the old, the sick and the handicapped at home, thus allowing little progress to be made in rural economic development and industrial restructuring; b) the recruitment of high-quality rural grass-root committee leaders faltered because a majority of young, leading farmers work elsewhere; c) children received insufcient love and care from their parents, making them indifferent and stubborn, and leading them to under-perform at school; iv) the elderly thus had to shoulder the burden of farming, living out their days uncared for and lonely.

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II. Urban-Rural Relations: Farmers’ Rights and Interests Must be Considered in the Process of Urbanisation 1. Farmers’ Perspectives Must be Considered in the Urbanisation Process At the 25th Group Study of the Politburo of the CPC Central Committee, General Secretary Hu Jintao outlined the principles and objectives for China’s future urbanisation, which included the development of rural areas. China’s level of urbanisation grew at an annual speed of 1%, rising from 18.9% in 1990 to 40% in 2004, and this will reach 60% by 2020. Over the next 15 years, 200~300 million farmers will migrate and settle in towns, and the urban population will grow from the current 524 million to 800~900 million. In 2003, the rural labour force totalled 489 million people, of which less than 200 million were actually engaged in agricultural production, the remainder working in the second or tertiary industries, or remaining unemployed. Despite the promotion of the urbanisation process, the rural population will still be 700 million in 2010, and rural areas will still have a population of at least 500 million by 2020. Therefore, the promotion of the urbanisation process must consider rural development, and farmers’ perspectives should be taken into account as part of the development of urbanisation. Breaking up the urban-rural bilateral structure must rely on two principles—rstly, to encourage farmers to migrate to urban areas, and secondly, to stabilise the rural economy. The latter requires attention to be paid to the development of the inter-county economy and the adjustment of the inter-county social structure. 2. Land Land is the most important requirement for agricultural production, and also a vital pillar for farmers’ livelihoods. The disorderly acquisition or ill-use of land will create a new wave of “Three-No Farmers”, i.e. farmers with no land, no job and no social insurance, which in turn seriously harms their long-term interests and threatens social stability. Income from land still accounts for 60% of all income sources; while over 100 million rural labourers are migrating, 130 million are working in township enterprises, 170 million are still running their land, and another 30 million are engaged in animal husbandry and shery. The majority rely on their land. The acquisition and use of arable land was one of the most obvious problems in the urbanisation process in 2005. The arable land area

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dropped in 27 provinces and autonomous regions, and the registered basic land area in 16 provinces was lower than the specied index gure in China’s Overall Plan for Land Utilisation. Since 2001, 4.254 million mu of basic farmland area has been lost due to non-agricultural construction, and illegal occupation of farmland reached 1.1625 million mu. Current land acquisition subsidies cannot completely make up for the loss of farmers’ property rights, as this subjects them to discrimination and unfairness in actuality. A World Bank study shows that, when per capita GDP is less than $500, farmers farm the land in a dispersed, independent manner, while once per capita GDP exceeds $1000, the market value of rural land becomes increasingly apparent, making land owners increasingly willing to sell off their land. In 2005, social disturbances caused by land acquisition saw an increasing escalation, and the true reason for these was not the acceleration of the urbanisation process, but the continued existence of major aws in land policies and land acquisition operations: a) compulsory acquisition was expanded from farmland to non-farming land, broadening the acquisition range too widely; b) the distribution of earnings from land sell-offs was unfair, seriously harming farmers’ interests. The sale of land has already become an important way in which local governments can improve their nances and raise township construction funds. As a way to increase non-budgetary income, grass-roots governments have come to regard farmland as a secondary source of nance, a new form of using the countryside to feed the towns. Rural residents have no other support apart from land, and the loss of their land due to economic development has led some farmers to form resistance groups. Experts estimate that in the last 20 years since liberalisation and reform, RMB 2 trillion in land transfer funds have been used in urban construction, but this has failed to allow a corresponding proportion of the rural pollution to migrate to urban areas in a stable manner; c) the structure of land taxes and fees is unreasonable and irrational, as the government attaches more importance to fees than to taxes; d) local governments attract investment using land as an incentive, thus causing large areas of scarce land resources to be taken up. Ministry of Land Resources estimates suggest that since the end of 1980s, over RMB 10 billion in state-owned assets have been lost annually due to land leases and selloffs, more than that caused by smuggling. 3. Urban-Rural Integration Breaking up the urban-rural bilateral structure and promoting integral urban-rural development is one of the important and pressing issues facing urban development. Experience in

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some areas proved that the development of urbanisation must conform to towns’ general levels of economic development and support capabilities, and should not neglect practical conditions. Where the urbanisation level is measured solely using the percentage of urban population, with no consideration of social insurance, urban development will remain insignicant. In some western areas, local governments converted large numbers of rural household registrations into urban ones, so as to full urban population requirements. However, these “new residents” benet neither from farming support policies nor from the urban resident social insurance policy, thus making them make vocal demands for their household registration to be returned from “non-farming” to “farming”, allowing them to resume former farming identity.

III. Farmers-Turned Industrial Workers: An Indicator of Urban-Rural Coordination China’s urbanisation level should be measured using the employment level and quality of farmers-turned industrial workers. More convenient and fairer employment opportunities should be provided for farmers as part of the urbanisation process, by accelerating improvements to the market mechanism. Research by the Rural Investigation Team of the State Statistics Bureau indicates that China’s rural labour force was 480 million people, but only 170 million were actually required for agriculture, forestry, animal husbandry and sheries. The remaining labour force would have no choice but to transfer to non-agricultural industries or seek job opportunities out of the countryside. Over 120 million farmers have already become industrial workers in 660 cities and towns in China. The Ministry of Agriculture estimates that in the next 10 years, 8.5 million Chinese farmers will migrate to urban areas annually. It is estimated that in the next 20 years, 300 million people will migrate from rural to urban areas. According to the Fifth Population Census, farmers-turned industrial workers who do not hold urban household registrations accounted for 57.6% of secondary industry workers, 52.6% of commercial and hospitality workers, 68.2% of processing and manufacturing workers, and 79.8% of construction workers. An investigation by the Ministry of Labour and Social Insurance in August 2005 reported that farmers-turned industrial workers were 29 years old on average, including 45% aged 16~25, and 61% less than 30 years of age. Their overall education level was comparatively low,

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with 83% being junior high school educated or lower, and 72% having received no technical training. 62% of all farmers-turned industrial workers were employed in the Eastern provinces, 20% in the central provinces, and 18% in the Western provinces. Three factors hindered the employment of farmers-turned industrial workers: the paucity of public services and training initiatives to meet their needs; widespread irregularities in the intermediary market, laying farmers open to abuse; and training initiatives were disconnected from production and service realities, thus failing to meet their employment needs. The core focus for cities wishing to stimulate rural development must be to generate more employment opportunities for farmers, thus providing stable long-term means of survival for them to work in urban areas, and to create better institutional urban environments into which farmers can migrate and survive. However, 2005 witnessed frequent occupational safety accidents involving farmers-turned workers. Widespread media coverage focused on the high number of casualties in the coal industry. Weak policies and regulations were unable to safeguard farmers-turned workers’ income rights and interests, their labour environment or their production safety, placing them in an unfair employment position. From 1994 onwards, China has reported its Urban Registered Unemployment Rate, but an unavoidable contradiction in this is that a portion of the unemployed population includes farmers-turned industrial workers, who are not recorded. Starting from the second half of 2006, the government intends to abandon the Urban Registered Unemployment Rate, and follow international practices when collecting unemployment data. Farmers-turned industrial workers will thus be included in statistics for the rst time, meaning that millions of farmers-turned industrial workers will be brought into the unemployment insurance system. This will be an important step to resolve the bilateral economic division.

IV. Grassroots Organisations: Rights Must be Protected in the Gradual Closedown of Businesses, Complete Downsizing and Villager Autonomy Traditional township operations are experiencing unprecedented pressure to transform and reform. The basic principles of township reform are: to carry out businesses closures in a gradual manner and ensure that downsizing procedures is fully completed, to reform township government functions and to implement the reform of administrative government from its traditional functions to one of services and law

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enforcement. Township governments should work to provide the following ve functions: the implementation of policies and regulations, the promotion of economic development, the improvement of social administration, the reinforcement of public service, and the maintenance of social harmony and stability. In some provinces and municipalities, institutions were downsized through reform, thus providing only the following four public service functions: agricultural services, educational and cultural services, nance, and family planning health care clinics. It is important that township governments not be oversized, and that newly recruited public servants and staff pass the relevant tests. In 2005, certain Party committees in rural areas carried out rotation elections using the Two Recommendations, Single Election principle, whereby the electorate rst recommends primary candidates for the position of party secretary and committee members rst, after which all township Party members select candidates for these positions from the primary candidates. After approval by the county party committee, these candidates are then submitted to a representative conference of the town’s Party members for election to produce the new Party committee. Some villages applied a two-cycle election system, giving both villagers a direct voice in village affairs and Party members the chance to participate in the decision process for Party affairs, so as to ensure that villagers and Party members are able to be informed about, decide upon, participate in, and supervise the process. In Jiujiang County, Jiangxi Province, important Party business included in the two-cycle election system covered the village Party branch’s annual report, the election and changes to the Party branch committee, the recommendation of subsidiary leaders, the organisation of Party activities, the democratic assessment of Party members, amongst others. Important village affairs included the drafting of an annual plan for economic, cultural, educational and public health affairs and other public development projects, the annual village report and nancial report, the use and disposal of major natural resources and assets, and the establishment of public utilities, amongst others. The adoption of this system enabled corruption among village leaders to be controlled to a certain degree. The focus of village autonomy has shifted from institutional reform to villagers’ rights. Rights are just one possibility provided by law, as the corresponding objective conditions are needed to implement them—for instance, an awareness of rights, the ability to implement and advocate rights, the conditions for the protection of rights, etc. Previous village

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leaders’ leadership styles and methods no longer t the social environment of today’s villages. Dangerous contradictions exist between cadres and masses, and between the two committees in rural grass-roots organisations, mainly because the four steps towards democracy, i.e. democratic election, democratic decision-making, democratic management and democratic supervision cannot be properly implemented. In 2005, the most striking progress in village autonomy was the expansion of the democratic process from democratic election to democratic management and democratic decision. The so-called Qingxian County model provided villagers with practical decision-making and supervisory rights. Village representatives could participate in the discussion and approval of the village’s development programme and annual working plan, as well as expenditure on major development projects, and all nancial documents are submitted to a popularly-elected nancial management committee periodically for review. Representatives have the right to report cases to the villagers’ representative conference for investigation of leaders accepting bribes, or using power for their own interests, or who otherwise incur villagers’ disapproval. Village representatives can now dismiss and replace any leader by signing a relevant resolution, each representative using an individual seal produced in a uniform manner by the County. The nancial management committee supervises the work of the two committees, and a villagers’ representative conference reviews and approves all decisions, which are otherwise invalid. As stipulated in the Qingxian County Village Organisation Rules, a village Party secretary with a low approval rating, a weak image or poor executive abilities can generally be dismissed or replaced. In other words, a Party secretary must resign if he loses an election. In Qingxian County, approximately 85% of Party secretaries were re-elected. The Qingxian County model solved both problems of autonomy as well as of weakened rural grass-roots Party organisation. Village debt has greatly affected the stability of rural grass-roots power and the management of grass-roots organisations. According to Ministry of Finance statistics, county and township government debt nationwide amounted to RMB 400 billion, with individual cases reaching as high as RMB 100 million. Average township debt nationwide was approximately RMB 4 million, not including village-level debt. From this, we can assume that local risk has already increased, with some experts estimating that nationwide village-level debt is no less than RMB 600 billion, and most probably exceeding RMB 1 trillion, accounting for 10% of the country’s GDP, and 30~50% of total scal

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income, far exceeding the total debt of national long-term development bonds. Village debts include: infrastructure development, including rural asphalt roads and water conservancy projects, and the construction of welfare projects such as schools, clinics and other public utilities. These debts seriously affect the normal operation of township power, thus bringing into question its legitimacy. The rural investigation by the Chinese Academy of Social Sciences indicates that township governments must basically borrow no more money, and that a major political achievement for township leaders is the repayment of debts accrued by their predecessors.

V. Rural Public Services: More Annual Achievements, Undermined by Historical Weaknesses Rural public services play an important role in the development of agriculture and the development of new socialist rural areas. The backwardness of rural areas is mainly reected in the serious lacks of such public services in areas such as education, public health and culture, an these have a severe negative inuence on agricultural and rural development. The slow increase in rural productivity and farmers’ income is mainly the result of insufcient supplies of rural public services, the reduced efciency of agricultural investments and uneven agricultural prots. The reform of rural charges and fees has reduced the burdens on farmers, but it has not solved the problem of insufcient supply of rural public services. The main problems which afict the current rural public services supply system are: 1) the unbalanced division of responsibilities between central and local governments in the supply of rural public services: The right to handle rural grass-roots governmental business affairs comprises much more than the right to control its nances, and involves a high level of expenditure which should be paid by higher levels of government, such as for instance, basic education. The benets of certain pure public utilities such as water conservancy projects extend beyond regional boundaries, and nancing should therefore be provided by the central government. However, the reality is that township governments must pay for these. As township governments have no xed taxation sources of nancial income, they have no choice but to increase the burdens, either legal or illegal, on farmers. 2) The unbalanced decision-making procedure for the supply of public services: The supply

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of rural public services is not determined by internal township and village social demand, but by decrees from higher levels of government, and this cannot therefore reect the true demands of grass-roots society. This causes an unavoidable increase in the level of ineffective public services, and also increases public services which exceed farmers’ economic capabilities. As a result, scarce public products funds are wasted. One of the major reasons for the backwardness of rural infrastructure facilities and social initiatives is the insufcient nancial support for rural development. In 2004, investment in rural xed assets in China accounted for 16.34% of total social xed assets investment; various levels of nancial support for agriculture accounted for 5.89% of total national nancial expenditure; the remaining agriculture loans accounted for 5.55% of all nancial institutions loans. The proportion of these various expenditures in rural areas is unreasonable and does not match the rural population nor the proportion of agriculture and the rural economy to GDP. Expenditure on farmers’ education and medical care has been increasing, placing a new burden on rural families after the reduction of agricultural tax. In 2004, per capita spending on education, medical care and drugs totalled RMB 367.73, 19.7% of the pure income of farmers, and 22.7% of farmers’ total daily life expenditure. This has become their second largest expense next to food, and far exceeds expenses on housing and clothing. Due to insufcient investment in publicly nanced free education, rural children do not have the same education opportunities as urban children. According to data in the 2005 National Report on Chinese Education, China has established a system under government guidance in which various forces act as education promotion entities in rural and poor areas. In 2004, government funding accounted for 82.7% and 76.6% respectively of total capital for rural primary and middle schools, increases of 16 and 14 percentage points over the year 2000. However, 8% of areas nationwide have yet to implement nine-year compulsory education, most of them in the West. As of 2005, policies were implemented in 592 key poverty relief development counties to reduce and relieve the miscellaneous fees and textbook fees, and provide boarding subsidies for students from poor families during compulsory education. The goal of the Ministry of Education is that, by 2006, rural children will be relieved of all schooling and miscellaneous fees, and the government will provide free textbooks and accommodation for students from extremely poor families; and by 2010, free compulsory education will be completely implemented in rural areas.

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A pilot project for new rural cooperative medical care was launched in the second half of 2003. As of June 2005, 163 million out of the 225 million farmers in the 641 pilot counties participated in this project, a participation rate of 72.6%. As of 2006, the State Council will further improve central and local nancing for the establishment of new rural cooperative medical care systems, and these will be rolled out across all rural areas of China by 2008. The gap between the cultural expenses of rural and urban residents has also expanded, due to long-term insufcient investment in rural cultural and sports facilities. The Henan Provincial Rural Investigation Team discovered that the gap between rural and urban residents’ cultural expenses has expanded, with rural residents’ cultural expenses only one-quarter of that of urban citizens. Farmers whose land had been acquired became the focal point of rural social insurance. At the end of 2004, agricultural insurance initiatives at different levels were launched in 1,887 counties nationwide, covering 53.87 million farmers. Insurance funds totalling RMB 28.5 billion were set aside to cover pensions for 2.05 million people, and insurance expenses for that year amounted to RMB 2 billion. As of September 2005, the popularity rate of social insurance in rural areas was a mere 13%, mostly in the few coastal areas. More than 1,200 counties established the minimum living standard security system, covering up to 4.45 million people. More than 70% of rural families have no medical insurance. A study of certain Southern cities indicates that the current basic pension subsidy system for farmers is extremely limited, and retired farmers now receive a monthly pension of only RMB 120~300, which is lower that the minimum urban living standard. Social insurance funds are under great nancial pressure, and estimated collective net assets are overrated. Due to traditional thinking and short-term interests, rural collectives are also generally reluctant to pay social insurance and municipal administration costs. Compulsory regulations must therefore be promulgated by the government to cover land acquisition and the management of collective assets so as to ensure that rural collective assets are invested in rural social insurance. The rapid development of the rural road network was a highlight of 2005. Rural roads indicate township and village roads. Data from the International Rural Roadway Oversight Organisation showed that reasonably good rural roads allowed a drop in fertiliser costs of 14%, a 12% increase in income, and a 32% increase in agricultural production. Good transport conditions also promote the ne processing

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of agricultural products. According to Ministry of Communications statistics, 352,000 km of rural roads were completed in 2003 and 2004, of which asphalt and cement roads accounted for 192,000 km, more than the total amount built since 1949. In 2004, the number of rural buses in China increased by 8,500, making 286 townships and 28,424 administrative villages now accessible by bus. From January to June 2005, a total of RMB 40.9 billion was invested in rural road construction, and 53,000 km of roads were completed. Of this total, central government invested RMB 20.6 billion and completed the construction of 23,000 km, and local government invested RMB 20.3 billion and completed the construction of 30,000 km. However, 184 townships and 54,000 administrative villages still have no highway access. The government has created public facilities for rural consumers, and “rural supermarkets” provide safe areas for the production and consumption in rural areas where consumer safety is regarded as the weakest. In 2004, a survey in Zhejiang Province found that food safety issues in 84.5% of rural shops. Starting in early 2004, the province began a project to install chain supermarkets in one thousand townships, and safe shops in ten thousand villages, implementing a uniform procurement, distribution, management, pricing, labelling, auditing and service process. The practice proved that the greates advantage of rural supermarkets is that farmers can gain access to safe consumer goods. Rural supermarkets have created competition, reducing prices and bringing benets to farmers.

VI. Conclusions and Recommendations The series of changes and issues in rural development in 2005 indicate that the problems of rural areas, agriculture and farmers already transcend regional boundaries, and rural development is already closely connected to a series of structural social transformations such as social mobilisation, urbanisation, marketisation and legislative development. Firstly, social development, reform and benet-sharing in China require, or at least cannot exclude, farmers’ perspectives. This is a basic principle and the philosophical basis for determining various technical means and procedures to solve the problems of rural areas, agriculture and farmers. Social fairness is the basis for verifying the reasonability and rationality of social economic development, and is also the basis for evaluating development and apportioning the gains of development.

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Farmers’ sense of fairness, the basic tool which they use to evaluate the reasonability and rationality of exchange and the mutually benecial relations between themselves and the country (or its representatives), is of crucial importance to understanding the nature of rural society. The household contracting responsibility system was a breakthrough in the liberalisation and reform process and unleashed Chinese modernisation, simply because farmers’ perspectives were considered when the market economic system was established. This intelligence and imagination is also needed in urban development and the conceptualisation of rural-urban integration. Although urbanisation is now a general trend, ignoring farmers’ perspectives of the urbanisation process will greatly affect it, and will escalate social conicts. The urbanisation level will also become unstable and dangerous. Urbanisation levels cannot be evaluated using a simple ratio of farmers-turned urban dwellers, but must be measured based on the farming industry—non-farming industry conversion success rate as well as the increase in farmers’ income. This does not mean eliminating rural-urban differences, as this is currently impossible. This difference must not however be allowed to expand to an extent that is intolerable and unacceptable to most farmers. As a country with a large agricultural population, it is extremely important that China emphasises the role of farmers in the economic market and in urban development. Secondly, farmers’ land rights and interests must be conscientiously protected. Land is a farmer’s lifeline, and the land system determines all rural areas’ and farmers’ production means as well as their political rights and economic position. Without a land system which is able to protect the farmers’ legislative rights, they cannot become afuent, and they will have no motivation to invest in and develop public services. The existing rules for land acquisition must be reviewed and modied, to restrict the rights to acquire public land in conformance to public interests. Farmers’ basic right to land must be safeguarded, and avoiding contravening their rights during land transfers. Measures must be taken to prevent rural grass-roots cadres seeking nancial returns through the re-allocation of land resources. Farmers who lose their land must be resettled properly, and fundamental social insurance must be provided to them, thus ensuring that even though they lose their land, they do not lose their interests, or their jobs. Thirdly, a good institutional environment must be created for farmersturned industrial workers, allowing them to be able to come, stay and leave, so that they can participate in urban political and social life.

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More care should be given to the protection of these workers’ labour rights. They suffer from difcult labour conditions, poor working environments, and generally low pay. They also face unequal treatment including unpaid wages, salary deductions and uneven levels of pay, and are also more prone to occupational accidents. A unied ruralurban labour resources market should be established, stipulating an equal opportunity industrial admission policy and implementing a fair employment system. Farmers-turned industrial workers with a stable occupation, income, housing and a certain number of years of working experience should be given an urban household registration. A social insurance system should be established, and they should receive the same treatment as urban citizens in such areas as medical care, social insurance and children’s schooling, and they should be entitled to use urban public services. The government should provide professional, technical and law awareness training for farmers and farmers-turned industrial workers, especially new graduates from middle and high schools, so as to improve their social judgment and employment adaptability skills. Fourthly, the reform of the rural collective assets legal management system must be accelerated. Rural collective assets management rules should be modied, and standard procedures should be prepared for the reform of rural economic organisations. The rural collective sharing cooperative process should be accelerated in rural areas where the urbanisation process is quickened, and village-level collective asset management companies should be created to run the collective economy, which are to be independently audited and bear sole responsibility for all prots and losses. Members of the “two committees” should not be legal representatives of such companies, but a supervisory board should be set up to supervise the companies’ business and operations. The focus of committees should be shifted to social management and community services. While consolidating rural collective shares, a higher rate of collective shares should be designated to subsidise public affairs and insurance expenses. Fifthly, the village self-autonomy system must be improved. Rural collective assets rights are closely connected to the direct electoral system for village committees. Urbanisation has caused major adjustments in regional interests and their sense of values, increasing the number of variables affecting social stability and the long-term gains of rural collective assets. The village self-autonomy system should be improved: 1) to extend the village committee’s term up to 5 years through legislation at the national or provincial level people’s congress; 2) to accelerate the

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liberalisation of village affairs, the operations of rural collective assets should be made public so as to increase villagers’ understanding of the performance and achievements of committees, and to guarantee long-term gains in these collective assets. Sixthly, the distribution of national income should provide for increased support to agriculture and rural development. Government expenditure must primarily provide increased investment in agriculture, rural infrastructure and agricultural technology; it must then adjust the nancial investment trends, alter subsidy types and increase direct subsidies to agriculture; it must thirdly accelerate the implementation of policies to reduce and relieve agriculture tax; fourthly, it must establish a standardised national nancial transfer system, and allow investment in rural infrastructure and public services to be gradually taken over by central and provincial nance departments. Seventhly, urban development should be combined with rural development, meaning that on the one hand, countryside outreach activities should be organised, while on the other hand, the inter-county economy should be stimulated and upgraded. The allocation of urban and rural resources should be optimised, by setting up a resource platform to be shared by both urban and rural areas. Exchanges and cooperation of urban and rural capital, technology, personnel and information should also be enhanced. Only once rural areas are developed can farmers can be developed on-site without them needing to leave their hometowns. Eighthly, urban-rural relevant industries must be developed, a mechanism established to promote agricultural industrialisation and modernisation, and industrialised agricultural operations and standardised production implemented. Farmers should obtain the benets from adjustments to the agricultural industry as soon as possible, as if they cannot do so, an increasing number will head to the cities to work, thus impacting the speed of adjustment. If farmers will remain in their home villages if they are able to obtain the same benets as working in urban areas through industrial adjustment or the development of other industries. It is equally important for the county and township governments to attract investment as to provide amenable conditions for farmers to return to their land. County development can thus be stabilised through agriculture. Ninthly, attention should be paid to the development of rural public services and social utilities. Great efforts should be made to establish a rural community internal demand mechanism to determine the supply of public services. Government departments at all levels should

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be professionally sensitive and instantly responsive to the importance of new demands for social utilities. Relevant government departments should explore effective mechanisms to resolve psychological health and education problems of “socially withdrawn children” due to the absence of the breadwinners from their homes. Procedures should be put in place to protect the rights and interests of rural “socially withdrawn children”, and village committees should agree a management responsibility protocol with farmers-turned industrial workers so as to alleviate their worries and create a social environment favourable to children’s physical and psychological health. The problem of the “socially withdrawn elderly” must be solved, and the implementation of land transfer contracting encouraged. Tenthly, the overall educational qualications of farmers must be improved and new-type farmers cultivated oriented towards future rural development. “New-type farmers” refers to farmers with a suitable level of education, armed with certain agricultural techniques and other skills, who are able to upgrade their knowledge levels and improve their professional skills. This is also a necessary in order for traditional farmers to become owners. Meanwhile, the government should also support the establishment of various professional cooperative economic organisations so as to gradually alter the established, small-scale, dispersed mode of operations and thus enhance the market competitiveness of agriculture.

A NEW PHASE IN THE DEVELOPMENT OF THE STATUS OF PRIVATE ENTREPRENEURS Zhang Houyi

According to State Administration for Industry and Commerce (SAIC) statistics, at the end of 2005, there were 3,984,200 registered private enterprises in China, with 55.65 million employees and total registered capital of RMB 5,429.5 billion. Compared with the same period in the previous year, these three indices had increased by 19.29 percent, 18.05 percent and 28.83 percent respectively. At the end of 2004, there were 3,651,300 registered private enterprises in China, with 50.173 million employees and total registered capital of RMB 4,793.6 billion, an increase of 21.47 percent, 16.7 percent and 35.78 percent respectively compared with the end of 2003. It should be ensured that such rapid increases are based on the extending basic values of 15 years’ sustained development.

I. A New Phase in Development of the Status of Private Entrepreneurs Under the guidance of major Communist Party policies and the grounding of national law, it appears clear that China’s private entrepreneurial class, after more than 20 years’ sustained growth, is entering a new phase of development. Several major evident indications of this new development phase are widely acknowledged in China, which can be summed up in the following four phrases—important economic status, dened political status, established legal status and enacted policies and measures for the private entrepreneur class. A brief explanation of each is given below. A. Important Economic Status The Report of the 15th National Congress of the CPC indicates that maintaining public ownership as the mainstay of the economy while allowing diverse forms of ownership to develop alongside is China’s basic economic system at the primary stage of socialism. Non-public

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ownership is an important component of the Chinese socialist market economy. This important policy has two meanings. The rst emphasises that ownership is the cornerstone of a country’s economic relations. As a root economic tenet, it has legal foundation and possesses effective legal enforcement powers. It also makes clear that private economy is an important component of the economic foundation of China’s socialist economy. The second meaning emphasises the dominant function of the state-owned economy. In the development of social economy this is mainly reected by its power, such as to control the direction of development of the national economy and its economic system, to control macro-economic trends and to control major shortfalls in resources. As the state is in control of the lifeline of the national economy, and as the dominance and competitiveness of the state-owned economy is improving, a smaller state-owned economy will not negatively affect China’s socialist character. The Report of the 16th National Congress of the CPC points out that we must proactively improve and develop the public sector, while also proactively encouraging, supporting and guiding the non-public sector. Party principles and policies must be further implemented to stimulate the development of the non-public sector while maintaining the dominant position of the public sector, by incorporating both of these into the process driving socialist modernisation, and allowing all economic sectors to display their respective market advantages and to stimulate one another towards common development. B. Dened Political Status There have been many arguments about the social attributes of the private entrepreneurial class, namely, their political status in China’s social structure. The argument has focused on the standard to be adopted to assess their class. It is obviously wrong to use the specic historical conditions of classic Marxist authors as the only standard without paying due attention to historical changes and current events. Some believe that the possession of the production means is not the only standard of assessment, and that the private entrepreneur class is not merely a new capitalist class. But there is a lack of evidence for this, and it is thus not believable. As a result, we must insist on holding to characteristics of Marxist theory, while advancing these with the times and adopting a new standard for assessment according to the developed, altered historical condition and the current situation. The new

a new phase in the development of private entrepreneurs 247 three-point standard for assessing the private entrepreneur class initiated by the Central Committee of the CPC on 1 July 2001 and nalised during the 16th National Congress of the CPC in September 2002, came into being based on the agglomeration of wisdom from across the whole Party and nation, as well as the use of the latest research results. The Chinese Communist Party’s essential objective of developing socialism is to allow people a wealthy and happy life. As living standards and personal property gradually increase with the sustained development of China’s economy, a person’s political development cannot simply be assessed by their possession of property and the quantity thereof. This should be assessed mainly by reviewing their political beliefs and practical behaviour, how this property was obtained, controlled and used, and examining an individual’s devotion through his work to the construction of socialism with Chinese characteristics. In accordance with the three-point assessment standard, a large number of private entrepreneurs devote themselves to the development of socialist productive forces and other work through their honest work and legal business operations in line with the Party’s principles and policies. They make the same contribution to socialism as workers, farmers, intellectuals, cadres and PLA soldiers. It is thus clear that the private entrepreneurial class is an important component of the Chinese social structure. They may apply to join the Chinese Communist Party, attend the selection of model workers, and apply for positions as national civil servants through public examination and enrolment. The Amendments to the Constitution of the People’s Republic of China (hereinafter referred to as the Amendments) approved by the 2nd Session of the 11th National People’s Congress in March 2003 state that “all those involved in building socialism” are important components of “the patriotic united front”. C. Established Legal Status As stipulated in the Amendments, the second paragraph of Article 11 was revised to read: “The State shall protect the lawful rights and interests of non-public sectors of the economy such as the individual and private sectors. The State shall encourage, support and guide the development of the non-public sectors of the economy and, in accordance with the law, exercise supervision of, and control over, the non-public sectors of the economy.” Article 13 was revised to read: “Citizens’ lawful private property is inviolable”, and “The State, in

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accordance with the law, shall protect the rights of citizens to private property and to its inheritance” and “The State may, in the public interest and in accordance with the law, expropriate or requisition private property for its use and shall make compensation for such expropriated or requisitioned private property”. This stipulation is a breakthrough, making private property a constitutional right. The Real Right Law, which is currently under discussion, provides detailed stipulations for the protection of private property so as to establish a legal system to protect private estate rights. Real right is a type of property right over physical assets, and the Real Right Law is of great importance as it adjusts the relations on physical assets and plays a supporting role in the legal system under socialism with Chinese characteristics. Through several amendments, the Real Right Law apposes state ownership, collective ownership and private ownership in one chapter, emphasising the equal protection of public and private property. The Amendments state that all organisations and individuals have an obligation not to prevent an obligee from exercising their rights. Obligees’ real rights are legally protected, and no organisation or individual may infringe upon such right. State, collective and private ownership are all legally protected, and no organisation or individual may seize or infringe upon state, collective or individual property rights by whatever means. The immediate effect of the Real Right Law is reected in two aspects, rstly by asserting the rightfulness of real right while nally ending discussions thereof and secondly, by maximising effective use of all resources. The Real Right Law conrms the physical benets of labour, contribution and business of all kinds by means of law, protecting property rights from infringement, and mobilising enthusiasm in creating, treasuring and accumulating wealth, so as to liberate the life force of all areas of production and allow the fountainhead of wealth to ow freely and benet the people. D. Enabled Policies and Measures In order to implement the Central Committee’s principles, policies and requirements for the Amendments, as well as to resolve issues in the development of private enterprises, the State Council on 25 February 2005 enacted and issued “Several Opinions on the Promotion, Support and Guidance of Individual, Private and Non-Public Enterprise

a new phase in the development of private entrepreneurs 249 Development” (hereinafter referred to as Several Opinions). This is the rst state-enacted document on private enterprises, and is thus of great importance and profound signicance. The main contents of the Several Opinions are: 1. to adhere to the socialist economic system, to consolidate and develop the public sectors of the economy and to unswervingly encourage, support and guide the development of non-public sectors of the economy so that both economic sectors can fully display their respective advantages and stimulate one another as part of common development in the course of socialist modernisation; 2. to expand areas for market access, to improve nancial services, to adopt measures to develop social intermediary agencies, etc., to encourage, support and guide the development of non-public enterprises and meanwhile to improve the supervision and control of non-public enterprises, through systemic and methodological improvements, and raising standards; 3. to ne-tune the protection system for private property, safeguard the legal interests of enterprises and employees, and establish and perfect a social security system; 4. to specically require governments at all levels to alters their operating methods to establish coordination mechanisms and a joint meeting system to enhance the development of non-public enterprises, to raise awareness of them, to develop innovative service methods and create a positive public atmosphere for them, and also to require non-public enterprises to operate and pay tax in accordance with legal and regulatory requirements and work to enhance their own quality; 5. to emphasise policy stability, effectiveness and exibility and to draw up clear, concrete regulations governing market access, investment and nancing, tax support, services, etc., as well as to require further promotion and deeper reform, as well as the removal of systemic obstacles to the development of non-public enterprises in order to create effective, fair competition. Following the adjustment and improvement of these signicant social policies, clear answers at the legal and policy levels can be given to three important issues, such as the proper proportion of private enterprises in the national economic structure, the social attributes of private entrepreneurs and legal protection for private property, issues which have been of popular concern, especially the party concerned, since the emergence of private enterprises. These theories and policies have unleashed great power through correct widespread practice, boosting the accelerated development of private economy and encouraging the private entrepreneurial class into a new phase of growth.

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zhang houyi II. Characteristics of the New Phase in Development of the Status of Private Entrepreneurs

The characteristics of the development of the private entrepreneurial class in its new phase can be described in ve respective terms such as class rank, economic power, social contribution, internal structure and regional distribution. A. The Private Entrepreneurial Class is Expanding due to Improved Overall Quality and Social Status As part of the common development of a number of economic sectors, private enterprises have shown the most rapid growth, a development trend which is accelerating. The Amendments to the Constitution of the People’s Republic of China, approved on 12 April 1988, established for the rst time the legal status of private enterprises. The State Council then issued the Provisional Regulations of the People’s Republic of China on Private Enterprises. Registration began across the country at the end of that year, the results of which highlighted the fact that private enterprises were growing increasingly rapidly. Development data from 1989 to 2004 can be divided into three consecutive six-year phases. In the rst phase, the number of private enterprises increased from 90,600 in 1989 to 432,200 in 1994, an increase of 341,600 within 6 years, or an annual average of 68,000; in the second phase, this gure increased from 432,200 in 1994 to 1,508,900 in 1999, an increase of 1,076,700 within 6 years, or an annual average of 215,300; in the third phase, this increased from 1,508,900 in 1999 to 3,651,000 in 2004, and increase of 2,142,100 within 6 years or an annual average of 428,400. The annual increase in the third phase is 1.99 times that of the rst phase and 6.3 times that of the second phase. Along with the accelerating development of private enterprises, the private entrepreneurial class is also growing at a surprising speed. By the end of June 2005, the nationwide number of registered private entrepreneurs (private enterprise investors) broke through the ten-million barrier to 10.3 million. Over the last decade (1995–2004), the number of private entrepreneurs increased 6.08-fold from 1.34 million to 9.486 million; the number of private enterprises increased 4.58-fold from 655,000 to 3,651,000; their total registered capital increased 17.28-fold from RMB 262.17 billion to RMB 4,793.6 billion (See Table 12.1).

a new phase in the development of private entrepreneurs 251 Table 12.1. Development of the Private Entrepreneurial Class Nationwide Units: 10,000 accounts, 10,000 persons, 100 million RMB Year

1995 1997 1999 2001 2003 2004 Proportion of increase (1995– 2004)

Private Private Employees enterprises entrepreneurs

65.5 96.1 150.89 202.9 300.6 365.1

4.58

134.0 204.2 332.4 460.8 772.8 948.6

6.08

822.0 1145.1 1699.2 2253.0 3315.8 4068.6

3.95

Total registered capital

Gross Retail industrial turnover of output consumer value goods

2621.7 5140.1 10287.3 18212.2 35304.9 47936.0

2295.2 3922.5 7686.0 12558.3 18964.5 23050.0

17.28

9.04

1006.4 1854.7 4191.0 8175.3 10035.4 13142.0

12.06

Source: Statistics Collection on Administration for Industry and Commerce, edited by the General Ofce of the State Administration for Industry and Commerce.

Overall quality of the private entrepreneurial class has greatly improved in terms of career and educational levels. A comparison of nationwide private enterprise sample survey data from 1993 with 2004 shows that initial careers have evolved from a majority of farmers, workers or service trade employees (59.9 percent of the total) to cadres of various types of enterprise and institution, professionals and sales persons (63.1 percent of the total). Their educational level has also seen a huge rise. Compared with that of 12 years ago, the ratio of graduates of junior secondary school or below dropped from 47.0 percent to 14.6 percent; graduates of senior secondary schools and secondary vocational schools dropped from 47.0 percent to 14.6 percent; while the ratio of graduates from university, including undergraduates from regular universities and specialised training colleges, increased from 16.6 percent to 46.1 percent; nally, the ratio of university graduate school graduates increased from 0.6 percent to 5.7 percent. The social status of private entrepreneurs also increased hand in hand with the improvement in their overall quality and of their social contributions through the setup, operation and management of their businesses. Nationwide, private entrepreneurs’ representatives have been chosen and recommended to be deputies to People’s Congresses,

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members of the CPCCC or of federations of industry and commerce, or selected to be model workers. According to statistics, over 9,000 have been elected deputies to People’s Congresses above the county level, over 30,000 have been put forward for membership of the CPCCC above the county level, and 233 (56.0 percent of the total) hold positions as executives of National Federations of Industry and Commerce, including 8 vice-chairmen, 3 who are concurrently CPCCC vice-chairmen and chairmen of federations of industry and commerce at the provincial or city level. In 2005, private entrepreneurs were formally placed on the selection list of model workers. After a strenuous selection process, more than 30 across the country were selected to be model workers, represented by Xu Jiayin, chairman of the board of Guangzhou Hengda Group. Besides, according to statistics from the Organisation Department of the CPC Central Committee, 2.41 million new members were admitted to the Party in 2004, including over 11,000 people from other social strata and 894 private entrepreneurs. On 8 April 2004, a notice issued by the Organisation Department of the CPC Central Committee made clear that people involved in the operation and management of private enterprises could also participate in the public selection of national civil servants. In 2005, two persons involved in the operation and management of private enterprises in Wenzhou, Zhejiang Province, became local government civil servants through public examination. B. Expanded Operations and Increased Economic Power Allow Private Enterprises to Play an Important Role in Economic and Social Development in Some Areas In 2004, the average registered capital of an individual private enterprise was RMB 1,313,100, an increase of 11.78 percent compared to the year before, and 2.16 times that of 1995. The number of private enterprises with registered capital exceeding RMB 1 million reached 1,091,100, an increase of 507,400 or 86.93 percent in comparison with the previous year, making up 29.9 percent of the total. The number of private enterprises with registered capital between RMB 1 and 5 million reached 551,600, an increase of 12.7 percent in comparison with the previous year; those with registered capital between RMB 10 and 100 million reached 75,300, an increase of 48.68 percent in comparison with the previous year, making up 2.0 percent of the total; there were a total of 2,103 large enterprises with registered capital exceeding RMB 100 million, an increase of 947 or 81.9 percent compared to the previous year, making up 0.06 percent of the total.

a new phase in the development of private entrepreneurs 253 Information for 2005 on China’s large industrial enterprises issued by the State Statistics Bureau also shows that the number of such enterprises exceeded 100 for the rst time. According to 2004 economic census data, 118 private industrial enterprises met large industrial enterprise criteria, i.e. “main business income of RMB 300 million and above, total capital of RMB 400 million and above, 2,000 employees and above”, an increase of 47.5 percent in comparison with the previous period. There are altogether 2,154 large industrial enterprises nationwide, of which 1,229 are state-owned holding enterprises and collectively-owned enterprises. For over twenty years, the China’s national economy has grown by an average of 9.4 percent annually, while the added value created by the non-public economy has increased by an average of more than 20 percent annually. Since the mid-1990s, the non-public economy has provided over 70 percent of new employment opportunities in cities and towns and over 70 percent of employment opportunities to migrant workers from the countryside. For the country as a whole, the non state-owned economy accounted for over 60 percent of the national economy, of which, the non-public economy accounted for approximately one-third. At the local level, the non-public economy has become the main portion of the local economy and a main source of scal revenue in a number of places. The proportion of the nonpublic economy exceeds 70 percent in Zhejiang province, and exceeds 90 percent in Wenzhou, Taizhou and other places. For the country as a whole, all counties and cities with strong overall economic power have a large proportion of non-public economy. C. Private Enterprises Make Outstanding Social Contributions with Evident Economic and Social Benets In 2004, private enterprises generated an industrial output value of RMB 2,305 billion, and retail turnover of consumer goods reached RMB 1,314.2 billion, increases of 21.54 percent and 30.96 percent respectively in comparison with the previous year, as well as generating foreign exchange earnings of RMB 167,447 million, which amounted to 3.24 percent of national export turnover, and paid business tax of RMB 199,500 million, or 4.71 percent of total national tax income. Private enterprises have become a main channel for employment and re-employment, and play an important role in maintaining social stability. In 2004, over 40.686 million people were employed in China’s private enterprises, an increase of over 7 percent in comparison with the

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previous year. A total of 2,633,400 laid-off workers were re-employed in various private enterprises nationwide, accounting for 51.64 percent of the 5,100,000 laid-off workers re-employed that year. Of these, 898,000 set up individual industrial and commercial businesses under the Reemployment Preferential Certication scheme; 66,500 invested in private businesses; and 889,100 were employed by private enterprises. D. Limited Liability Companies and Service Sector Still Play Dominant Roles in Determining the Internal Structure of Private Enterprises 1. Growing diversication of private enterprises’ organisational makeup and increase in proportion of company enterprises Following the approval of China’s Company Law in 1994 and the improvement of the enterprise system, large numbers of private enterprises in certain areas are converting from household businesses and partnership enterprises to company enterprises. Nowadays, the private limited liability company has become the dominant organisational structure for private enterprises in terms of growth speed although not in terms of quantity. Especially worthy of note are the drops in the numbers of proprietorship enterprises and partnership enterprises, of 24.93 percent and 14.69 percent respectively compared with those of a decade previously (See Table 12.2). 2. Further adjustment and optimisation of industrial structure, ongoing rapid development of high-tech industries such as communications and IT services, and ongoing increase of proportion of tertiary industry According to new industry classication statistics, registered private enterprises in China at the end of 2004 comprised 1,068,500 in the manufacturing industry (29.27 percent of the total), 136,500 in the architectural industry (3.74 Table 12.2. Organisational Makeup of Private Enterprises Unit: % Year Proprietorship enterprise 1995 1997 1999

46.01 40.34 32.78

Partnership enterprise 18.08 13.60 8.85

Limited Year liability company 35.91 46.06 58.36

2001 2003 2004

Proprie- Partnership Limited torship enterprise liability enterprise company 25.50 22.01 21.08

6.46 4.01 3.39

68.04 73.96 75.50

Source: Statistics Collection on Administration for Industry and Commerce (relevant years), edited by the General Ofce of the State Administration for Industry and Commerce.

a new phase in the development of private entrepreneurs 255 percent of the total), 1,369,600 in wholesale and retail trade as well as the hostel and catering industry (37.52 percent of the total), a rapidly growing 142,800 in other elds such as communications, IT services, software, etc. (3.91 percent of the total), and 206,400 in residential and other services amounting to 4.03 percent of the total. From the point of view of industrial structure, primary and tertiary industry private enterprises have grown more rapidly than in secondary industry. At the end of 2004, private enterprises in primary industry had increased to 67,200, up 24.68 percent on the year before, accounting for 1.84 percent of the total; those in secondary industry had increased by 17.35 percent to 1,252,100, accounting for 34.3 percent of the total; and those in tertiary industry had increased to 2,331,400, a hike of 23.7 percent compared with the year before, accounting for 63.86 percent of the total (See Table 12.3). E. Private Enterprises in Eastern China and in Urban Areas Still Constitute a Majority 1. Imbalance in the Regional Distribution of Private Enterprises Two-thirds of private enterprises in China are located in the east, of which more than a half are centralised in six provinces and cities such as Jiangsu, Shanghai and so on. From a point of view of development trends, those in western areas are increasing while those in central areas are dropping (See Table 12.4). At the end of 2004, there were 2,476,400 private enterprises in eastern China (excluding Guangxi) with 32,484,400 employees and registered capital of RMB 3,328,891 million, accounting for 67.84 percent, 64.75 percent and 69.44 percent of their respective totals, the proportion of which, increased by 0.34 percent compared with

Table 12.3. Industrial Structure of Private Enterprises Unit: % Year

Primary industry

Secondary industry

Tertiary industry

Year

Primary industry

1995 1997 1999

0.96 1.72 2.24

50.46 44.82 40.76

48.58 53.46 57.00

2001 2003 2004

1.84 1.79 1.84

Secondary Tertiary industry industry 37.82 35.50 34.30

60.34 62.71 63.86

Source: Statistics Collection on Administration for Industry and Commerce (relevant years), edited by the General Ofce of the State Administration for Industry and Commerce.

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zhang houyi Table 12.4. Regional Distribution of Private Enterprises Unit: %

Year

East

Centre

West

Year

East

Centre

West

1995 1997 1999

67.50 64.65 67.07

22.00 23.41 20.03

10.50 11.94 12.90

2001 2003 2004

68.42 69.34 67.84

17.75 17.15 16.57

13.83 13.51 15.59

Source: Statistics Collection on Administration for Industry and Commerce (relevant years), edited by the General Ofce of the State Administration for Industry and Commerce.

Table 12.5. Development of Private Enterprises in the 6 Provinces and Cities Unit: % Year 1995 1997 1999 2001 2003 2004 Rate of increase (1995– 2004)

Jiangsu

Gungdong

Zhejiang Shanghai Shandong Beijing

4.13 6.99 13.57 22.55 34.37 41.80

8.92 12.03 16.11 21.10 32.31 38.98

7.16 9.18 14.64 20.88 30.21 33.32

3.98 6.94 11.00 17.64 29.17 38.49

5.19 7.67 12.12 14.47 22.86 27.61

0.96 0.95 8.32 12.41 18.68 22.47

9.12

3.37

3.65

8.67

5.32

22.40

% of total 46.36 45.54 50.21 53.75 55.76 55.51

Source: Statistics Collection on Administration for Industry and Commerce (relevant years), edited by the General Ofce of the State Administration for Industry and Commerce.

the regional distribution in 1995 (See Table 12.4). Six regions all exceeded 200,000 private enterprises: Jiangsu (418,000), Guangdong (389,800), Zhejiang (333,200), Shanghai (384,900), Shandong (276,100) and Beijing (224,700). The number of private enterprises in these six provinces and cities amounted to 55.51 percent of the national total, up by 9.15 percent from a decade previously. The number of private enterprises in the three provinces and cities of Jiangsu, Shanghai and Guangdong (1,192,700) was 18,400 higher than the total in the western and the central regions of the country (1,174,300). Also worth noting is the 5.68-fold increase in the number of private enterprises in the six provinces and cities, and the almost ten-fold increase in those in Jiangsu and Shanghai (See Table 12.5). In 2004, there were 604,800 private enterprises in central China (excluding Inner Mongolia) with 9,378,300 employees and registered

a new phase in the development of private entrepreneurs 257 capital of RMB 765.218 billion, accounting for 16.57 percent, 16.56 percent and 15.96 percent of their respective totals; those in western China (including Guangxi and Inner Mongolia) totalled 569,500, with 8,309,800 employees and registered capital of RMB 669,487 million, accounting for 15.59 percent, 16.56 percent and 14.6 percent of their respective totals (See Table 12.5). 2. Continuous growth of private enterprises in urban areas By the end of 2004, there were 2,391,000 private enterprises in urban areas, accounting for 65.48 percent of the total, and 1,260,000 in rural areas, accounting for the remaining 34.52 percent. From 1995 to 2004, the number of private enterprises in urban areas increased by 8.73 percent, while that in rural areas dropped by 8.73 percent (See Table 12.6).

III. Current Issues Facing the Development of the Status of Private Entrepreneurs In the course of furthering reform and liberalisation, the gradual improvement of the market economic system and, especially, the sustained rapid development of the national economy, the transformation of economic development modes are inevitable. Against such a background, the development of the private entrepreneurial class will face a number of new challenges. A. Anxiety Over Essential Production Factors “No anxiety over essential factors” has become “insufciency of essential factors”, a real anxiety for modern-day operators of private enterprises, and a popular occurrence in east China, especially in areas where private enterprises are well developed. In recent years, the electricity supply in many towns and counties has fallen short of demand. During the peak electrical power usage periods, many enterprises have to operate Table 12.6. Private Enterprises in Towns and Cities across China Unit: % Year

Urban areas

Rural areas

Year

Urban areas

Rural areas

1995 1997 1999

56.75 62.00 59.25

43.25 38.00 40.75

2001 2003 2004

63.66 63.75 65.48

36.34 36.25 34.52

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a three-day week. This becomes an obstacle to enterprises’ production capabilities, to counter which they have to provide their own generators, which involves additional cost as well as environmental pollution. Lack of land for industrial use is also becoming a serious issue. Since 2003, when the state took over macro-economic control and began to regulate the land market, further difculties have appeared in the industrial use of land. In order to expand their business activities, many enterprises nd that they must move some or even all of their workshops, or build multi-storey workshops. The ever-increasing price of raw materials is also an additional burden on enterprises’ production costs. Problems with shortages of skilled workers over the past few years have as yet no effective solution: whereas shortages of production line workers are due to low salaries, shortages of skilled workers are caused by the lack of education and training, which cannot be solved in the short term. Obtaining nancing has also been a lasting, complex and hard-to-solve problem since private enterprises gained their legal status. As very few private enterprises in China are listed on stock exchanges, they also have very little possibility of raising money through the listing of shares. The four largest commercial banks mainly service state-owned enterprises. According to some sources, oating capital accounts for at least three-quarters of bank loans, a mere 1 percent of which given to private enterprises. B. Sluggish Production Market Internal and exterior factors affecting China’s markets have undergone violent changes in recent years. Increased market mergers in many countries and cut-throat international competition prompted by economic globalisation and development in high technology such as IT and internet have turned the tables in the relations of supply and demand on China’s domestic market, from seriously short supply to overproduction, from a seller’s market to a buyer’s market. This is a watershed marking the change from an age of production and consumption of life necessities to that of consumer goods. In the past, the population consumed the product of enterprises, whereas enterprises now produce items for the population’s consumption. The consumption of urban residents, 40 percent of the total population, accounts for 70 percent of market share. They are increasingly demanding automobiles, houses, computers, etc. instead of everyday clothing and daily-use articles, although a good number of private enterprises still

a new phase in the development of private entrepreneurs 259 produce such “life-essential” products and services. As a result, these private businesses are experiencing a dearth of demand for anything that they produce. There are now mountainous surpluses of some lowtechnology products such as clothing. C. Reform of Government Functions Lagging, Causing “Departmentalisation of National Benet and Legalisation of Departmental Benet” Negative attitudes from certain operational departments are seriously holding back the implementation of Central Committee principles and policies. The effective supply of consumer items can only be affected under the operation of the market mechanism, and the market economy requires a government whose power is limited. The functions of the market in the distribution of resources should be optimised, while the government’s function is to remedy market defects to provide public products and services that cannot be effectively provided by the market, to enhance management by economic and legal means, to further reduce and regulate administrative review and approval, and to set up, netune and implement a system of market access. However, government and certain departments effectively control many scarce resources as well as market access. The freedom to distribute resources and to regulate market access provides opportunities for personal gain for certain ofcials—some have even become millionaires through the misuse of their power. The real reasons for the psychology of hatred of the rich lie in certain ofcials’ avaricious demands for kickbacks backed by abuse of power. This has of course affected many private entrepreneurs, and if unsolved, the problem will become a serious barrier to the development of private enterprises. D. Internal Problems Persist within Private Enterprises 1) Many private enterprises are small-sized. According to statistical analysis in 2004 by the State Administration for Industry and Commerce, an average Chinese private enterprise has registered capital of RMB 1,313,100 and 13.74 employees (including 2.6 investors and 11.14 workers). The average per company output value generated by private enterprises in the primary and secondary industries is RMB 1,747,100, while per company average retail turnover in consumer goods generated by those in the tertiary industry is RMB 563,700. Further analysis shows that companies with registered capital exceeding RMB 1 million

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account for 29.9 percent of the total. In other words, those with registered capital under RMB 1 million account for 70.1 percent of the total, of which, a large number are lacking in core competitiveness and differentiating characteristics in terms of products and services. They operate when there are orders, and close down when there are none. Since local governments preferentially assist healthy, performing enterprises and banks prefer the rich to the poor, it is usually very difcult for small enterprises to obtain effective government support. While a small number of large enterprises develop rapidly, a large number of small and medium-sized enterprises close or go out of business every year. According to statistical data for 2004, there were 939,800 newly established private enterprises that year, but only 645,200 enterprises expanded in comparison with the previous year. Comparing the two gures, it is obvious that 293,100 companies closed or went out of business, accounting for 8.03 percent of the total that year. 2) The lack of competitive advantage is universal. A government department in Zhejiang Province distributed 3,000 questionnaires within the province. When asked about their competitive advantage, half the private enterprises answered that they depended on low prices. That means that quite a number of enterprises have yet to make an economic prot, and were still growing by depending on the “Four Lows”—low cost, low price, low technology and low added value. Data analysis shows that 63.0 percent of enterprises are labour-intensive. The mass regional economy covers 85 counties and towns in the province with a total output value of RMB 599.3 billion, nearly half of the total for the province. But the prime function of the mass economy is to pursue absolute prot by continuously extending productive capability. In this investigation we have focused on the fact that a certain number of private entrepreneurs come from humble backgrounds such as farming, labour or normal service staff. They hire unskilled rural workers to work in their relatively unsophisticated workshops, and it is fair to assume that products are usually low technology and low added value. Due to low prot margins, they are unable to re-invest in brand development, independent research and development, nor in channel building; furthermore, due to low prot levels, they must keep workers’ salaries low and pursue even minimum prots, thus creating a vicious circle. 3) China’s enterprises as a whole (including private enterprises) have entered an era of meagre prots. State Statistics Bureau data shows that

a new phase in the development of private entrepreneurs 261 the size of enterprise prots is falling while losses are increasing, indicating that enterprises are entering an era of meagre prots. The six years from 1999 to 2004 were a golden age for the development of China’s industrial enterprises. During that period, enterprise prots increased 40.5 percent on average and accumulated prots reached RMB 3,669.4 billion, 1.7 times the total accumulated prot from industrial enterprises over the past 21 years from 1978 to 1998. But from January to October 2005, actual prots of large-scale industrial enterprises was RMB 111.7 billion, an increase of 19.4 percent compared with that of the same period of the previous year. This indicates that in the future a number of industries in certain sectors will have similar prot levels or exist and develop with meagre prots. Under such a state of affairs, private enterprises must radically alter their growth mode and focus from one of seeking excessive prot in a virgin market (where demand exceeds supply) to one where they develop core competitiveness by selecting and re-structuring their products and businesses to create unique advantages and characteristics.

PURSUING HARMONIOUS AND EQUAL EDUCATION Yang Dongping

2005 saw numerous macro-level changes in China’s public education policies. Education in China has expanded tremendously in recent years in terms of quantity and capacity at different levels, as well as in terms of increased public access to education. This rapid development has however been supported primarily by the “industrialisation” of the education system due to a serious lack of state funding. This has led to such phenomena as excess charges, duplicate charges, buying of education, and intense competition for positions in top schools. Such irregularities have widened the gap between urban and rural education facilities, and between different regions and different schools. The quality of education has also dropped to a certain degree, while the public, equitable nature of education has been eroded. As a result, the public image and reputation of education have dropped to a very low level. In 2005, social criticism of this situation reached new heights. Public demands grew louder over the course of the year for a return of education to an equitable, public level of service, as well as for free rural compulsory education, while at the same time criticising the “industrialisation of education”. China is currently drafting the 11th Five-Year Plan, with its basic tenets of building a harmonious society based on scientic development, and this includes the development and reform of education until 2020, as well as alterations to the Compulsory Education Law. Various educational issues of great public concern are now on the reform agenda, and the time has nally come for a thorough review of education development, as well as an adjustment of public education policies, both of which are eagerly anticipated by the general public.

I. Summary of Developments in Education in 2004 A. Basic Overview of Education at All Levels 2004 education statistics and education results during the 10th Five-Year Plan indicate the many successes achieved at all levels of education. That

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year witnessed the consolidation and expansion of nine-year compulsory education. 93.6% of areas now basically had access to nine-year compulsory education with the eradication of youth illiteracy, while the gross junior middle school gross entrance rate reached 94.1%. 36.49 million students were registered in senior middle school in 2004. Of these, 22.2 million were studying in regular senior middle schools, 1.9 times the gure in 2000. The remaining 14.09 million students were studying in mid-level vocational schools, marking the rst reversal in the continuous decline in recruitment to such schools. Students in regular senior middle schools made up 60.8% of all senior middle school students. Due to a decline in the school-age population and an adjustment in school distribution in 2004, the number of primary schools dropped by 31,700 against the previous year, junior middle schools were reduced by 973, and mid-level vocation schools fell by 142. In 2004, 62.9% of junior middle school graduates entered higher educational institutions, 3.3% more than in the previous year. The gross recruitment rate for senior middle schools was 47.55%, almost 3% higher than in the previous year. China’s population above the age of 15 had received an average of 8.3 years of education. In other words, the average education of the work force has risen from primary school level to junior middle school level. In 2004, a total of 326,300 graduate students were recruited (of which 273,000 were for master’s degrees and 53,300 for doctoral degrees). Regular higher education institutions recruited 4.4734 million students, comprising 2.0991 million undergraduates and 2.3743 million higher vocational school students. In 2004, over 20 million students were registered in higher educational institutions, of which 13.33 million were undergraduates or in higher vocational schools; a further 820,000 graduate students were registered. These two gures were respectively 2.4 and 2.7 times those of the year 2000. The gross higher education recruitment rate reached 19%, indicating that higher education had successfully reached out to the entire population. In 2005, the country’s higher education institutions planned to recruit 4.75 million students, including 2.3 million undergraduates as well as a much larger quota of students from the Western areas of China.1 They received a total of 8.67 million applications.

1

“8.67 million students take university entrance examinations”, China Youth Daily, 3 June 2005.

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In 2004, there were a total of 785 privately-run educational institutions at various levels. Of these, 228 were regular higher education institutions and adult higher education institutions, with 1.3975 million registered students (including students in independent institutions), comprising 10.47% of students registered in regular higher educational institutions, 3.16% higher than in the previous year. Private regular senior middle schools and mid-level vocational schools recruited 2.9468 million students, accounting for 8.21% of all students in regular high schools and mid-level vocational schools, representing a 1.36% hike in the gure for the previous year.2 In 2004, the funds allocated for scal education in the national budget reached RMB 420 billion, 1.7 times that of 2000. The public budget for each student in primary and middle school increased, and the issue of teacher salary payment delays was solved thanks to county-level focused management reform of elementary education. Compulsory education schools have implemented a single fee system nationwide to standardise education fees, and the Sunlight Project initiated in 2005 for university entrance examinations and enrolment also obtained positive results.3 B. Use of Education Funds in 2004 In 2004, China’s funding of education reached RMB 724.26 billion, an increase of 16.66% over the previous year. State scal education funding was RMB 446.586 billion, an increase of 15.98% over the previous year. Compared with the average levels worldwide and in developing countries, China’s overall investment in education is still undeniably low. But surprisingly, the share of scal education funding in the national budget compared to GDP has decreased continuously for three years. In 2002, the percentage was 3.32%; in 2003, 3.28%, a year-on-year decrease of 0.04%; in 2004, it reached a record low of 2.79%, or 0.49% lower than the previous year’s gure. A possible reason for this decrease comes from the national economic survey, which indicates that in 2004, the country’s GDP grew by RMB 2.3 trillion.

2 “China’s privately-run education system expands”, China Education News, 2 March 2005. 3 “2004 National Education Development Statistics Communiqué” issued by the Ministry of Education, China Education News, 28 July 2005; “Implementing scientic development to speed up education development”, China Education News, 2 October 2005.

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The following table shows China’s education funding since the 1990s. Table 13.1. Percentage of national scal education funding to GDP since the 1990s Year % Year %

1991 2.86 1998 2.55

1992 2.74 1999 2.79

1993 2.51 2000 2.87

1994 2.51 2001 3.19

1995 2.41 2002 3.32

1996 2.44 2003 3.28

1997 2.49 2004 2.79

Source: From a Country with a Huge Population to a Country with Strong Human Resources, p. 563, Higher Education Publishing House, 2003. Figures after 2000 are drawn from materials published annually by the Ministry of Education.

At the national level, per-student expenditure on education and use of public funds have both increased, most notably in rural primary and junior middle schools (See Table 13.2). Table 13.2. Per-student funding at all levels, 2004 Educational expenditure per student National Increase (RMB) over previous year (%)

Rural (RMB)

Public funds expenditure per student

Increase National Increase Rural Increase over (RMB) over (RMB) over previous previous previous year (%) year (%) year (%)

Regular primary schools

1,129.11

21.21 1,013.80

25.15

116.51

39.55

95.13

56.18

Regular junior middle schools

1,246.07

18.45 1,073.68

23.16

164.55

29.25 125.52

47.65

Regular senior middle schools

1,758.63

9.46

290.31

9.62

Vocational middle schools

1,842.58

9.37

267.70

11.90

Regular higher educational institutions

5,552.50

–3.81

2,298.41

–2.29

Source: Ministry of Education, State Statistics Bureau and Ministry of Finance: 2004 National Educational Funds Implementation Statistics Communiqué.

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Judging from the use of education funds, however, a number of provinces and autonomous regions still fail to meet the requirements for increasing education investment stipulated in the Education Law. In 2004, budgetary education funding increased at a lower rate than the scal permanent income increase rate in 11 provinces and autonomous regions: Shanxi, Inner Mongolia Autonomous Region, Jiangsu, Anhui, Fujian, Shandong, Henan, Tibet Autonomous Region, Gansu, Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region. Budgetary education funding comprised a lower percentage of scal expenditure than in the previous year in 19 (or nearly two-thirds) of China’s provinces, municipalities and autonomous regions: Tianjin, Hebei, Shanxi, Inner Mongolia, Jilin, Heilongjiang, Shanghai, Fujian, Jiangxi, Shandong, Henan, Hubei, Hunan, Guangxi Zhuang Autonomous Region, Hainan, Sichuan, Guizhou, Shanxi and Gansu. Increasing China’s investment in education has been a big problem. In contrast with the low levels of funding for cultural, educational and research causes, the government’s administration funds have been increasing sharply. For example, in government scal expenditure for 2003, economic development took up 30.6%, social, cultural and educational expenditure 26.2%, and administration expenditure 19.03%. The growth in social, cultural and educational expenditure has been very slow: from 1995 to 2003, this increased annually by 17.4%, but by less than 1% of total government expenditure in all eight years. Administration expenditure grew at the fastest pace, at an annual growth rate of 21.4%, or 4.4% in eight years. This rapid growth has continued over the past two years, indicating a distortion in government functions. On the one hand, the government still plays a signicant role in directing the economy; on the other, it has failed to manage its roles in education, medicare, employment, housing, social security and other aspects.4 A nal solution to this problem requires the government to play the correct role of providing public services while establishing a nancial system for public education.

4 “How to tackle issues in China’s development”, Zhang Shuguang, Gao Huiqing and Niu Li, Reform Internal Reference, Issue 34, 2005.

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yang dongping II. New Developments in Education in 2005

A. Promoting the Balanced Development of Compulsory Education Balanced development has become the new emphasis for compulsory education. During the National Elementary Education Meeting held in March 2005, the Ministry of Education emphasised that priority should be given to the balanced development of elementary education and that fair, equal education should be a permanent aim. The Ministry also wants to stress the importance of rural compulsory education, so as to improve rural education and lessen the gap between rural and urban education. Regular senior middle schools must also avoid the negative trend of extravagant spending. The focus should be placed upon solving the unbalanced development of schools within the same region, as this has received the severest popular criticism. In May 2005, the Ministry of Education issued “Suggestions on Further Promoting the Balanced Development of Compulsory Education”, an initial attempt to face the serious problems in compulsory education. The “Suggestions” pointed out that the original disparities in compulsory education between regions, urban and rural areas, and different schools were widening. These disparities were particularly manifest in educational facilities, funding, and quality of staff and education. The Ministry required education administrators at all levels to halt the growing gap between urban and rural areas, different regions and schools in an effective manner. Effective measures must also be taken to stop the trend of selecting schools for compulsory education. A basic specication is also to be drafted for compulsory education facilities so that differences between schools can be eliminated. Tuition resources should be managed as a whole, with an emphasis on improving faculties in rural areas and townships. The Ministry aims to use policy methods to ensure the rights of students from disadvantaged groups to receive compulsory education. The policy allowing compulsory education students to enter the nearest public schools to their homes without taking entrance examinations will remain unchanged. The use of “pivot schools” will not be allowed, to ensure the balanced development of compulsory education. The “Suggestions” have been implemented nationwide, and have resulted in a number of new rules, which are effectively promoting the balanced development of compulsory education. Last October, Premier Wen Jiabao identied the macro requirements for education development while explaining the 11th Five-Year Plan:

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Strengthening independent upgrading capabilities and accelerating the development of science, technology and education, implementing strategies to rejuvenate China through science and education, and boosting China’s levels of talent, and prioritising education through a full appreciation of its strategic importance. The Premier demanded that education system reform be sped up, that compulsory education be popularised and consolidated, that more attention be given to vocational education, and that the quality of higher education be improved. He indicated that quality-oriented education should be a primary goal at all levels, and that education system reform should be extended.5 The education sector summed up the Premier’s requirements in three areas: enlargement (of compulsory education), adjustment (of vocational education) and improvement (of higher education). B. Timetable Set for Implementing Free Compulsory Education In March 2005, Premier Wen Jiabao made the following announcement while delivering the Government Work Report to the National People’s Congress: “As of this year, compulsory education textbook fees and extra costs for students from poor families shall be waived in villages in pivot counties as part of China’s poverty alleviation and development initiatives, and resident students will receive subsidies for daily expenses. This policy shall be implemented in all rural areas nationwide by 2007 so that all children from poor families are able to attend school and complete their compulsory education.” Numerous media reports misreported this speech to mean that free compulsory education would be implemented in rural areas by 2007, but the Premier was actually referring to waiving textbook fees and extra costs through the provision of subsidies to students from poor rural families. The central government has increased support for rural compulsory education. As of spring 2005, the number of poor students who no longer pay for textbooks and extra costs thanks to these subsidies increased from 24 million to 30 million. Approximately 16 million rural students in 592 impoverished state-level counties are no longer required to pay for textbooks and extra costs. An increasing number of resident students are also receiving subsidies. On average, primary

5 “Explanation on suggestions for drawing the 11th Five-Year Plan of national economy and social development”, Wen Jiabao, Guangming Daily, October 20, 2005.

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school students each pay RMB 200 less for textbooks and extras, and junior middle school students pay RMB 340 less. Between 2005 and 2007, the policy of waiving textbook fees and extras through the provision of subsidies will be fully implemented, with a central government allocation of RMB 22.7 billion. On 10 November, the State Council Information Ofce issued the State Report of China’s Education for All, which indicates China’s intent to invest more energy and funding into the development of rural education. The report states that rural compulsory education will be included in the public nance system, and that the central and provincial governments will increase investment in compulsory education in rural areas, especially in the central and Western areas of China. By 2010, it is hoped that free compulsory education will cover rural areas nationwide; by 2015, free compulsory education will be available nationwide. This marks the rst time that the central government has set a timetable for implementing free compulsory education. It now appears that this timetable has been further accelerated. On 28 November, Premier Wen Jiabao, during a speech to UNESCO’s Fifth High-Level Group Meeting on Education for All, announced: “Starting next year, China will waive all tuition fees and extra costs during compulsory education in rural areas within two years.” He thus moved forward the timetable for implementing free compulsory education in rural areas by three years. C. Speeding up the Development of Mid-Level Vocational Education On 7 November, the National Vocational Education Conference was held, focusing on mid-level vocational education. This was another important event for vocational education, following the Higher Vocational Education Conference held in 2004. The November meeting resulted in the State Council Decision on the Development of Vocational Education, which outlined new plans for the growth of mid-level vocational education. In 2004, China’s regular senior middle schools recruited 8.2 million students, while mid-level vocational schools recruited 5.5 million students. The new aim is to recruit a further 1 million students into mid-level vocational schools by 2006. By 2010, over 8 million students will be studying in mid-level vocational schools, matching the number of students in regular senior middle schools. To achieve this aim, government departments at all levels will increase spending on vocational

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education. From 2006 onwards, vocational education will receive an increased portion of the urban education budget, a support system for poor students in vocational education will be established, leading government ofcials will also be judged by their performance in vocational education, and the general vocational education plan will include private-funded education, amongst other initiatives. Serious shortages of skilled workers have appeared in recent years in the prosperous coastal regions and large cities, illustrating the backwardness of vocational education. According to the Beijing Municipal Bureau of Labour and Social Security, Beijing businesses need a skilled employee percentage of 40%, but this currently stands at only 30%; in other words, a further 100,000 skilled workers are needed.6 There are several major problems: the rst is the lack of investment. In 1997, 11.17% of China’s total education budget was allocated to vocational education. This percentage dropped to 6.35% in 2002, however, although vocational education actually requires higher funding than regular education. International standards suggest a level approximately three times the funding of regular senior middle schools. In China, public funding for an average senior middle school student in 2003 was RMB 264.83, but a vocational senior middle school student only received RMB 239.23.7 The second problem lies in their management system: education departments have their own vocational education system, while the labour and social security departments have established their own, separate technical schools. Technical training and technical skills upgrading are also currently a form of academic education. The third problem is the lack of an employment system: many vocations still have no basic requirements for any form of training. At the same time, vocational certication remains chaotic, with accountancy, law, public health, labour and other departments all providing their own certication. The nal problem is the backward management of public vocational schools, which can only barely meet market requirements. In summary, the most urgent issue in developing vocational education is the renovation of the education system and its mechanisms. In a market economy, we need to explore ways of developing vocational education by creating mechanisms that t the market and society.

6 “Vocational Education needs new breakthrough”, Ji Kexian, Modern Education News, 31 August 2005. 7 ibid.

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D. The “Sunlight Project” for University Entrance Examinations and Enrolment has been Effective In April, the Ministry of Education issued a notice and regulations for the implementation of the “Sunlight Project” in university entrance examinations to prevent and curb corruption. The Ministry required education departments at all levels to administer university entrance examinations correctly and to enhance standardised management, so as to ensure the openness of the entire student recruitment process and allow the world at large access to information on student enrolment, and to allow the public and the media to monitor student recruitment. At the same time, the Ministry requested that a system of responsibilities in university entrance examinations and the recruitment of students be established and developed. A number of measures have been taken: All students must sign a credibility promise when ling an application for the university entrance examination. This credibility promise is stored digitally, and the names of students who are added with bonus points for certain reasons are made public, together with their admission status. The quota for adjusting undergraduate recruitment plans has been reduced from 3% to 1%. Provincial universities are now allowed to recruit students with predetermined skills from outside the province, but in order to do so, universities must receive approval from the Ministry of Education to prevent violations. Similarly, hospitals which provide physical examinations to students are to be responsible for their medical certicates. Across the country, different measures have been taken to enforce the Sunlight Project. For example, Zhejiang Province now publishes all information pertaining to the recruitment of university students. The Provincial Education Bureau publishes all information relating to university applications, national entrance examinations, as well as students’ completed application forms for their intended universities. The entire university entrance examination and recruitment process is now operated “in broad daylight”. In Hunan Province, student recruitment policies, plans, procedures, consultations, admission results and complaints are all open to the general public. The “Sunlight Project” has achieved positive results. It is fair to say that 2005 saw no foul play in university entrance examinations and recruitment. However a major issue occurred with the recruitment of postgraduates: a professor from the Social Sciences Institute of Beijing’s Jiaotong University was suspected of leaking examination questions in exchange of money, and also of involvement in a sex scandal.

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E. Senior Middle School Examination Reform has been Implemented Nationwide In 2005, many provinces and municipalities initiated new courses for students preparing to graduate from junior middle schools. This marked the beginning of a new appraisal system for middle schools. Reforming the appraisal system will not only determine the fate of new courses, but also provide important experience in the reform of university entrance examinations. Reform test zones such as Beijing’s Haidian District, Guangzhou in Guangdong Province, the Nanshan District of Shenzhen in Guangdong, as well as in Anhui, Jiangxi and Hainan provinces have been testing reforms to the middle school examination system in various ways. Essentially, they all made changes to the traditional method of relying solely on total examination scores: reforms were carried out in three areas: academic examinations, appraisal of the general capabilities of junior middle school graduates, and senior middle school student recruitment. In Guangzhou, the capital of Guangdong Province, the traditional way of combining the examination scores from different courses has been abandoned, and a new grading system introduced to provide scores and recruit students. An overall appraisal of a student’s performance over all three years of junior middle school has become the basis for determining the student’s graduation from junior middle school and admission to senior middle school. In the tuition reform test zone in Jiangxi Province, a student’s overall appraisal is now an important criterion for entrance to senior middle school. This overall appraisal grades items such as the student’s daily performance, PE, health, arts, habits, morals, etc. according to four levels. In Weifang, Shandong Province, senior middle school recruitment has become multi-faceted: students can be selected for their general appraisal, by recommendation, or for their talents in arts and/or sports. Another reform in the city has split the single entrance examination into two parts, held in January and June respectively. Students are appraised according to their best scores on a six-step scale. Good planning, careful implementation, effective monitoring and ample promotion has ensured the smooth implementation of this important reform in Weifang. Anhui Province has always insisted that primary school students should enter the nearest junior middle school to home with no entrance examination requirement, and the few violations of this rule were rmly dealt with. The province also implemented grading appraisal and general capability appraisal as part of its reforms of the senior middle

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school entrance system. In autumn 2005, 45% of the recruitment quota for provincial and municipal level model senior middle schools was distributed over all junior middle schools. In three years’ time, all of the recruitment quota for model schools will be shared among junior middle schools so that students are not forced to take examinations, and will have more time for balanced development.

III. Signicant Debates and Policy Adjustments in Education From the beginning of 2005, educators have held a series of debates on important issues such as free compulsory education, the industrialisation of education, quality-oriented education and balanced compulsory education. Under the new development outlook, these debates have allowed the effective adjustment and transformation of education values and their associated policies. A. Debate over Quality-Oriented Education In recent years, the elementary education sector has seen the appearance of certain negative trends: parents are more eager than ever to select the top schools, which in turn demand ever higher entrance fees; primary and middle school students are burdened with increasing amounts of homework; students are required to take an ever-increasing number of extracurricular courses; the health of many students has been seriously affected by the blind rush for good scores in mathematics contests and various certication examinations. At the same time, schools are chasing a higher rate of students entering higher education, a process in which some local governments have also played a part. The number of university entrants has become the only criterion for judging the success of the education system in certain areas. Certain local governments even require schools to achieve the top list, and school leaders who fail to achieve this are transferred or even dismissed. Such practices have acerbated the already serious shortcomings of examination-oriented education. In July 2005, Yushe, Shanxi Province performed poorly in national university entrance examinations, leading the standing committee of the local Communist Party to televise an apology to the local population, and to suspend the leaders of Yushe Middle School. They even set aside an annual salary of RMB 100,000 to hire a new school principal from across the province. This became

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sensational news.8 Certain county-level middle schools also implement strict seclusion, and require students to undergo systematic training for university entrance examinations. Such education models have become the topic of heated discussions. Despite access to ever better nutrition, students’ physical health is deteriorating. According to the results of a survey of student physical health in 2004 performed by the Ministry of Education, students’ height, weight, chest measurements and other physical aspects had grown compared to the gures for 2002. Female students however were notable for malnutrition, and of even greater concern was the drop in students’ strength, stamina, lung capacity, etc. Lung capacity has been dropping in students of all ages and genders, except for young men 16–22 years of age. 59.4% of junior middle school students were found to have eye problems, a gure which reached 77.3% for senior middle school students and 80.0% for university students. The China Juvenile Research Centre carried out a survey of Chinese primary and middle school students’ present and future studies and lives. The results show that China’s younger generation is shouldering increasing pressure—57.6% of primary and middle school students are unhappy with “the heavy pressure of studies”. Over half spend much more time than expected on their homework. In primary school grades 1 to 3, 69.2% of students must spend more time on their homework; this gure is 63.0% for primary school students from grades 4 to 6, and 55.0% for junior middle school students. The primary source of pressure is parents’ high expectations and strict requirements: 91.7% of parents expect their children to obtain at least a junior college certicate; of these, 54.9% want their children to obtain a doctoral degree. 91.3% of primary and middle school students want to obtain at least a junior college certicate; of these, 57.4% want to gain a doctoral degree. Another survey conducted by the Shandong Political Consultative Conference showed that only 3% of senior middle school students sleep 8 hours a day; 77.5% sleep 6~7 hours a day, while as many as 19.5% only sleep 4~5 hours a day.9 In June 2005, former Minister of Education He Dongchang wrote a letter to central government leaders revealing the serious problems 8 “Poorer scores in university entrance examination led to an ‘earthquake’ ”, Li Bin, China Youth Daily, 15 July 2005. 9 “How can the children be more tired than the adults?”, Lü Xueli and Song Quanzheng, China Education News, 20 January 2005.

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in the current elementary education system. This has been seen as the direct reason for the central government focus on these problems. In his letter, He identied China’s dangerous trend in elementary education of craving ever better higher education entrance rates. This type of examination-oriented education deviates from Communist Party education policy, as it pays too much attention to students’ intelligence while paying little or no heed to their morals, physical health and artistic development. It neglects real work and social practices, forcing teachers and students to focus solely on frequent tests and onerous amounts of homework. Students are burdened to such a degree that study becomes unbearable. He also pointed out that in rural areas, the aspiration for ever better higher education entrance rates has meant that the structure and content of education can neither meet the needs of local economic and social development, nor cater to popular demand. In many places, junior middle school students suffer a very high dropout rate, sometimes as high as 30%. He underlined the fact that this deviation from Party education policy will have grave consequences on China’s future, and will have damaging results. The serious distortion of Party education policy in many primary and middle schools, He said, has become a worrisome trend for many people in and out of education, but the larger problem is that no one has been able to nd an effective solution. The former education minister pointed out that the Ministry of Education’s efforts alone would not be able to solve this wide-ranging problem, but suggested that the central government look into the issue. He identied the necessity for Party leaders at all levels to gain a thorough understanding of the severity of the problem and to reach a consensus on the measures to be taken, and he concluded that this would be a test of the Party’s ability to govern.10 Focusing on the problems identied by He Dongchang, the Ministry of Education, the Publicity Department of the Central Committee of the Communist Party of China, the Ministry of Personnel, the Chinese Academy of Social Sciences, the State Statistics Bureau, the Central Committee of the Communist Youth League of China and other government bodies brought their joint skills to bear on issues such as the theory and practice of quality-oriented education, the university entrance examination and recruitment system, the testing of new

10 Dongtaixianfeng website: http://218.91.215.179/dispbbs.asp?boardid=4&id=3 2&page=1.

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courses, balanced compulsory education, international comparisons of elementary education reform, the education personnel system, the schooling system and the media environment in order to solve these problems. The People’s Daily, China Education News and many other mainstream media also promoted discussions on quality-oriented education and examination-oriented education. Through these discussions, consensus was reached on at least one issue: the underlying reasons for China’s examination-oriented education system are numerous and complex, comprising changes in society, changes in the education system, social competition and social stratication. Fierce social competitiveness is directly reected in the competition for entry to higher education institutions. The widening gap between rich and poor as well as between labourers and intellectuals, the increasing value of ofcial positions, the one-child policy, employment and other factors have all affected elementary education. At the same time, equality of education has been neglected in the development process, which has led to a widening gap between urban and rural areas and between different individual schools. Parents and students must therefore put up a erce ght to gain admission to the best schools. The bias of traditional social values and the importance that government ofcials and parents place on higher education entrance rates have aggravated the pressure on schools to focus more on examinations. Additionally, many people pointed out the enthusiasm with which the mass media have covered the achievements of scientists and entrepreneurs, while seldom revealing the lives of ordinary people. They similarly give much coverage to the top students who excelled in university entrance examinations, also leading to a tilting of social values. Many factors have led to the erce competitiveness of the examination-oriented education system. Some are external, such as educational concepts, social values, the labour market and the one-child policy. But others lie within the education system and its guiding policies, and these internal reasons have directly led to the declining quality of elementary education. A long-standing policy cultivated so-called “pivot schools”, public junior middle schools which became “schools with different systems”, charging much higher fees and assessing students using mathematics contests and various certication examinations. This increased competitiveness in primary school students wishing to select the best middle schools. It is high time to reassert the basic aim of compulsory education for the general public and its equitable nature. The government must take effective action to stop and change the policies

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and structures which have created the examination-oriented education system. Any action that creates and widens educational differences and disrupts primary education must be prohibited, and students’ rights to physical health, recreation and rest must be upheld. But cutting off the fountainhead of examination-oriented education requires the serious implementation of a policy of balanced education. B. Promoting Balanced Compulsory Education Investment in China’s elementary education is far from sufcient, and the gap between urban and rural areas is widening. But at the same time, these limited funds are being squandered to satisfy the vanity of certain individuals. It has become common in recent years to hear of senior middle school construction projects costing few hundred million Renminbi, or a primary school completed at a cost of RMB 100 million. There are even reports of kindergartens built at a cost of RMB 100 million. Some people jokingly refer to school principals comparing themselves to entrepreneurs and furnishing their ofces with the extravagance of CEOs, running schools which resemble high-class hotels, with expensively decorated oors and walls; campuses resemble public squares, with fountains and music. Yet this excessive decoration is not reected in the schools’ tuition reform initiatives or in improvements in teaching staff quality—such beautiful schools actually provide little for their students. The growing gap between urban and rural schools as well as between the common and the pivot schools has attracted teachers to the schools with the most advantages, and rural areas now suffer from a heavy outow of teachers. The top urban schools demand unreasonably high entrance fees from parents who want their children to receive the best education. Such disparities in education aggravate the social inequalities which already exist in the different social strata. Parents of children about to enter middle school must to nd ways to get their children into the best schools, usually using power or connections. Such phenomena have badly damaged the quality and reputation of the education system, which has been dubbed a “backyard of corruption” and a “proteering trade”. Education, together with medical costs and housing, has become a new “unassailable mountain”. On 10 July 2005, a 13-year-old girl in Yinchuan, Ningxia Hui Autonomous Region committed suicide, leaving an appalling death note to her parents: “You have raised me for 13 years and spent a huge amount of money! My death will save you RMB 100,000 . . . I am sorry to have let you down

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with my poor studies!”11 This was an extreme case in which the victim chose to die because her family could not afford the exorbitant fees for a better school. In some places, students had to take out usurious loans to enter senior middle schools. On 27 August, Yang Yingfang, an 18year-old senior middle school student in Xiejiaying Village, Xingying Township, Yuzhong County, Gansu Province, jumped off a cliff because her father was unable to afford school fees for her younger brother and herself. Luckily, she was saved.12 According to a survey conducted by the Development Research Centre of the State Council of 2,000 farmers’ families nationwide, each family’s average expenditure on education was RMB 5,975, or 30% of the family’s total income, ranking education top in terms of rural families’ expenditure.13 The policy of balanced compulsory education was raised a few years ago, but has yet to be seriously implemented, a situation which has been the focus of numerous public complaints. In May 2005, the Ministry of Education issued “Suggestions on Further Promoting the Balanced Development of Compulsory Education” and suggested a series of detailed steps, indicating that the Ministry has changed its attitude by beginning to tackle this problem. Since the spring of 2005, local education departments have taken various measures to intervene in the deformed education market, to standardise the management of primary and middle schools, and to reform the student recruitment system. For example, the Beijing Municipal Education Committee called off its “Yingchun Cup” Primary School Mathematics Contest. Zhejiang Province cancelled its Olympic math contests, and primary and middle schools all signed an undertaking to “relieve pressure on students”. Changchun, Liaoning Province decided to cancel experimental classes in senior middle schools and prohibit middle schools from competing for top students through illicit means. The Shanxi Provincial Education Bureau issued 13 prohibitions to elementary education institutions, putting an end to various forms of top student selection examinations, extra holiday courses for students, and so-called “fast”, “slow”, “strengthened” and

11 “Pressure to choose school forces 13-year-old Ningxia girl to commit suicide”, China Youth Daily, 25 July 2005. 12 “Rural girl jumps off cliff after being forced to drop out of school”, The Beijing News, 22 September 2005. 13 “Signicant judgment in carrying out the ‘Two Trends’ ”, Huang Hui, Outlook Weekly, 3 October 2005.

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“experimental” classes. The Hunan Provincial Education Bureau called an immediate stop to the selection of top-ranking students by primary and middle schools. Shanghai forbade well-known schools from holding classes for primary school students seeking to enter middle school. The city also issued a series of seven prohibitions to model senior middle schools, covering the holding of contests and training sessions for the selection of primary school students, and the acceptance of primary school students for middle school well before they graduate. The Ningxia Hui Autonomous Region decided to stop illicit experimental classes. In Guangdong Province, a compulsory education school classication system which had operated for over a decade was abandoned with the aim of better distributing education resources and encouraging balanced compulsory education. These measures can have a certain effect on curbing rampant competition in the selection of students and schools, but policies and prohibitions will not really affect schools unless the education system and structure are reformed to provide balanced compulsory education. In Xuzhou, Jiangsu Province, the secretary of the municipal Party committee, Xu Ming, has raised the concept of “zero-difference education” which aims at allocating educational resources in a fair manner, and narrowing the gap in education between different regions, different schools, as well as between urban and rural areas. Xu hopes to reverse the past irrational distribution of public educational resources through government action. Xuzhou has set up a system allowing rural and urban schools to co-operate and exchange resources. Urban teachers will work in rural schools on a rota basis, and urban school leaders will also provide on-site assistance in the development of rural schools. With these measures, the city aims to help underperforming and remote schools. The city had previously tried to support a select number of important schools, but the focus has now shifted to developing the overall level of education. The “zero-difference” concept, which has been warmly welcomed by the public, comprises four aspects: infrastructure development, investment, teaching staff and education quality. Despite a tortuous development process, this concept does represent the original meaning of public compulsory education, i.e. equal opportunity of education, and it indicates that China’s education policy is shifting from supporting individual important schools to assisting overall balanced development. Tongling, Anhui Province is one of the rst to see the benets of balanced compulsory education. After a decade of effort, the city is

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now probably the only place in the country where students do not need to choose schools, thanks to several measures: Firstly, education resources are distributed evenly, with priority given to disadvantaged schools. Five primary and middle schools have been built in areas with high population density, and another 17 schools have been expanded. Every urban child of school age can thus nd a school within a reasonable distance. The second measure is the exchange of principals and teachers, as these are the most important education resources and should be distributed as equally as education funds. Principals of wellknown schools shoulder a greater responsibility to help disadvantaged schools. Third is the reform of the senior middle school enrolment system, whereby entrance quotas for well-known senior middle schools are distributed among junior middle schools: as every junior middle school will provide a certain number of graduates to well-known senior middle schools, parents no longer need to worry about getting their children into the best schools. At present, 60% of the quota has been distributed, and this is increasing. Tongling learned this method from Japan and South Korea, where irrational elementary education had also been a serious problem. The practice in Tongling proves that the implementation of balanced compulsory education and the advancement of education equality are no pipe-dreams. Other cities are capable of emulating Tongling. The Wuhou District of Chengdu, Sichuan Province has also made a number of achievements in integrating rural education into the urban education system. Rural primary schools have been placed under direct urban jurisdiction and have become partners with urban primary schools, who help them with funds and teachers. This has successfully helped rural education to catch up with its urban counterpart. B. Discussion on the Implementation of Free Compulsory Education The disadvantaged position of rural compulsory education, where there is no guarantee of constant funding has been a long-lasting, serious problem. The current rural education management system places the emphasis on the counties, meaning that the county governments, which are not rich, must provide over two-thirds of the funds for rural compulsory education. Due to the lack of funding, many rural schools receive little or even no public funds; some schools are in debt, and their buildings are dilapidated; teachers are often not paid on time, or in full; parents must pay so much for their children’s education that

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some can no longer support them.14 According to a survey conducted by the “Case Study of Important Chinese Education Policies in the Social Changes” team, the drop-out rate for rural junior middle school students has seen an upward surge. The survey, conducted in 17 rural junior middle schools in six provinces, records a maximum drop-out rate of 74.37%, while the average rate is 43%, much higher than the national requirement of 3% for “popularising 9-year compulsory education”.15 At the same time, there is a serious lack of formal teachers in rural areas. A huge number of part-time teachers, estimated to total 550,000~600,000 nationwide, usually work in country’s remotest and most backward mountain areas. Many teach multiple classes and courses, and some are the school’s only teacher. Their salary ranges from two gures to approximately RMB 200 a month, or approximately one-tenth that of a formal teacher’s salary. These are the country’s most disadvantaged teachers. At the National People’s Congress (NPC) and People’s Political Consultative Conference held in March, 740 NPC representatives jointly proposed a bill to modify the Compulsory Education Law. Representative Zhu Yongxing tendered the bill, which proposes the implementation of free compulsory education in rural areas, and the restructuring of nancial investment in compulsory education. At the same time, the modication of the Compulsory Education Law has begun. The focus of these modications is to incorporate the experience of the past 20 years and to establish a funding guarantee system for compulsory education. Based on the principle of matching nancial control with administrative control, the central government and the provincial governments will both undertake a higher investment share in compulsory education. Since reform of the nancial and tax system in 1994, the share of central government nance in China’s total income has been increasing annually, from 22% in 1993 to 57.22% in 2004, as have provincial nance levels. However, central government only provides approximately 8% of compulsory education funding, so it is clear that the central government and the provincial governments ought to provide better support to compulsory education. China currently relies on payment transfers to overcome funding shortages in rural elementary education. But these are one-time external investments which offer no long-term stability. Furthermore, 14 “Bake a big cake and cut the rst slice for compulsory education”, Cheng Gang, China Youth Daily, 19 August 2005. 15 China Youth Daily, 17 June 2005.

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as these are often conducted with little transparency and are more or less unregulated, funds are often diverted for other purposes by certain government agencies. A possible solution would be the establishment of a nancial system for public education and a compulsory education funding share system. Initial revisions to the Compulsory Education Law are still under review, and although these emphasise balanced compulsory education, education funding receives little attention, which has surprised educational circles. But this is changing gradually. Public demands for free compulsory education has had some effect in certain areas. On 28 January 2005, Wei Liucheng, the governor of Hainan, made the following announcement in his Government Work Report: “This year, the provincial nance department will invest RMB 156 million to waive all tuition and extra fees for students in compulsory education on a province-wide basis, leading the way nationally.” On 4 September, Jiangsu province announced that as of 2006, the rural areas of the province’s economically backward north would receive free compulsory education. On 7 September, Suzhou, Jiangsu province, announced that free 9-year compulsory education would be instituted in the autumn of 2006. On the same day, Beijing announced that free compulsory education would be instituted in the early phase of the 11th Five-Year Plan, and that senior middle school attendance would become free at a later time in rural areas and for students from poor families. On 8 September, Guangdong province announced that starting in autumn, free compulsory education would be piloted in 16 poverty alleviation trial counties. The experiment will be expanded in autumn 2006 and implemented across the province in autumn 2008. On 19 December, Zhejiang province declared that as of the autumn semester of 2006, primary and junior middle school students would no longer be required to pay tuition and extra fees. Currently, primary and junior middle school students in Zhejiang’s urban areas are charged a semester total of RMB 100, and RMB 130 in extra fees. Students in rural areas are charged RMB 65 and RMB 90. As local governments make decisions, central government is also assuming a more active role. In October, the central government announced that extras will be waived for rural students in compulsory education within the 11th Five-Year Plan. In other words, students nationwide will pay RMB 20 billion less per year for their education. On 11 November, the Ministry of Education issued the National Report on Education for All in China, in which the government promised to allocate greater resources and funding to rural education. The majority of the increased funding will go to rural areas. Furthermore, a timetable

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for the implementation of free compulsory education has nally been drafted: in 2007, rural students from poor families will have their tuition and extra fees waived, and be eligible for subsidies; free compulsory education will be rolled out across the rural areas of China by 2010, and nationwide by 2015.16 On 28 November, Premier Wen Jiabao announced that “Starting next year, China will waive all tuition fees and extra costs during compulsory education in rural areas within two years.” This brought forward the timetable for implementing free compulsory education in rural areas by three years. On 23 December, Premier Wen presided over a meeting of the State Council which focused on improving rural compulsory education and expanding the reform of the funding guarantee system for rural compulsory education. It was decided that as of 2006, students in China’s western rural areas would have their compulsory education tuition and extra fees waived, a policy which would be expanded to China’s central and eastern areas in 2007. Students from poor families will receive free textbooks and a housing allowance. Soon after this State Council meeting, the National Rural Compulsory Education Funding Guarantee System Reform Meeting proposed details for guaranteeing funding for rural compulsory education, to be based on the identication of responsibilities at each level, joint funding by central and local governments, increasing nancial support, and a phased improvement of the guarantee level and its implementation. Rural compulsory education will be gradually integrated into the public nancial guarantee system, by establishing a rural compulsory education funding guarantee system with the central and local governments providing funds for different items and in different shares. It is planned that these reforms will be completed in ve years starting from 2006. Revisions to the Compulsory Education Law have also made substantial progress, and it is hoped to submit the modied bill to the NPC Standing Committee in 2006. C. Curbing the “Industrialisation of Education” Ministry of Education leaders have been answering criticism from the general public since 2004, pointing out that China’s government has

16 “Increased education funds will be mainly allocated to rural areas”, Jiang Xinjie, China Youth Daily, 11 November 2005.

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never advocated the industrialisation of education, and also that the Ministry strongly opposes this trend, which would ruin the cause of education. Vice Minister of Education Zhang Baoqing even said that universities should institute no further fees rises—universities should not become facilities for the rich, as this would run counter to Communist Party policy. However, public opinion on the industrialisation of education is not based on the reports and pronouncements from education authorities. Instead, it is based on the various incredibly high fees charged by education institutions, and the rampant marketing and corruption that harms popular interests and breaks education rules. The underlying reason for overcharging for rural and elementary education has been a serious shortage of state funding. In 2004, an audit of 45 counties uncovered a total of RMB 450 million in overcharged education fees, or RMB 10 million per county. A large portion of this overcharging was required to keep the schools nancially aoat, but in certain places, education funding was seen as extra funds for other government departments, such as one rural junior middle school in Hubei Province, which charged over 2,000 students approximately RMB 200,000 in extra fees. At the start of the new semester in autumn 2004, the school was required to pay various nes and fees by the local Labour Administration, Quality Monitoring Bureau, Public Security Bureau, Local Tax Bureau, public health departments, price bureau, audit bureau and others. The township government even requested funds for road construction and ood prevention, forcing the school to pay a total of RMB 17,000.17 It is a sad fact that education funding has lagged far behind actual demand, and makes up an ever decreasing share of GDP. At the same time, however, the Central Financial Expenditure Final Statement for 2004 shows that only 89% of the budget for education, science, culture and health is actually spent. The State Audit Administration carried out an audit of the Ministry of Education’s implementation of the 2004 budget and found that a limited amount of education funds were misused in violation of relevant rules and in corrupt ways. A very high rate of loans also created a serious danger of debts, resulting in a new wave of public criticism over education.

17 “Various charges put school in a tight corner”, Bao Daosu, China Education News, 14 May 2005.

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The audit of the Ministry of Education’s 2004 budget found that RMB 4.651 billion was not allocated to specic projects during the year; departments afliated to the Ministry charged a total of RMB 154 million without obtaining approval. One of these, the National College English Testing Committee, collected RMB 140 million in examination fees from local test administrators.18 The auditing of 18 universities afliated to central government ministries in 2003 found that RMB 868 million had been charged in violation of rules, a gure 32% higher than that of the previous year, comprising 14.5% of all fees in 2003.19 One good example is a university in Beijing, which was found to have netted RMB 18.86 million through violations in 2003. Of this sum, RMB 10.35 million came from “donations” from freshmen. This money was not transferred to upper departments, but remained in the university’s own accounts. The 202 freshmen “donors” made up one-sixth of that year’s new recruits, in over 30 majors ranging from undergraduates and preparatory school students to double BA degree candidates. Each student “donated” RMB 20,000–100,000, amounts which were completely unrelated to their university entrance examination scores, but which were closely related to their parents’ background. Students who were introduced by certain leaders paid less than the average, while others whose scores did not qualify them for admission were also enrolled after making “donations”.20 This underhand blend of education, money and power is extremely unpopular with the general public. A serious problem with the illegal appropriation of land was uncovered during an audit of higher education in Hangzhou, Nanjing, Zhuhai and Langfang. In Langfang, Hebei province, the Oriental University City illegally occupied 709 hectares of farmland, part of which it turned into a huge golf course, in agrant disregard of the regulations. Another problem lies in the high number of loans, which entail a high degree of risk. By the end of 2003, higher education in these four cities had raised RMB 25.71 billion, 59.42% of which came from bank loans, 23.11% from the universities, 12.57% from local governments

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http://www.sina.com.cn, 28 September 2005. “18 universities charge over RMB 800 million in violation”, The Beijing News, 29 June 2005. 20 “Behind the multi-million yuan ‘donation’ from students”, Chen Yin, China Youth Daily, 30 June 2005. 19

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and 4.9% from society.21 Universities’ high percentages of loans, and the overestimation of their actual ability to repay these, have become a common problem. The 18 universities afliated to central government ministries have accumulated a total debt of RMB 7.275 billion, an increase of 45% since 2002, and 82% of this debt came from infrastructure construction, as many universities are building new campuses. The 22 universities under the control the Shandong Provincial Education Bureau have received over RMB 7 billion in loans.22 Numerous problems were also uncovered in an audit of local education. In 2004, Hunan provincial education facilities completed an audit of 5,108 items, covering a total of RMB 17.39 billion. The audit discovered the non-conformant use of RMB 345 million.23 An audit of education charges in 208 primary schools in 2004 in Hainan Province revealed questionable items amounting to RMB 66.68 million. Ten middle schools either at the provincial level or afliated to Haikou city were found to have collected RMB 17.05 million in sponsorship fees or school-selection fees. Some schools enrolled a number of students who paid for admission which greatly exceeded the limit for these, which is 30% of the general recruitment plan. The nance and education authorities in four cities and counties, as well as 40 primary and middle schools in eight cities and counties have misused, embezzled or kept RMB 11.45 million from various educational funds.24 There has been no change in the situation of exorbitant tuition fees. A survey in Xinjiang Uygur Autonomous Region shows that between 2000 and 2004, residents spent 40.5% more on education, a much higher rate of increase than for other forms of expenditure.25 In 2004, of the 6,841 students at Qinghai Normal University, 4,167, or 60% of students, came from poor families, and 2,908 from extremely poor families, at an annual per-student cost of at least RMB 7,000, including RMB 3,000 for tuition, at least RMB 3,000 for daily life, RMB 800 for accommodation, RMB 400 for textbooks—the income of three

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“Audit Administration reports results on ‘university cities’ ”, China Education News, 2 June 2005. 22 “Governor hits ‘soft rib’ of education”, Qilu Evening News, 9 September 2005. 23 “Hunan education audit focuses on investment”, China Education News, 23 May 2005. 24 “208 primary and middle schools in Hunan charge RMB 66.68 million against regulations”, Xinhua Net, 23 July 2005. 25 “Xinjiang urban educational expenditure increased 40% in 5 years”, Liu Bing, Li Runwen, China Youth Daily, 11 March 2005.

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capable labourers would be insufcient to support a university student.26 According to a survey by the Jilin Provincial Government’s Research Centre, the average cost of tuition of university students in the province in 2004 was RMB 6,000, with a further RMB 1,000 for lodging and RMB 4,800 for food, and a total annual expenditure of RMB 118,000. In 2004, however, the average annual income of a farmer in Jilin was only RMB 3,000.42, meaning that one university student needed the support of four farmers!27 During a news conference on 29 August 2005, Vice Minister of Education Zhang Baoqing harshly criticised Hainan, Tianjin, Heilongjiang, Inner Mongolia, Qinghai, Ningxia, Gansu and Xinjiang for their poor performance in distributing national loans for poor students, accusing the eight provinces and autonomous regions of doing nothing to implement the loan distribution policy, and pointing out the fact that Hainan and Tianjin had granted no loans at all over the previous year.28 He also made the accusation that universities of an addiction to overcharging, and that rural primary and middle schools were forced to overcharge students. Zhang admitted that the universities were charging fees at a very high standard: In 1999, the average university fee standard was set at RMB 3,500. He also pointed out that China’s universities have already received loans of RMB 100 billion. Zhang’s straightforwardness and vehement criticism of the overcharging issue put him in the headlines, and turned him into a popular gure. His retirement at the end of 2005 became a popular chat topic also in online communities. A typical event underlining the changes in the industrialisation of education occurred in September 2005 when the Degree Ofce of the State Council ordered the postponement of trials in Beijing University and eight other universities to charge graduate students. The nine universities had originally planned to charge fees from graduate students, but this was postponed due to the fear of social unrest if these were added to the already exorbitant study charges. On 14 May, China Central Television’s “Jiaodian Fangtan” (Focus Report) programme disclosed that most public junior middle schools

26 “University charges shouldn’t be so high for students from poor families in the western regions”, Liu Fang, China Youth Daily, 18 January 2005. 27 “Are rural students afraid of entering university?” Hou Jinzhu, Peng Bing, China Youth Daily, 11 May 2005. 28 “Vice Minister of Education Zhang Baoqing reveals 5 major problems with Chinese education”, Guo Shaofeng, The Beijing News, 30 August 2005.

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in Nantong, Jiangsu Province had become “schools within schools”— although the campus, equipment, capital, faculty, leaderships and all other conditions remained unchanged, the schools were demanding much higher fees in the name of “system transformation”. Such privatisation of well known schools is a common occurrence: initially aimed at attracting private investors, “system transformation” has seen primary and junior middle schools attached to the compulsory education system begin to overcharge students, in direct violation of the Compulsory Education Law, and against the principle of equality in education. This is also a major underlying reason for the trend of selecting the best schools. The Compulsory Education Law currently under revision emphasises the concept of balanced development, stating clearly that the State Council and government departments at different levels “should allocate educational resources reasonably and promote the balanced development of compulsory education”. It also states that public compulsory education schools may not be privatised, nor are they allowed to use state funding, school titles, faculty or equipment to establish or cooperate in private schools. Neither are compulsory education schools allowed to select school-aged children or adolescents through examination: students are not to be triaged into different classes because of their academic scores, nor be subjected to referential treatment due to their personality. Such rules will no doubt play a major role in correcting many practices that go against the principles of compulsory education and the rules of general education. Shanghai and a number of other cities have begun to regulate so-called “system transformation private schools”. Such schools will either become private schools in the true sense, or revert to operating as public schools. D. Traditional Culture Education Regains Respect After years of discussion, society has nally reached a consensus over the recovery and development of China’s traditional culture, and this desire is echoed by educators. On 29 May, Renmin University announced the establishment of an academy of Chinese culture, aimed at promoting the study of Chinese culture and at nurturing talent in this eld. Feng Qiyong, the well-known 81-year-old expert on the Chinese classic “A Dream of Red Mansions”, has been invited to be the president of the academy. This is seen as a ground-breaking event in resuming studies of Confucianism within educational circles.

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The general public has also been displaying growing enthusiasm for traditional culture. On 14 June, the Institute of World Religions of the Chinese Academy of Social Sciences established a Confucian Research Centre. During 10~14 August, the Unirule Institute of Economics, Xinfu Education Group and Gateway Language Village sponsored the Wuyi Forum at Mount Wuyi, Fujian Province, bringing together representatives from major Chinese cultural groups—liberals, conservatives and neo-leftists—to discuss the current state of traditional Chinese culture and the direction of modern Chinese society. On 2 September, an International Symposium on the Imperial Civil Examination System was held at Xiamen University to commemorate the centennial anniversary of the abolition of the feudal imperial examination system. A total of 149 scholars from China, the USA, Russia, Japan, South Korea, Vietnam and China’s Taiwan Province attended the symposium. On 2 September, a 2005 High-Level Cross-Straits Entrepreneur Forum was held at Weifang, Shandong Province. Phoenix Television president Liu Changle held a speech titled, “Moral Considerations about the Promotion of Confucianism and the Development of a Harmonious Society”, during which he advocated the full rejuvenation of Confucianism and asked entrepreneurs on both sides of the Taiwan Straits to join hands to promote Confucianism on a worldwide basis. 28 September marked the 2,556th birthday of Confucius. The world’s rst global tribute to the great Chinese philosopher was held in various Confucius temples worldwide, with some of the biggest ceremonies held in Qufu, Shandong province, Shanghai, Quzhou, Zhejiang province, Wuwei, Gansu province and Jianshui, Yunnan province. China Central Television (CCTV) co-operated with a number of foreign broadcasters to provide four-hour live coverage of the 2005 Global Tribute to Confucius on the CCTV News Channel. These activities have all been the subject of debate in academic circles and the mass media. Under discussion are the value of studying Chinese culture, its status and function in modern China, and a reassessment of the critical tradition which has its roots in the May Fourth Movement. But consensus has been reached on the question of whether to continue with traditional Chinese culture. No nation, especially one with an ancient civilisation, can deny its own cultural traditions and incorporate this denial into the country’s image and its education principles. Confucian culture has the undeniable potential to become a moral and cultural resource for modern society, and may be

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a perfect match for modern political and economic systems. The real important issue is how to update and adapt traditional culture, i.e., how to continue with tradition while adapting it to modern life and using it to cultivate modern citizens. Historically, Confucianism was often manipulated by the ruling class rather than used to cultivate modern citizens. This is the real challenge facing those promoting the study of Chinese culture. It is possible that solutions to this issue will come only after continuous experimentation in a exible cultural environment where differences are allowed to coexist. On 17 December, the rst Chinese Symposium on Confucianism was held in Guangdong province, during which Jiang Qing raised the idea of reinstating Confucianism into Chinese orthodox culture, and naming it Royalty and Royal Administration Studies, but his idea met with strong criticism from academic circles. As the study of Chinese culture gained increasing attention, some saw this as an opportunity to make a prot: the Philosophy Department of Beijing University established a “Qianyuan Chinese Cultural Studies Classroom”, with a mostly entrepreneurial student base and an annual fee of RMB 24,000. A soon-to-be-opened Chinese Cultural Studies Club is also aimed at entrepreneurs and high-ranking managers, and has been criticised as “building a stage in the name of culture, but giving a performance aimed at prots”. East Asian countries have also shown increasing enthusiasm for Confucianism, which has caused concern among some Chinese. “Dae Jang Geum”, a South Korean TV serial, is seen as a “cultural declaration” by the South Koreans against the Chinese for the nal say in Confucianism. South Korea applied to have its Dano Festival, celebrated at Gangneung, listed as a UNESCO Masterpiece of Oral and Intangible Heritage of Humanity. The festival has its origins in the Chinese Dragon Boat Festival, but has developed its own traditions and meanings in South Korea. UNESCO’s approval of the application caused a sensation in China. The Chinese government has actively promoted the Chinese language overseas and other forms of cultural exchange activities. It also intends to build 100 worldwide Confucius Academies, non-prot public institutes aiming to promote the Chinese language; the rst was opened in Seoul, South Korea in November 2004. A further dozen Confucius Academies have since been completed in the USA, Sweden, France, Uzbekistan and other countries.

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E. Higher Education Reform: Renewing the Academic Appraisal System The central government inclusion of the important concept of raising the quality of higher education in proposals for the 11th Five-Year Plan can be seen as a conclusion to the debate over the declining quality of higher education in recent years. Actually, the public had reached the same conclusion regarding the quality of universities and of their principals: Yang Zhenning (Yang Chen-ning), a Chinese-American Nobel prize-winner for Physics, said that “Chinese universities have been very successful in undergraduate education”. But Chinese-American mathematician Yum-Tong Siu was harshly critical of the present state of higher education, including the Mathematics Department of Beijing University. The China Youth Daily and the Sina.com’s Campus Channel conducted a joint survey which drew a total of 4,802 responses: While 2.1% of respondents agreed with Yang Zhenning, 92.3% agreed with Siu.29 The Southern Weekend and BlogChina.com conducted another survey on public approval of university principals. The survey, which drew 3,311 valid responses, shows the scant regard which the public has for the principals: 69.87% said the general image of Chinese university principals resembled that of government ofcials, only 6.54% said they appeared to be educators, and 9.98% said they were similar to scholars or experts.30 Universities have expanded in recent years, but have not seen their education funds increase accordingly, meaning that each student enjoys fewer educational facilities, a problem which is especially acute in local universities. Some provincial universities have reduced per-student funding from over RMB 6,000 a few years ago to a mere RMB 3,000 at present. A dangerous emerging trend is the ever increasing number of postgraduate students for which supervisors are now on average responsible. The increase in the number of postgraduates in some universities is astounding. For example, the Harbin Institute of Technology’s Electronics Department has only two postgraduate students majoring in Apparatus Science and Technology in 2002, but this number increased

29 “The public supports Yum-Tong Siu and disagrees with Yang Zhenning,” Dong Wei, China Youth Daily, 22 August 2005. 30 “Focusing on Chinese university principals: The public do not think highly of them”, Chen Min, Southern Weekend, 30 June 2005.

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to 98 in 2003, and to 160 in 2004. The number of Computer Science and Technology postgraduate majors increased from 35 in 2002 to 132 in 2003, and then 271 in 2004.31 In July 2005, Yang Wei, deputy director of the Degree Ofce of the State Council, revealed that there were approximately 1,900 doctoral degree supervisors nationwide, each responsible for an average of 5.77 doctoral degree candidates.32 According to a survey conducted by Beijing University’s Education Institute, the average number of postgraduate students per doctoral supervisor is 15.54, and some supervise as many as 70 students. The average number of doctoral degree candidates per supervisor is 8.06, and a maximum of 50. Postgraduate training and quality has become the topic of heated discussion. In March 2005, Professor Chen Danqing resigned from his post at the Academy of Arts & Design of Tsinghua University, as he had been unable to enrol qualied postgraduate students for four years due to the rigid politics and foreign language requirements. Many students had demonstrated great potential artistic talent, background and professional knowledge, but were not eligible because of poor scores in politics and English. Some failed by just one point below the minimum limit. Professor Chen resigned as a challenge to an education system which he believes is extremely irrational, and has thus stirred up another topic of discussion. On 24 June 2005, Professor He Weifang of the Law School of Beijing University issued an open letter declaring his intention to stop enrolling new postgraduates, a letter which also caused great concern among the general public, as the professor issued it for the same reason that lay behind Professor Chen’s resignation: his extreme unhappiness with the present postgraduate selection examination system. He believes the present system focuses on common knowledge and fails to select candidates with real potential in a specic topic. In addition, the present system of recommending outstanding students for higher education has also come under criticism. In 2005, Beijing University Law School planned to enrol 110 postgraduates, of which 47 were recommended (30 were from the University itself ). The high percentage of recommended students means fewer opportunities for those who must enrol 31 “The quality of postgraduate studies is declining: Time for fever over postgraduates to recede”, Li Guohong, Hu Guoxiang, Xinhua Net, 2 March 2005. 32 “Yang Wei: Doctoral degree posts must be controlled to uphold their quality”, Li Xingling, China Youth Daily, 5 July 2005.

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through open competition. Recommended students tend to do better in examinations, and the majority are student cadres or students with certain talents. One school of thought believes that such students do not make good future scholars. Chen Danqing and He Weifang acted as they did because they came to the realisation that “the system that excludes the good students” is applied nationwide. The universities are have no independence in academic system development: even if the entire faculty oppose a certain irrational measure, decision makers still turn a deaf ear and implement their superiors’ orders. Teachers are actually powerless in this process. Other developments also demonstrate the grim status of the university academic system. During postgraduate enrolment in 2005, a professor from the Social Sciences Institute of Beijing’s Jiaotong University was suspected of leaking examination papers and being involved in a sex scandal. The incident was reported in the media and caused a public outcry. In another incident, Zhou Changcheng, the vice president of the Law Institute of Wuhan University, was accused of plagiarism in his book, “Economic Sociology”. In November 2005, the university’s Academic Committee’s internal report declared that the book’s only aw was its lack of standardised notes. But Chinese scholar Xu Youyu lambasted the report as “an evasive explanation”, declaring that the “University authorities handled the issue less than perfectly”. He suggested a stricter, independent investigation system, not controlled by the university itself, but by a publicly creditable individual or organisation. The “complexity” of Zhou’s case was the result of a so-called “power struggle”: certain teachers were dissatised with Zhou’s promotion to the post of vice president, while others had ambitions to head their own departments, and they thus reported Zhou using aliases. When fresh blood enters the middle-level leadership, there are always widespread hopes for a better academic environment. However, teachers’ participation in the selection of new leaders ought to be a normal use of their democratic rights, and issues over morals or “power struggles” should not arise. The real problem is maybe that there is still no system for taking the pulse of popular opinion during the selection of new leaders, who may thus not always gain the respect of the general public. Recently a number of legal experts at Renmin University “left” en masse, which led to speculation that this was also related to leadership changes at the university. Such incidents may signal a crisis in the universities, where intellectuals make up the main body of staff and which centre on intellectual creative

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processes, and yet teachers, scholars and intellectuals have no say in the management selection process. The lack of grassroots democracy and bad human resources management decisions is causing extensive harm to talent and academic studies, and is a main cause of the deterioration of universities’ academic environment and quality. Professor Zhou Yezhong, the vice director of the Academic Committee of Wuhan University, was also accused of plagiarism: his book, “Understanding of the Constitution of Republicanism”, on which he collaborated with Dai Jitao, was found to have copied two theses titled “On Republic” and “Again On Republic” published several years previously. In recent years, many scholars have been accused or convicted of plagiarism. This not only reects the deteriorating level of academic morals, but also indicates the deterioration of the academic environment. With no self-discipline, the academic community lacks the ability to maintain standards or to evaluate itself. “Planned academic studies” pay more attention to quantity than quality, which is another main reason for the declining quality of academic studies. Also ongoing is a reform of academic assessment and management. In an example of breaking the lifelong status of supervisors over doctoral students at Jilin University, 45 doctoral degree candidate supervisors were forced to quit during a new round of recruitment, because they failed to meet research project requirements. In December 2005, Beijing University ran trials on postgraduate training formats, whereby nine institutes or departments began to employ associate professors as doctoral supervisors. Four institutes have abolished the title of doctoral supervisor altogether. The university is also exible over the number of theses that postgraduates must complete: the Chemistry Department requires doctoral degree candidates to hand in theses whose combined number of impact themes exceeds 4. This is intended to encourage the students to create high quality work instead of numerous mediocre documents. On 15 November, at the Round Table of Academicians, Professor Wang Pingxian of the Oceanography Department of Tongji University, who is also an academician at the Chinese Academy of Sciences, said that the present Chinese academic system does not promote technological innovation. China Association for Science and Technology President Zhou Guangzhao supported Wang’s view, and criticised the over-emphasis on academicians’ authority and the serious problem of the sole consideration of ofcial rank in scientic circles.

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F. Survey of Education Equality and Satisfaction As medical reform has generally been criticised as a failure, the public has focused on the evaluation of education reform. The media have so far vehemently disapproved of reform in this eld, and education, medical expenses and housing have been labelled the new “three unassailable mountains” for the man on the street. On 22 December, Ministry of Education spokesman Wang Xuming took part in a dialogue with netizens on the Xinhua net portal, during which he reafrmed the Ministry’s position against the industrialisation of education, and also stated that education reform and development have been successful, as indicated by “two breakthroughs”: Over 85% of the nation’s population have now entered compulsory education, and over 20% enter higher education. He also however admitted certain unsatisfactory aspects. Obviously different values and criteria must be applied when judging the effects of education and the reform thereof. There have no doubt been tremendous achievements in terms of scale and quantity; but the result may be quite different if education equality and quality are considered. In November 2005, a team researching Chinese social justice issues in a period of change reported its results: most people were dissatised with social justice, with 90% feeling that society was extremely or relatively unequal; only 7% felt that society was roughly equal. Of the ve aspects of social injustice—income distribution, protection of rights, development opportunities, political rights and freedom of expression—a majority of people, 73.91%, identied income distribution as the leading issue, followed by protection of rights (67.56%), development opportunities (65.69%), political rights (59.92%) and freedom of expression (59.69%). When discussing the damage to different interests, 50.7% chose education reform, followed by medical system reform (44.4%), state-owned enterprise reform (37%) and social security system reform (30.1%). It is quite surprising that people felt most strongly about education, ranking it above medical reform, enterprise reform and social security reform.33

33 The survey was sponsored by the China Development Research Foundation under the Development Research Centre of the State Council and carried out on www.people. com.cn. “Public survey: Social injustice has become the focal point of criticism”, Yu Bin, Lu Zhoulai and Ouyang Liang, Reform Internal Reference, No. 34, 2005.

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In October 2005, Finding magazine and Sohu.com carried out a survey of satisfaction with education in China, the results of which showed that out of 344 cities, a total of 95, or 27.6%, had a satisfaction rate exceeding 50%, with Mianyang holding the highest level of satisfaction. Only 4 of the 31 provinces, municipalities and autonomous regions had a satisfaction rate exceeding 50%, with Hainan province ranking highest. A number of economically developed areas lag behind in terms of satisfaction, which contrasts with their economic status. In November, the Development Research Academy for the 21st Century and Sohu.com carried out a joint survey of satisfaction with education in China, which showed that 77.8% of people were extremely or relatively dissatised with the general situation in education. Overall satisfaction with Chinese education stood at only 35.28 (the pass mark was 60). The public was most dissatised with education equality, which only scored 34.76. All six questions in the category of Education Equality were listed in the top ten issues with which the public are unhappiest. These were: differences in rural and urban education (No. 1), regional differences (No. 2), corruption in education (No. 3), access to “good schools” through payment of sponsorship or selection fees (No. 5), education conditions and environment for the children of migrant workers (No. 6), and the differences between individual schools (No. 9). In elementary education, the most serious problems was the neglect of moral education and PE, followed by corruption in education, the heavy homework load, the rush to select the best schools, and overcharging. In higher education, the primary issue was the decline in quality, followed by the difculty which graduates have to nd a job, academic corruption, over-charging and poor study, food and accommodation conditions. When asked to identify problems that required an immediate solution, the public most commonly selected rural compulsory education and education corruption.

IV. Discussions and Suggestions Education policies and values are being readjusted in line with the basis of scientic development and the need to develop a harmonious society. Obviously, the widespread implementation of these changes will require long-term, concerted efforts on the part of educational circles and society as a whole.

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A. Stop Pursuing “Educational GDP” to Establish a New Education Ideal Discussions about changing the government’s role and correcting its laissez-faire or overzealous approaches focus on expecting a chance in the government’s aim from the single-minded pursuit of economic gain to one of harmonious social development; from being directly involved in economic affairs to providing public services. In the same manner, far-fetching reform of education is required: the education system’s sole consideration of “educational GDP”—the quantity, scale, speed and rate of admission to higher education—must change to meet popular and social demand before it can rejuvenate the nation. The reality of education is however far satisfactory. In the midst of upgrading infrastructure and the various new eye-catching slogans which blossom on a daily basis, there remains a ght for admission to the better schools, for which students must be trained to pass examinations. This reality is deviating ever further from the ideal of education. A veteran Chinese educator, Lü Xingwei, once described this type of education as “boastful, impetuous and ostentatious”. Public education policy changes have mainly focused on the allocation of education resources, aiming to resolve issues such as guaranteeing compulsory education funding, the intense competition for admission to better schools, and overcharging. Achieving “an education system that satises the common people” requires the correction of educational beliefs and values from their roots, so as to achieve real improvements in education quality and to meet the actual needs of the young, and ensure that education is an integral part of an enjoyable life. At the beginning of the 21st century, Chinese education needs a fresh philosophy and ideals. B. Promoting Education Reform through Systemic Reform 2005 marked two important anniversaries, the rst being the centenary of the abolition of the feudal imperial examination system, the other being the 20th anniversary of the issue of the Central Government Decision on Educational System Reform. The two shared one similarity: reform. At present, education system reform needs to be prioritised and the spirit of the Decision issued in 1985 remains relevant. Education reform must be carried out with the focus on changing the system, a direction which was pointed out by Deng Xiaoping 20 years ago. There are several fundamental issues which must be addressed in the reform of the education system, including: how to establish an appropriate relationship between the government and the schools; how

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to establish and balance the authority and relationship of the central and local governments in education management; how to improve the relationship between academic studies and politics, how to improve academic democracy and freedom to ensure the high standard and creativity of studies; and, how to establish a management system catering to popular needs in various areas of education. Education system reform also covers many areas, including education administration, higher education management, public education nancing, elementary education management, a modern schooling system, systems for examination, assessment and employment, scientic and democratic decision-making, and social participation. But the most important and core aspect is the reform of the education administration system. Renovation is required as part of education system reform to decentralise and transfer management authority to lower levels, to promote exibility and diversity in school operational management, and to ensure that education is a ourishing cause in which all social strata can participate. Education can recover its central role in social life through diversication, socialisation and localisation. By separating politics from administrative issues, the relationship of the government to the schools can be put back on the right track, schools can become more independent, and ideas centred on ofcial positions and “planned academic studies” will be abolished. The government needs to manage education on a legal basis, and apply a rational approach to decisionmaking, especially in major education issues, in order to avoid blind, random and one-sided decision-making. C. Standardising Government Education Activities in the Market Economy An important aspect of education administration reform is to redene and standardise the government’s roles and responsibilities in the market economy and establish the basic values of public education policy. In the market economy, the government ought to have a clear social management role providing public services, a role quite different from that of the market itself. In education, the government should be responsible for providing compulsory education to guarantee a set national level of education. In basic education, especially compulsory education, the government should be responsible for ensuring equitable public education, and providing education opportunities to disadvantaged social classes and groups. This education sector should not be an arena for the competitive, discriminatory creation of a student elite.

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Competition, choice and diversied services should be provided by privately-funded education and the education market. The new forms of civic administration popular in other areas of the world are markedly different from China’s industrialisation of education, which is characterised by “macro monopolies and micro exibility”. Basic features of the forms of civics administration include the removal of the government monopoly on public resources, the introduction of market mechanisms to improve the allocation of public resources, and the offer of different means and channels for public services. Market creation and development will increase the supply of education, and will also improve educational diversity, choice, competition and even efciency. Civic administration reform does not entail the transfer of government responsibilities to lower levels, nor the generation or enlargement of government agencies’ special interests. It would therefore be a misunderstanding to assume that marketisation has been excessive, or that centralised control and administration must therefore be strengthened. The real need is to halt “quasi-marketisation” reform, and remove the special interests of government education agencies and pivot schools so that the market can nally be free from manipulation by interest groups. D. Exploring Routes and Methods for Education System Reform Ideals and aims are no realistic basis for the implementation of education system reform. Practical designs and effective routes and methods must be found. Real education reform should be a positive interaction between the government and society, a combination of a top-down government initiative and bottom-up social needs and market forces. The education system reform which are initiated from the top downwards need to be supported from the opposite direction. It is vital to heed popular wishes and needs and establish a jump-start mechanism for public policy and the public agenda, such as is provided by public participation. Extensive social participation can generate an environment of “dialogue” in terms of politics, economy, science and technology, culture and education, the combination of which pushes forward education reform. Education reform practices at the grassroots level can be seen as another jump-start mechanism. Practical experience from the local, grassroots levels is the most convincing model for solving China’s problems. In summary, the widespread use and promotion of these practices will not only push forward the reform of public policies and structures, but also bring about the democratisation of education.

SPECIAL REPORT I CHINA’S POPULATION CHANGE AND POLICY ANALYSIS Cai Fang

This report will mainly examine the inuences of the population issue on the sustainability of China’s economic growth: While estimating the contribution of population change to economic growth since the start of the reforms, the report will also try to predict these changes. As it is predicted that this contribution is waning, the report will analyse four issues: how to maximise the remaining potential; identifying the sources for future growth; how to prepare for the challenges of an ageing population; and the policy adjustments which will help the population structure meet the needs of sustainable development. Its main conclusions will include: (1) inuences of population change on the sustainability of economic growth; (2) working-age population and employment; (3) improving population quality to encourage continuous economic growth; (4) research on the health of the Chinese population and related policies; (5) the sustainability of, and suggestions for reform of, the present endowment insurance system; and (6) major problems in the Chinese population structure: urban and rural dual structure, poor population and gender disparity.

I. Population Change and Sustainability of Economic Growth The aim of doubling the country’s GDP by 2020 means that China must maintain an annual growth rate of 7.2% for the coming 20 years, in other words, the Chinese economy must keep to a fast development track for 40 years. International experience shows that creating such a miracle is possible. South Korea, Malaysia, Singapore, Thailand, Hong Kong and other countries and regions in the Asia-Pacic region have remained on a fast growth track for some 40 years since the take-off of their economies. From 1960 to 2000, South Korea maintained an annual GDP growth rate of 7.9%, Hong Kong 7.8%, Singapore 8.7%, and Thailand and Malaysia each 7.1%.

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These gures mean that the “East Asian Miracle” is the sole source of guidance in achieving 40 years of high-speed economic growth. However the main reason behind the “East Asian Miracle” is the fact that high-speed growth was accompanied by a change in the population, which provided the population bonus necessary to push forward the economy. From 1970 to 1995, East Asia maintained a per capita GDP growth rate of 6.1%, 4.1% higher than the stable growth rate. It is estimated that population change contributed 1.5–2.0% to the growth rate. In other words, the changing population accounted for between one-quarter to one-third of high-speed growth of East Asia (1.5/6.1 to 2.0/6.1). As for “East Asian miracle” (4.1% higher than the stable growth rate), population change contributed an even higher percentage: 1/3 to 1/2 (1.5/4.1 to 2.0/4.1). China has entered a low-birth period. In less than 30 years, China has achieved the change to a modern population growth model which took developed countries over a century to accomplish. On the one hand, the population change which came fast and soon means that China is rapidly leaving a period with a high percentage of child dependents and entering a period with a high percentage of population of working age. The ample labour supply and the high savings rate provide a population bonus for economic growth. On the other hand, however, soon after the drop in the ratio of children, the ratio of the elderly is rising. For a short period of time, the dependent population ratio will remain low; but very soon, the percentage of dependent elderly will soar, rapidly increasing the burden on society. Population change already brought a bonus to China in the mid1960s. Analysis shows that from 1982 to 2002, the percentage of the dependent population decreased by 33.3%. The drop in the percentage of dependent children contributed 117.2% to this general decrease, while the percentage of dependent elderly increased by 17.2%. When combined, the drop in the percentage of dependent children contributed 6.0% to the savings rate, while the increase in the percentage of dependent elderly contributed –0.9%. In total, the drop in the general dependent rate accounted for 5% of the savings rate. When the general dependent rate rises by 1%, economic growth slows by 0.115%, and vice versa. Between 1982 and 2000, the general dependent rate dropped by 20.1%, boosting economic growth by 2.3%, and per capita GDP growth was close to 8.6%. The decrease in the general dependent rate contributed 26.8%, or slightly over a quarter of this growth increase. If the population bonus of the coming 15 years is also

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taken into consideration, population change will contribute 1/3 of the long-term economic growth in China. Population change and changes in the population age structure are inevitable. During this process, individuals’ lifespans and succeeding generations are intersected and overlaid cumulatively, affecting long-term economic growth through the labour supply, savings, advances in science and technology and other ways. It is estimated that the general dependent rate will continue to decrease: from 42.6% in 2000 to 39.4% in 2015, a drop of 3.2%, which will generate 0.4% of economic growth. This will last until approximately 2015, after which, as the ageing process accelerates, the impact of population change on the economy will change from bonus to debt, i.e., the ageing population will exert a certain negative inuence on China’s long-term economic growth. 2015 will therefore be the turning point for China’s population bonus period. Developing the full potential of the contribution from population change is not only an important means for China to rejuvenate its economy, but also an urgent step in the preparations for the arrival of an ageing society. This means that the next ten years or so will be our last chance to develop and use the population bonus, and it will also be a strategic period in which to identify alternative economic growth sources. We therefore need to discuss how to develop the potential population bonus, nd alternative economic growth sources, prepare for the consequences of an ageing population, and meet other challenges posed by our population structure.

II. Working-Age Population and Employment As the labour supply is larger than ever, employment in cities and towns is under pressure from three quarters: the increased labour force; surplus rural labour moving into cities and towns; and re-employment of laidoff urban workers. As the pressure to lay off workers decreases in the cities and towns, and increases in the labour force are concentrated in rural areas, the major pressure on urban employment will come from the shift of rural labour towards the urban areas. China is facing the world’s largest migration of rural population into urban areas. According to the 5th National Census in 2000, there are 120 million people whose present residences differ from their birthplaces, of which almost 60 million have moved into urban areas from the countryside, and have lived there for over half a year. In recent

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years, the number of rural labourers who have moved to seek work has been increasing at a rapid rate (see Table 14.1). But this rate is still not fast enough to meet the demands of adjusting the overall employment structure. In 2000, China’s rural population made up 64.21% of the total population, 5.27% higher than the average for countries at the same income level or approximately 66.79 million people. China aims to build an overall well-off society, which means that per capita GDP will reach US$ 3,000 by 2020. Based on average consumer prices, China will then join the club of medium-income countries, whose average rural population makes up 23% of the total population. If China wants to lower the percentage of its rural population to this level, however, even if total population stays unchanged, over 500 million rural residents will need to move to urban areas. Table 14.1. Increase in rural migrant workers Units: 10,000 persons, % Year

1999 2000 2001 2002 2003

Total number of migrant workers

Number of workers crossing provincial borders

Total

Increase over previous year

Total

5,203 6,134 7,849 8,399 9,831

5.43 17.89 27.96 7.01 17.05

2,115 2,824 3,681 3,897 4,031

Increase over previous year – 33.52 30.35 5.87 3.44

Data sources: Zhang Hongyu, “Research Report on Issues of Rural Labour Moving to Find Work”, Collection of Theses from the International Symposium on the Changing Chinese Labour Market, 2001; Liu Jianjin, “Rural Labour’s Employment and Transfer”, Report on China’s Employment 2003–2004, China Labour & Social Security Publishing House, 2004; Industrial Policy & Regulation Bureau of the Ministry of Agriculture, and National Rural Monitoring Sites Ofce, Analysis of Rural Labour Moving to Find Work in 2003.

Since the labour supply for urban areas mainly originates from the rural population moving into the cities and towns, future urban labour supply will mainly be determined by the speed of urbanisation. Given the urbanisation speed and population estimates, we can predict working-age population trends. Urbanisation speed changes over time. In our rst estimate, the statistics come from 1990 to 2002 giving an urbanisation speed of 1.11%; in our second estimate, the urbanisation speed from

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1995 to 2002 was 1.36%. Both estimates show that China is experiencing its fastest ever increase in the urban working-age population. Although this increase will slow down a bit in the coming few years, generally speaking, the urban labour force will maintain a rapid rate of increase until 2020. When analysed by region, there are wide differences in urban labour supply pressure. This is mainly due to regional differences in urbanisation speed. It is predicted that eastern Chinese cities and towns have a much greater potential labour supply than central and western parts of the country. The reality is that employment in China faces serious unemployment difculties. The country’s only published unemployment rate comes from registered gures. Starting from 2000, the country’s urban registered unemployment rate rose continuously for three years, reaching 4.3% by the end of 2003. By international standards, the unemployment rate had risen from 3.9% in 1996 to 6.1% in 2002, whereas the urban labour participation rate dropped from 72.9% in 1996 to 66.5% in 2002. This means that some 20 million urban workers left the market. These people did not leave the labour market voluntarily: they were unable to nd work for a long time and lost faith in the market. If these people are also regarded as unemployed, the urban unemployment rate in recent years will be at least double (see Table 14.2). Table 14.2. Changes in the Chinese urban labour market Units: million, % Year

Working-age Employed Unemployed Unemploy- Labour Unemploypopulation population population ment rate participa- ment rate* tion rate

1995

272

190

7.9

4.0

72.9

4.0

1996

284

199

8.2

3.9

72.9

3.9

1997

301

208

9.8

4.5

72.2

5.4

1998

324

216

14.5

6.3

71.2

8.5

1999

327

224

14.0

5.9

72.9

5.9

2000

366

232

19.1

7.6

68.5

13.3

2001

377

239

14.1

5.6

67.3

12.9

2002

397

248

16.2

6.1

66.5

14.3

Data sources: The author estimated these gures from the China Population Statistics Yearbook and statistics from the China Statistics Yearbook 2003, both compiled by the State Statistics Bureau. * This unemployment rate assumes that the labour participation rate remained at 72.9% in 1995.

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The severity of Chinese urban unemployment is also shown in regional disparities. Unemployment is most serious in central China. For example, the three north-eastern provinces had an unemployment rate of over 13% in 2000; old industrial bases set up under traditional development strategies such as Tianjin, Shanghai and Chongqing suffered approximately 10% unemployment. The large cities and provincial capitals are also suffering from serious unemployment rates, generally over 10%; these are followed by medium and small cities, at 8.88%; small cities and towns have a lower unemployment rate, 6.3% on average. To better illustrate the seriousness of unemployment, 93 Chinese cities suffer from over 10% unemployment, 22 of them famous for their resources. The six cities whose unemployment rates exceed 20% are all known for certain resources. If we only consider urban and rural employment elasticity and employment elasticity in the primary, secondary and tertiary industries, we come to the conclusion that employment elasticity is seeing a strong decreasing trend. Although primary industry’s employment elasticity rose from an annual rate of –0.21 in 1979–1981 to 0.15 in 2001–2003, that of secondary industry dropped from 1.00 to –0.04, and that of tertiary industry also decreased, from 0.88 to 0.44. Total urban and rural employment GDP elasticity thus dropped from 0.44 to 0.13. But we get a different view if we consider all urban employment and study the relation of its rate of increase with urban GDP growth. First, agricultural increase values are deducted from total GDP; then the increased value of non-agricultural industries is deducted from rural enterprises. Through appropriate price adjustment, the actual urban GDP annual growth rate can be obtained. The urban employment annual increase rate is then compared with the urban GDP annual growth rate to obtain the urban employment elasticity index. The results are shown in Graph 14.1 using the 3-year sliding average method. Employment demand growth trend forecasts show that by 2011, at the present rate of urbanisation, the increase in the working-age labour population in China will be lower than the increase in job positions. Since the urban labour supply mainly comes from the transfer of rural workers, the speed of urbanisation is a key factor in the urban labour supply. The higher the urbanisation speed, the higher the speed of increase in the urban labour supply, and the later the labour shortage will appear. Judging from different regions, whatever the speed of urbanisation, eastern and western China will quickly face labour shortages, while the central part of the country will continue to face a

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0.35 0.30 0.25

Urban

Urban & Rural

0.20 0.15 0.10 0.05 0.00

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Employment elasticity (3-year sliding average)

Graph 14.1. Trends in urban employment elasticity and general urban & rural employment elasticity

Year Data sources: China Statistics Yearbook compiled by the State Statistics Bureau; Chinese Township Enterprises edited by He Kang, China Agricultural Publishing House, 2004, Appendix Table 3.

labour surplus. As rural labourers move to the cities and towns, workers from central China will inevitably move to eastern and western parts of the country. But the decreasing pressure on labour supply does not mean that the employment issue is solved, and conversely, structural problems may worsen it. As surveys of the labour market show, structural conicts in employment are worsening. Such conicts mean that surpluses and shortages of labour coexist. Surpluses are concentrated at the low end of the market, i.e. basic labourers such as rural and urban laid-off workers, who are most seriously affected by unemployment. Shortages of labour are found at the high end of the market, where good quality, skilled workers are in great demand. The structural conicts caused by the coexistence of labour surpluses and shortages mean that unemployment is not caused by a lack of job opportunities, but from a lack of qualied workers. In the market economy, employment demand is determined by economic growth and structural change. In this sense, an improvement in labour quality and properly correlated labour supply and demand structures will certainly

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result in increased job opportunities and a lower unemployment rate. Thus, the fundamental way to solve these structural conicts and the employment issue is to produce more skilled, better qualied workers, which will increase the effective labour supply and generate more job opportunities.

III. Population Quality and Education Policy The quality of education is one of the most important components of population quality. Its improvement is the main aim of, and a direct criterion for, population development. In the globalised economy, overall economic competitiveness will increasingly rely on improvements in labour quality. Replacing material capital with human resources and replacing labour quantity with quality will become the basic way of maintaining economic growth. The development of education is the development of people, and the educational process is also a developmental process. Education development cannot be isolated from other social causes, but on the contrary can help to solve other social problems. For example, an increase in the average duration of education (especially for women) will raise the opportunity cost of giving birth, which means that people will focus more on improving the quality of their children than their quantity. Pushing forward educational development will also result in changes in the population. As people receive more education, they will change their ideas about having children, incurring a lower birth rate and improved population quality. This will not only save the cost of implementing the strict birth-control policy, but will also highlight the development principle of prioritising people’s requirements. The improvement of education quality is a vital driving force for economic development, as the accumulation of human capital spurs technological advancement and a country’s economic growth. World Bank statistics show that the lower a country’s educational development level, the lower its economic standard. Studies of China’s economic development over the past 20 years indicate that the improvement of education quality has been a primary source of its recent economic growth. During the high-speed economic boom of the last two decades, education quality generated approximately 24% of economic growth, equalling the contribution of labour quantity. It is estimated that

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improving population quality will continue to be a wellspring for the country’s continued future economic growth. China’s unique resources situation and the changing trend of its population’s age have added importance to raising the education’s quality to maintain economic growth. As China took timely measures to curb population expansion, the population change process has been sped up with a lower population burden. Thus the advantages provided by the current population age structure can provide strong economic gain. But in the near future, the percentage of working-age population will decrease, and China’s advantage in labour quantity will also lower. Other countries at the same economic level as China will be completing their population change and gain advantages in population age structure. Thus it is crucial that China seize the opportunity of this brief strategic period to improve the quality of her population and replace labour quantity with quality, to diminish the negative impacts of future reduced advantages in population age structure. Through the development of education in the past 20 years, China has doubled its human capital capacity,1 which has beneted economic escalation and the achievement of the aim of a prosperous society. In 2000, the Chinese population above 15 years of age received an average of 7.85 years of education, higher than the world average of 6.66 years and 2.72 years longer than the average of developing countries. The percentage of illiterates and semi-literates (illiteracy rate) of the national population above 15 years of age was 9.54%, a rate which dropped to 5.22% in the cities. This was much lower than the average in developing countries and close to that of developed countries. Judged by the education level of the country’s working-age population and its rate of improvement, China leads the world’s other 73 developing countries by about 20 years. China has transformed from a large nation in terms of population into a large one in terms of human capital, and the country is nearing its aim of becoming a large power in terms of human resources. Since the start of China’s reform and liberalisation, the percentage of public resources allocated to education has increased annually. This means that public policies have seen a substantial tilt towards

1 Hu Angang. “From a Big Nation of Population to That of Human Capital: 1980–2000”, China Population Science, 5th issue, 2002.

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education. In recent years, scal income has accounted for less than 20% of GDP, but scal educational expenditure has exceeded 3% of GDP. This is a relatively high level of investment compared to that of other countries. It is fair to say that the country’s overall investment in education is compatible with its conditions and capabilities, and there is thus little room to increase the percentage of public resources in educational expenditure to maintain the development of educational departments. Further improving education quality will mainly depend on rationalising the internal structures of educational departments and reducing disparities in educational development. More intensive development within educational departments could also generate improvements in education quality. An analysis of the structure of regional imbalance in education shows that provincial differences are not considerable, making up less than 30% of the overall difference. But the variations between counties within each province are great: 70% of the overall educational imbalance comes from inter-county variations. Since compulsory education has been managed with a focus on counties and relies heavily on public resources investment, the scal state and payment ability of county-level government agencies are de facto decisive elements governing the level of compulsory education. Optimising the county government’s role in developing education will determine regional disparities in education. Compulsory education in Western areas has been worst affected due to the separation of nancial and administrative powers. As central and local governments allocate too much funding to higher education, compulsory education receives insufcient funding. In non-compulsory education, higher education schools make up a higher percentage than mid-level vocational schools and technical schools. But what China needs the most at the moment is high-level skilled workers. Rural primary schools have received minimal benet from the limited growth generated by input into primary school education and infrastructure. Disparities in urban and rural educational development are also concentrated in compulsory education. In recent years, governments at all levels have worked to popularise compulsory education. Rural compulsory education has seen substantial improvements. For example, by 2001, 99.6% of urban school-age children were registered with schools, as opposed to 98.8% of rural children. But rural education still suffers from a weak foundation, with low investment levels and quality

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in compulsory education. Take for example per student funding in compulsory education: In 2001, per student funding in urban junior middle schools and primary schools were both 1.7 times that of rural schools. Although government nancing has played a certain role in reducing the disparity between urban and rural compulsory education funding, the use of non-budgeted government funding and other channels for compulsory education has actually expanded the disparity in urban and rural compulsory education funding. Based on the necessary use of public resources, the benets of educational investment and the negative impact of various disparities in education, it is necessary that the government should prioritise solving imbalances between different educational phases and regions when distributing public resources and adjusting education management. We therefore have drawn up the following policy suggestions. First is the rationalisation of administrative power and nancial control in education investment. A clear division of educational administrative power among governments at different levels can guarantee that governments will not adopt a laissez-faire attitude to education, or draw up their own responsibilities. The central government should be responsible for providing transfer payments for compulsory education and capital for the higher educational student support system, thus ensuring equal opportunities for education. In some poor regions where local governments have limited nancial resources, a direct administration system from central government to the counties should be established for compulsory education, thus ensuring that the central government’s transfer payments go directly to education. The government’s nancial resources should guarantee basic conditions for compulsory education to create equal opportunities in elementary education. Second is the adjustment of the nancial investment structure for education, and the rationalisation of the distribution of educational resources. The government should reduce investment in higher education, and attempt to alter the situation whereby higher education schools now make up one-quarter of the education budget and infrastructure investment. Higher education schools, with a weaker “public utility” nature, should be pushed further into the market. At the same time, the government should increase investment in compulsory education. In the non-compulsory education sector, an attempt should be made to reverse the situation whereby mid-level vocational schools receive lower education investment and infrastructure expenditure. As the country accelerates development of its western regions, more favourable policies

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should target regional education. But investment should also be increased for education in the central areas of the country. Third is the direction of social resources into education according to the nature of education. With the guidance of market indicators, educational sectors which can generate high levels of prot to individuals could allow for private investment. This would not only save limited public resources but also increase capital efciency. The core use of the market mechanism in education investment is to remove scal capital from competitive protable agencies, and then allocate this to social capital. How to gradually strengthen the nancing and marketing abilities of higher education and mid-level vocational education is the major issue for the future marketisation of education investment. Fourth is the coordination, setup and improvement of the lifelong education system, which should involve more agencies in wider spheres. The labour and social security agencies should place a major focus on the everyday strengthening and guidance of vocational education and training; the country’s general poverty alleviation management agencies should increase capital investment and services in vocational training of the labour force in poor regions, thus shifting the focus of poverty alleviation from development projects to improving local people’s capabilities. Finally, we advocate the establishment of different education management systems according to the different economic levels of various regions. With equality in compulsory education as a precondition, permitting more freedom in education management according to regional realities will benet the overall development of education.

IV. Population Quality and Health Policy The sharp drop in the mortality rate since the 1950s followed by a nosedive in the birth rate has been the main force driving China’s accelerated ageing process in the near future. To fully utilise the opportunities provided by population development, strengthen and develop the huge human resources advantage and meet the challenges of the ageing process, it is essential to draw up a population development strategy focusing on improving the quality of the working-age population and the physical health of the elderly. Children and teenagers should be given priority in improving their health. Childhood is a crucial time for laying a solid foundation of good

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health for later life. Today’s children are tomorrow’s workers, and their physical health and nutrition are thus vital to the nation’s future. Chinese children and teenagers have seen great improvements in their growth, which is higher than the average level of developing countries. Malnutrition is however still evident in some regions, especially in the south-western, north-western and certain south-eastern provinces and autonomous regions, and malnutrition levels have even been increasing in the West of China. Hence the eastern, central and western parts of China are at three different levels in terms of nutritional development. In terms of population change and distribution, Eastern China has the best health conditions, with the lowest birth rate, slowest population increase and even a population decrease, and the ageing process is accelerating. Certain central regions and the vast western regions are in a period of population change, with high birth rates and population increases expected to continue. The population health of these areas will exert greater inuence on population development and should be paid closer attention. The primary reasons for growth and nutrition problems in Chinese infants, children and teenagers are irrational or bad diets, such as a decreasing rate of breast feeding, inappropriate weaning of babies, and monotonous diets for children. In poor rural areas where economic conditions have improved and income levels are rising, increased food consumption has not brought about a similar improvement in nutrition. In certain developed areas, even though incomes have increased, lack of nutritional knowledge and irrational diet structures have led to problems of over-nutrition. Malnutrition will greatly inuence the national economy and social development. Current levels of malnutrition will result in future losses which are hard to assess. The working-age population in underdeveloped regions is less healthy, yet these regions are the major sources of labour for the market as they have higher birth rates, more newborns and a higher percentage of young people. The health of these regions’ young and adults will affect the regions themselves and the labour quality in places where they go. Additionally, a mother’s nutritional problems can affect the growth and health of her foetus, and even lead to birth defects. As a developing country, China must prioritise low-cost, high-efcacy health prevention measures available from limited resources and conditions. Health prevention aims to improve the overall health level of the population. Health education to guide urban and rural residents’ food

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consumption, nutritional intake and dietary habits in more scientic and rational directions should be a strategy of rst choice. Health prevention, which alters health behaviour and dietary habits, I an efcient way to raise the nation’s overall health level, benet the majority of people and exert a tremendous inuence on national health. We therefore suggest that a cornerstone of China’s population development strategies should be the improvement of the nation’s general health, with comprehensive measures to tackle malnutrition. As there are wide disparities between urban and rural areas in terms of physical health and nutrition, and economically backward areas are especially severely affected by these problems, health prevention project design should mainly target the poor population, and health and nutrition should be included in poverty alleviation projects. Malnutrition is often linked to poverty, hence improving the poor population’s economic conditions will help to solve the malnutrition problem. But a solution to malnutrition does not necessarily lie in improved economics, and public policy should provide guidance to solve this problem. Another focus of attention is the migrant population. Rural workers who have moved in search of work have become the major industrial force in most regions. But as regulations, rules and public services have not adapted to this massive migration of labour, the migrant population contributes to the local economy at the cost of its health, and it faces extremely high health risks. Such risks include work safety, epidemics, sexual diseases, HIV/AIDS and other infectious diseases. The crux of these problems is the fact that China’s social security and public policies do not regard migrants as regular clients to be served. Health problems in the migrant population have disclosed the lack of sustainability in the use of rural workers. The reason that employers and the areas where rural workers work have for a long time neglected rural workers’ health is that any health problems do not affect the supply of labour. Sick or injured rural workers can be replaced by the new workers who continue to ood in. Rural workers have actually been taking care of their own health problems. This type of situation causes great harm to rural workers’ health, with sometimes lifelong damages; it also increases the burden on rural areas and aggravates rural poverty. From a perspective of long-term population development, such “exploitation” of migrant workers is not sustainable. The present situation has been fuelled by the continuous labour supply, which will disappear once the population window is closed (or the population bonus disappears). By that time, the limited working-age population will have poorer physical health, which will lead to shortages of available labour resources.

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As urbanisation accelerates, the migrant population will also expand in scale. As some cities face a rapid ageing process, they must rely on the labour of migrant workers. Therefore, views of short-, mediumand long-term development, as well as population health and economic development, all require that solutions to the health issues of the migrant population be given immediate attention. As the migrant population has grown on a massive scale and become the de facto labour supply for the urban labour market, the public service system, including public health and birth control, should be readjusted and reconstructed. The migrant population should become direct customers of the public service system, protected by suitable work safety and public health policies and social security. We therefore suggest that an important task of population development should be to plan and implement a system of work safety and public policies that covers the migrant population. Although women’s reproductive health has attracted attention over the past decade, it remains an important issue. Major current problems include side effects of contraception and birth control measures as well as complications with abortion. More attention must be paid to lowering the abortion rate, improving post-abortion services, pregnancy and delivery safety, and especially migrant women’s reproductive health rights. Women’s reproductive health is a wide-ranging issue which can be improved by continuing and improving existing projects such as birth control services and women and children’s healthcare systems. But services must also pay more attention to problems that can affect large numbers of people. For instance, services to reduce abortions and the complications of birth control operations should be improved, and timely measures should be taken to treat the side effects of contraception and birth control which can affect women’s health. Tackling teenagers’ issues requires concerted efforts from educational, public health, birth control and other government agencies. The most urgent need at present is to provide adolescent health education and skills training in junior middle schools. As birth control and reproduction health service is a public service that generates little or no prot, it will be a great challenge to maintain high quality service at low cost under the market economy and after the impact of various reforms. This service was established to control population expansion. At present, birth control services must achieve a shift towards humanisation and focus on the rights of people of childbearing age, but this is limited in many ways. It is obvious that existing mechanisms cannot meet present development or people’s needs. The

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survival and quality of service facilities are acutely noticeable in poor regions. It is suggested that a new birth control or reproductive health service system should be considered and established to meet birth control requirements under the current stable low birth rate. Such a service should meet the demands of changing population, society and economy, as well as those of different customers, so that women of childbearing age can see improvements to their reproductive health.

V. Reform of Endowment Insurance Models The implementation of the one-child policy has enabled China to complete population change in a short time. The population’s age structure is also changing, with increasing levels of ageing. According to estimates from the China Population and Development Research Centre, by 2017, elderly people will exceed 140 million, or over 10% of the total population. The percentage of dependent elderly (the percentage of the population 65 years of age or above to the working-age population) will exceed 14%, while that of dependent children will be 26.4%. China’s ageing process has several characteristics: (1) China is reaching a relatively high percentage of elderly people while the per capita income level is still low. China’s current ageing level is roughly equal to the world’s average, but the per capita national income is less than one-fth of the world’s average. (2) Ageing and reform of endowment insurance are taking place at the same time, but heavy debt was carried over for historical reasons when changing the old system. Retirees and the “old generation” who started work before the reforms now rely on the “new generation” to pay for them, i.e. their personal savings accounts are actually empty. (3) Ageing is occurring faster in rural areas than in the cities, leaving no room for “cutting the peak to ll in the valley”. The 2000 National Census shows that population migration has washed away the ageing difference between rural and urban areas: Over 8.1% of the rural population is 65 years of age or above, higher than the gures of 6.0% and 6.7% in the towns and cities respectively. At present, the social cooperative endowment fund is managed together with personal accounts. Disbursements are made from a single account, while the remainder of the funds is expected to accumulate. Because of “empty accounts” in the personal accounts and inadequate social cooperative funding, most of the endowment insurance fund is disbursed every year, and the actual accumulation is lower than the

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amount in the personal accounts. This has resulted in an important feature of post-reform endowment insurance: The value of the personal accounts is only nominal, and the entire endowment insurance system now operates on a cash basis. International experience shows that supporting an endowment insurance system on a cash basis requires a relatively young population structure, an efcient tax system, competent and safe fund management and control mechanisms. The last two conditions are however non-existent in China. In the rst condition, although China has a high percentage of working-age population, the pension burden on society is rapidly getting heavier. In fact, without scal subsidy and by tapping into personal accounts, the social cooperative endowment fund is creating an enormous gap in expenditure over income. In the long run, this will cause a huge shortfall that the present cash basis system cannot possibly support. The social cooperative endowment fund has a low coverage. In 1990, 40.6% of retirees participated in basic endowment insurance, a gure which was only 30.5% for urban employees. In 1997, the State Council decided to implement the endowment insurance system, combining the social cooperative endowment fund with personal accounts. At that time, 73.4% of retirees participated in basic endowment insurance, or 41.7% of urban employees. By 2002, the gures had grown to 84.1% for retirees and 44.9% for employees. The low compulsory retirement age and actual early retirement will raise the pension burden for families and all of society. In China, the percentage of dependent elderly is high, and there is also a shortfall in the use and accumulation of endowment funds. Under such conditions, early retirement means that workers will lose their jobs prematurely and must rely on their pension. According to a ve-city survey conducted by the Population and Labour Economic Research Institute of the Chinese Academy of Social Sciences, men retire at an average age of 57 and women at 50. In 2002, the average Chinese lifespan was predicted at 70 for men and 75 for women, meaning that they will live on for roughly 13 and 24 years after retirement, or an average of 18.4 years, which is closer to that of OECD countries. By 2020, China’s average lifespan will be even longer. Even if the actual retirement age remains unchanged, men and women will still live for 16 and 28 years after retirement, or an average of 22.3 years, higher than the level of OECD countries. By then, the country will barely be able to support its elderly.

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China has set a low retirement age limit compared with most other countries. In recent years, employment difculties have made many enterprises force or encourage their employees to retire early to reduce the number of laid-off or unemployed workers. Some laid-off or unemployed workers are old or have lost faith of nding another job, and have also left the job market, thus dropping the actual retirement age further. The survey shows that less than 80% of men between 45 and 54 years of age are still working, and less than 40% of women. The employment rate for both men and women drops sharply after they reach 50 years of age. To meet the challenge of ageing by establishing a sustainable endowment insurance system, two reforms must have direct results. First, there must be an immediate shift from the cash basis endowment insurance system to a full personal accumulation system. Second, to fuel this transition, rural migrant workers must be included in the new insurance system and the present insurance fund payment level must be raised to improve society’s ability to support the elderly, which could help with the smooth transition of the reforming endowment insurance system. Simulations of different policies show that by 2020, each policy will create a different outcome. In the rst simulation, rural migrant workers are kept outside the urban endowment insurance system while the present cash basis system is maintained, which places an enormous burden on society to support the elderly: 44.2%. In the second simulation, the old system is continued, but rural migrant workers are included in the urban endowment insurance system, which will reduce the burden to 37.1%. In the third simulation, rural migrant workers are left out, but a new endowment insurance system is implemented, thus placing a reduced burden on society to support the elderly: 31.7%. In the last simulation, whereby a full personal accumulation system is implemented which includes rural migrant workers, society will only need to support the elderly at a low rate of 25.3%, approximately 19% lower than the gure in the rst simulation.

VI. Dual Urban and Rural Structures, Poor Population and Gender Disparity China’s population structure is marginalising, as shown in three severe issues: (1) The dual urban and rural structure has obstructed surplus rural labour from moving to the cities and slowed the development

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of the population bonus; (2) Poverty has hindered the improvement of population quality, and the poor can also be an element in social conicts; (3) Gender disparity is the result of an underdeveloped labour market and social insurance system, which has affected work efciency and population quality. Some general thoughts on adjusting and improving population structure would include rstly, reforming and improving the population and labour encouragement system through system reform; and second, improve policy effects through policy design and adjustment. China’s dual urban and rural structure is illustrated not only in industrial and productivity differences, but also in the separation of system and management. As part of the reform and liberalisation process, agricultural labour moved into non-agricultural industries and into the cities. This combined with economic system changes and other development elements to push forward urbanisation, most visibly in the 1990s. But compared with the urbanisation of other countries (especially Third World countries), China still has a low level of urbanisation, with a high percentage of rural population and huge amounts of surplus labour yet to transfer from rural areas. The major obstacle to a shift of the rural population into the cities is the dual urban and rural structure. This is not divided by geological or administrative boundaries between urban and rural areas, but is illustrated within urban areas by the division of “locals vs. outsiders”. The disparity is rst displayed in the labour market division, which has created disparities in income and welfare between urban and rural workers. The “locals vs. outsiders” structure has taken on a new form: as part of the urbanisation process, some local farmers are no longer farmers, and have formed a “new dual structure” with rural immigrant workers from elsewhere. Because of the two kinds of urban and rural population division, migrant rural workers are placed at the lowest level of the “locals vs. outsiders” strata. Under such a dual structure, people or workers who enter the cities are not actually part of the cities, with some rural workers and their relatives living in marginalised communities of migrants. In other words, tens of millions of farmers have left the countryside and agriculture, but have not assimilated into the cities or accepted urban and industrialised civilisation. They have become a marginalised group. Managing the dual urban and rural structure requires innovative thinking and improvement to policy design. In general, the urban system’s inertia, which has formed over a long period of time, must give

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way to new ideas. The rural migrant population and workers should be regarded as a mainstream of society and not the exception. In terms of employment, insurance and management, the separation of the urban and rural populations should give way to integrated planning. The household registration system should be reformed, and the migrant population should be included in a new urban labour market and social insurance system. City planners and managers should also consider improving migrant groups to help them assimilate into urban life. Before opening and liberalisation, China’s situation was one of “overall poverty”: people’s living standards were generally low, with farmers hardly able to feed or clothe themselves. Rapid economic growth has helped many farmers escape poverty. Since the mid-1980s, rural poverty has been substituted by “marginalised poverty”: poverty is mainly found in people who have lost the ability to work and in areas with poor natural conditions. In cities, changing structures have brought about “impact poverty” and obvious marginalisation is illustrated in the population structure—people with lower levels of education, older people and women are more prone to be poor. This also reects the division of the urban society. In general, new marginalised poor groups are taking shape, including poor groups among migrant rural workers, farmers who have lost their elds, the poor elderly and poor single-parent families. A common consequence of poverty is that children in poor families generally suffer in terms of health and education. This can also be a source of social conict. The ght against poverty needs brave ideas. Traditional two-front thinking—urban and rural—should be replaced by an integrated policy system and overall poverty alleviation. Zeroing in on poverty-stricken groups can improve the efciency of poverty alleviation policies and measures, especially the minimum subsistence guarantee and social aid. Rural workers, farmers who have lost their elds and other disadvantaged groups should receive improved protection for their legal rights against inequality of distribution. Children from poor families should be the focus of attention to guarantee their health and education opportunities. China’s birth gender ratio, a reection of the gender disparity, has become more out of balance. In the past 20 years, the birth gender ratio has been higher than normal, at between 102 and 107. The ratio has been climbing and reached 116 in 2000. A major cause behind this phenomenon is gender selection during pregnancy. The gender ratio

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increases as a family has its rst, second and third children, clearly indicating a preference for boys. The preference for boys indicates gender disparity in conjugal status and roles, as well as career opportunities. Firstly, most farmers still rely on their own children to support them during old age. Having a son not only means another worker, but also a guarantee for the future. The inadequate endowment insurance system thus directly leads to gender preference. Secondly, according to sample statistics from the 5th National Census, men and women are given different status in the current career structure: there are few female national and social administrators, managerial staff and private entrepreneurs. In professional occupations, women are concentrated at the lower levels, in other words, women have a difcult time moving into higher social strata. Statistics also indicate that the birth gender ratio in professional families is 221.7, and the gure rises to 250 among families of leaders in government agencies, state enterprises or institutions, and Party or collective organisations. To a certain degree, this can be explained as a consensus of opinion by these people on the career advantages of men. Gender disparity reects aws in the present social security system or bias in the labour market. It also hinders the development of human resources, especially investment in female human resources. To improve the population’s natural structure and curb the marginalisation of social groups, the socio-economic environment must be changed and systems established to provide more positive encouragement. Furthermore, more studies should be carried out into the socio-economic reasons for these problems, which will improve policy efciency by focusing on crucial groups and the vital points of certain issues. For example, to tackle the birth gender ratio issue, more analysis is needed to target special groups so that efcient measures can be taken. By establishing a rural endowment system and eliminating gender bias in the labour market, gender preference could be changed when families make economic and birth decisions.

SPECIAL REPORT II EMPLOYMENT SITUATION AND POLICIES, 2004–2005 Mo Rong

2004 saw major changes in China’s employment market. At the macroeconomic level, the measures taken early that year maintained the stable growth of the national economy, and the country’s pro-active scal policies turned into stable scal policies, with import and export revenues exceeding US$ 1 trillion. The central government issued a White Paper on increasing farmers’ income, and agricultural production bottomed out of a ve-year decline. Yet the problems of rising prices, expensive housing, and insufcient supplies of coal, electricity, oil and transport became increasingly obvious. In the employment sector, the central government focused on improving the employment environment for farmers seeking work opportunities in the cities. Not only were the Regulations on Monitoring Labour Security issued, but China also issued its rst White Paper on the employment situation and policies. Regulation and control of unemployment were put on the agenda with the publication of the 2004–2005 re-employment training plan, the launch of the “Sunlight Project”, which focuses on training for farmers, and the convening by the central government of the National Re-employment Work Commendation Meeting. Finally, the Ministry of Labour and Social Security held a successful China Employment Forum in Beijing together with the International Labour Organisation. Employment however remains a big problem for young people, especially college graduates. There have also been serious shortages of skilled workers, and for the rst time, the country nds itself without an adequate supply of rural workers. However due to the efforts of central and local governments, aided by a stably growing economy and active employment policies, the year’s employment and re-employment targets were exceeded. By the end of the year, the number of laid-off workers from state-owned enterprises (SOEs) had dropped by 1.07 million against the previous year’s gure. Services ensuring the basic living conditions of laid-off SOE workers and retirees were improved. Unemployment insurance also played a

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stronger role, with the number of people taking out insurance reaching 2.11 million. Labour market supply and demand also improved, as indicated by a rising active opening rate.

I. Employment in China in 2004 A. Annual Employment and Re-Employment Targets Exceeded, Excellent Progress Made in Vocational Training and Skills Verication In 2004, 752 million people were employed across the country, an increase of 7.68 million from 2003. Of these, 264.76 million, or 35.2% of the total, worked in towns and cities, 8.37 million or 0.8% more than the previous year. This was due in part to ongoing urbanisation and the fact that some rural areas were integrated into cities or towns. On the other hand, rural workers also entered urban areas seeking work. By the end of 2004, rural employees numbered 487.24 million, or 64.8% of the total employment gure. After the National Re-employment Work Commendation Meeting, local governments concertedly improved their efciency in implementing employment and re-employment policies. In the country’s towns and cities, 9.8 million more people were employed, 109% of the year’s target of 9 million, while 5.1 million laid-off workers found new jobs, 102% of the year’s target of 5 million. Of the laid-off workers who found new jobs, 1.4 million, or some 140% of the year’s target of 1 million, belonged to the “40–50” category—women over 40 and men over 50 years of age who have great difculty in nding new jobs. By the end of 2004, the number of urban registered unemployed stood at 8.27 million, a rate of 4.2%, 0.5% lower than the control objective of 4.7% and 0.1% lower than the rate for 2003. This was actually the rst time that the country’s urban registered unemployment rate had dropped since 1991. In 2004, a total of 5.3 million unemployed or laid-off workers participated in various training schemes, of which 93% graduated successfully and 70% were able to nd new jobs. Another 410,000 people took part in training schemes to start their own businesses, of which 93% graduated successfully. 100,000, or 26% of those who passed the training, were able to set up their own business; 130,000 people, or 34% of graduates, became self-employed; 110,000 people, or 29%, found new employers. A total of 590,000 new jobs were created.

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In 2004, a total of 8.8 million people underwent vocational skills verication nationwide, an increase of 28% from 6.88 million in 2003. Some 7.36 million people gained national professional certicates, an increase of 26% from 5.84 million in 2003, a pass rate of 83.7%. Of these, 120,000 gained qualications as technicians or senior technicians. B. Decrease in Urban Employment Stops, Employment Structure Changes By the end of 2004, 264.76 million people were employed in towns and cities, making up 35.2% of total employment, an increase of 0.8% from 2003. One reason was that some rural areas had integrated into cities or towns, while another was that rural workers were entering urban areas to seek work. In late 2004, 487.24 million people, or 64.8% of total employment, came from the countryside. Due to the continuous rapid growth of the economy and the increase in seasonal employment, the number of urban employed in the rst half of 2004 ceased decreasing as it had in previous years. The gure increased for the rst time and continued in this way until the end of the year. The structure of urban employment also underwent changes: First, in terms of employment by different types of employer, the percentages of employees in state-owned units and collectives declined from 62.7% and 9.1% respectively in 2003 to 62.3% and 8.8%. Employees in other types of businesses increased from 28.2% to 28.9%. Within state-owned units, employment in enterprises, institutions and government agencies did not see much change. The number of employees in enterprises dropped slightly from 46.9% to 46.4%, while those in institutions and agencies slightly increased their percentage share (from 37.6% and 15.5% to 37.9% and 15.7% respectively). Second, in terms of the percentage of employees in different trades compared to the total employment gure, the number of employees in the agriculture, forestry, animal husbandry and sheries sectors increased from 4.4% to 4.6%, while the number in manufacturing, construction, wholesale and retail, leasing and commercial services saw a drop in percentage. Figures for other trades remained roughly the same. The agricultural sector was more attractive thanks to favourable national policies such as reduced or exempted agricultural taxes, increased prices of farm products and direct grain subsidies for farmers: all of these ensured that agriculture saw an appreciable gain and attracted an increasing number of workers.

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C. 1.07 Million Fewer Laid-Off SOE Workers than at the End of the Previous Year, Basic Living Conditions of Laid-Off Workers and Retirees Improved The basic living conditions of laid-off SOE workers improved during 2004. By the end of December, there were 1.53 million laid-off SOE workers in China, or 1.07 million less than the gure for late 2003. Of these, those in re-employment service centres all received their full basic allowance, and the centres paid for their social insurance. There were breakthroughs in the transfer of laid-off workers from the reemployment service centres into new areas of employment, with twelve provinces already showing successful results. SOE retirees received their pensions in full and on time, the rst time that there were no reports of delays in pension payments anywhere nationwide. The policy of including state-owned land reclamation enterprises in local social cooperative endowment insurance schemes solved a difcult issue which had disrupted pension payments over the years. D. Unemployment Insurance Plays Bigger Role, 2.11 Million More People Covered By the end of 2004, a total of 105.84 million people were covered by unemployment insurance, an increase of 2.11 million over the previous year. The size of the country’s unemployment insurance fund increased to RMB 29.3 billion, RMB 4.3 billion more than 2003, the sixth year in a row since 1999 that the fund has seen two-digit growth. Total unemployment insurance fund expenditure was RMB 21.4 billion, an increase of RMB 1.4 billion over the previous year, of which RMB 14.9 billion went to provide basic living conditions for the unemployed; RMB 2.3 billion went to SOE re-employment service centres; RMB 300 million was spent on subsistence allowances for contract farmers; RMB 3.9 billion went to subsidies for vocational training, job introduction and others. By the end of 2004, the country’s unemployment insurance fund had an accumulated surplus of RMB 38.4 billion. In 2004, 7.54 million unemployed received unemployment insurance or other forms of payment for unemployment. In December, 4.19 million people received unemployment insurance payments, an increase of 40,000 over the end of the previous year. Of these, women made up 45.6%, while people who had been receiving insurance payments for over six months made up 63.0%. Additionally, 440,000 farmers who did not renew their contracts or prematurely terminated their contracts received a lump sum subsistence allowance.

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E. Labour Market Supply and Demand Improved, with Active Opening Rate Rising1 In the fourth quarter of 2004, the Ministry of Labour and Social Security gathered information on supply and demand in the labour market from public job service centres in 117 cities nationwide.2 The statistics show that different units hired approximately 3.474 million employees from the labour market for various positions, while approximately 3.691 million people entered the labour market in search of work. The active opening rate3 however remained at a relatively high level of 0.94, differing by region. The active opening rate stood at 1.09 in East China, 0.98 in Southwest China, 0.93 in North China, 0.84 in the Mid-South, 0.81 in Northwest China and 0.77 in Northeast China (see Graph 15.1). The information on supply and demand in the labour market from the 117 cities provided several insights: (1) Both demand and the number of applicants increased, indicating that the labour market was prospering. Both gures saw a great increase compared with the same period of the previous year. Seasonal demand and the number of applicants increased by 758,000 and 582,000,4 a rate of increase of 32.2% and 21.7% respectively, with a slightly higher increase in demand than in the number of applicants. (2) While secondary industry demand increased its percentage, tertiary industry demand dropped. Compared with the fourth quarter of 2003, second industry demand increased by 0.3% while that of the tertiary industry dropped by 0.7%. (3) Manufacturing industry showed less demand, while wholesale and retail trade and catering businesses saw more recruitment demand. Compared with the same period in 2003, manufacturing 1 Source: “Analysis of supply and demand in urban labour markets in the fourth quarter 2004” by the Monitoring Centre of the China Labour Market Information Network, http://www.lm.gov.cn/gb/data/2005–02/02/content_61846.htm 2 Of these 117 cities, 109 were above the prefecture level. The urban population and employees gures mentioned in the article only referred to cities above the prefecture level. 3 Active opening rate = the ratio of demand to applicants, indicating the number of applicants for each job. For example, 0.8 indicates 10 applicants vying for 8 jobs. 4 A comparison with the total sum over the same period for the previous year, which does not include new gures in cities for this quarter, or gures from cities which did not report for this quarter, or gures reported after the 4th quarter in 2003. This is only a comparison of 86 cities who reported for all quarters.

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Demand

Applicants

2004 Q4

2004 Q3

2004 Q2

2004 Q1

2003 Q4

2003 Q3

2003 Q2

2003 Q1

2002 Q4

2002 Q3

2002 Q2

2002 Q1

2001 Q4

2001 Q3

2001 Q2

1.00 400 0.93 0.94 0.94 0.95 380 0.9 0.89 0.89 0.89 0.90 360 0.88 0.86 0.85 340 0.80 320 0.75 0.75 0.73 0.74 0.78 0.75 300 0.69 0.70 280 0.65 0.65 260 240 0.60 220 0.55 0.50 200 0.45 180 0.40 160 0.35 140 120 0.30 0.25 100 0.20 80 0.15 60 0.10 40 0.05 20 0 0.00 2001 Q1

10,000 people

Graph 15.1. Changes in labour market supply and demand, Q1 2001–Q4 2004

Active Opening Rate

industry demand dropped by 0.3% while demand from the wholesale and retail trade and catering business increased by 1.4%. (4) Compared with the same period of the previous year, demand from private and individual enterprises increased by 0.1%, that of joint-stock enterprises dropped by 2.7%, and SOE demand dropped by 0.1%. The main portion of demand, or 59.8%, was taken up by private and individual enterprises, and joint-stock enterprises. (5) Most applicants were unemployed,5 making up 59.1% of the total. First-time young job-seekers made up a higher percentage, while former employees and laid-off workers accounted for a lower percentage. Of all applicants, former employees made up 24.2%, rst-time young job-seekers made up 19.9%, and other unemployed people made up 15%. In addition, laid-off workers made up 5.9% of applicants, and others (most of whom were migrants to the cities in search of work) made up 26.1%. Compared with the same period in the previous year, the percentage of rst-time young job-seekers increased by 0.7%; the percentage of ex-employees dropped by 7.2%; that of other

5

Unemployed = unemployed youths + former employees + other unemployed.

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unemployed increased by 2.3%, that of laid-off workers decreased by 2.2%, and that of others (migrants to the cities in search of work) increased by 6.4%. (6) High-level talent remained in great demand in the labour market, but the shortage of mid-level and high-level skilled workers was most acutely felt. The active opening rates of skilled workers at various levels all exceeded 1, meaning that demand exceeded supply. The highest demand was for senior technicians, technicians and senior skilled workers, with active opening rates of 1.83, 1.78 and 1.7 respectively. At other levels, junior and medium-level skilled workers had active opening rates of 1.45 and 1.44, while rates for engineers and senior engineers stood at 1.42 and 1.17. (7) Lists of open positions and applicants of ten major Chinese cities showed that salesmen, machinery cold workers and tailors were in high demand; the supply of vehicle drivers, shop assistants, cashiers and accountants however far exceeded demand. There were ve reasons for these achievements. The rst was the relatively good general economic situation. The central government implemented macro-control measures focusing on certain industries, which were halted once their expected aims were reached, and the economy thus continued to growth at a high speed. The second was that both central and local governments paid increased attention to employment. In line with general national requirements, provincial governments all set their own targets and asked subordinate government agencies to sign responsibility contracts. Local governments drew up a number of policies and measures and implemented practical, effective measures that suited their specic conditions. Many of these improved evaluation and censure mechanisms and reinforced social supervision. The third reason was the implementation of re-employment support policies. The central government granted re-employment funds in a timely manner, and the administrative bureaus for tax, industry and commerce made early preparations for these. The Bank of China, the Ministry of Finance and the Ministry of Labour and Social Security issued new operational measures to increase credit support for labourintensive small businesses. Additionally, policies to develop public interest jobs, social security subsidies, charge-free job introductions and re-employment training were further implemented. The fourth reason was the active role of social security at the neighbourhood community level. By the end of June 2004, over 95% of the country’s neighbourhood communities had set up labour security

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agencies, and over 80% of communities had hired carefully chosen, well-trained full-time staff. The fth reason was progressively institutionalised support for groups which fared particularly weakly in terms of re-employment. Labour and social security bodies across the country ran a campaign providing a “policies, jobs, skills and services” set of re-employment measures, with the theme of “Your Job, Our Duty”. Local governments also focused on helping exposed groups nd new jobs through increased funding, social campaigns and developing public interest jobs. A long-term mechanism combining daily aid with concentrated aid with guaranteed funding took shape. F. Slowdown in Increase in Rural Workers, but More Labourers Seek Jobs in East China According to the Rural Survey Team of the State Statistics Bureau, by the end of the second quarter of 2004, labourers from rural resident families who migrated to take up work elsewhere (excluding labourers seeking work with their entire family) numbered 80.09 million, an increase of 3.7 million over the same period of the previous year. There were several changes: (1) The increase in migrant rural workers slowed down. In 2003, 8.4 million more rural workers sought work, while in the rst half of 2004 the increase was 3.7 million, less than half of the total increase for 2004. (2) Over 60% of these rural workers found jobs in large or medium cities above the prefecture level. By the end of the second quarter, 51.42 million rural workers were working in cities above the prefecture level, an increase of 4.07 million, or 8.6%, over the same period last year. (3) The number of labourers working in cities below the county level decreased. By the end of the second quarter, 28.67 million people were working in cities below the county level, a decrease of 360,000, or 1.2%. (4) There was a large increase in the number of labourers in eastern China. By the end of the second quarter, 58.07 million rural workers were working in eastern China, an increase of 4.18 million, or 7.8%. They made up 72.5% of the total number of migrant rural workers, 2% more than previously. Rural workers working in central China totalled 10.79 million, an increase of 340,000,

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or 3.3%, making up 13.5% of the total number of migrant rural workers, a drop of 0.2%. Those working in western China numbered 11.23 million, a decrease of 820,000, or 6.8%. They made up 14% of the total number, a decrease of 1.8%.

II. Features of the Labour Market in 2004 A. Macro-Economic Controls Laid the Base for Sustained Economic and Employment Growth In 2004, macro-economic control measures were guided by a scientic approach to development, with far-sighted active controls making use of economic and legal measures to tackle fundamental issues. The aim of macro-economic policies was to smooth out economic waves and prevent sudden ups and downs. Compared with previous controls, immediate measures were taken as soon as signs of over-heating appeared, thus ensuring that the economy maintained stable and speedy growth. The controls were rst implemented in certain industries and areas by means of “point control”. In late April 2004, the central government issued a number of policies to curb over-heated investment, which grew by 43% in the rst quarter. The State Council authorised the State Development Planning Commission to adjust the capital ratio for iron and steel, electrolytic aluminium, cement and real estate development projects, which was a signal for the rectication of investment. The State Council then issued an announcement to rectify the land market, during which the non-agricultural use of agricultural elds was forbidden for half a year, after which each eld in each province would be checked before these could be used for other purposes. Prices were a major tool in macro-economic control, as this was implemented using market forces. On 25 April 2004, the Bank of China adjusted the reserve ratio, such that nancial institutions with a capital adequacy ratio below a certain level had their deposit reserve ratio raised by 0.5% to 7.5%. The Bank of China also adjusted interest rates, and on 1 January 2004, expanded the loan rate uctuation interval. On 25 March 2004, it implemented a oating rate for re-loans. On 28 October 2004, the Bank declared that nancial institutions’ deposit and loan benchmark interest rates would be raised the next day, the RMB loan rate was permitted a broader uctuation interval and the RMB deposit rate was allowed to decrease. The one-year deposit

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benchmark interest rate was raised by 0.27% from 1.98% to 2.25%; the one-year loan benchmark interest rate was also raised by 0.27% from 5.31% to 5.58%. Macro-economic control had two features, one of which applied multiple measures. Besides credit adjustments, land was controlled, price measures were used when adjusting the reserve ratio and interest rates to consolidate the macro-economic control achievements and lower the possible negative impacts of administrative adjustment. The other feature was controlling and protective at the same time: while controlling certain overheating industries, the government provided active support to weak points in the national economy, especially agriculture. In 2004, the central government issued a series of major policies, such as providing direct subsidies to farmers, and gradually abolishing agriculture tax to help increase harvests and income from farming. Those measures greatly encouraged farmers, who reaped a bumper harvest after four years of reduced output. The whole year’s per capita farmers’ net income saw an increase which exceeded the target of 5% set at the beginning of the year, the highest rate of increase since 1997. These macro-economic controls ensured the economy’s healthy development and job market stability. Annual GDP reached RMB 13.6515 trillion, an increase of 9.5% over the gure of the previous year, with no large uctuations. The value added to GDP by primary industry was RMB 2.0744 trillion, an increase of 6.3% over the previous year; RMB 7.2387 trillion from secondary industry, an increase of 11.1%; and RMB 4.3384 trillion from tertiary industry, an increase of 8.3%. Stable and rapid economic growth was important to meet employment targets. While rapid growth created more jobs, stable growth also reduced periodical unemployment and contributed to employment stability. In 2004, the number of newly employed people in towns and cities was 109% of the target for that year; the number of laid-off and unemployed people who found jobs again was 102% of the year’s target, and of these, the number of people in the “40–50” category who found jobs was 140% of the year’s target. B. Structural Conicts in 2004 Labour Market Became More Acute In 2004, the labour market saw serious structural conicts which were illustrated by the lack of farm and skilled workers and by the issue of young people’s employment.

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1. The Shortage of Rural Workers This was most obvious in the areas of the Pearl River Delta, south-eastern Fujian Province and southeastern Zhejiang Province, where processing and manufacturing industries are concentrated. In some areas, the shortage of rural workers was estimated at 10%. Ordinary workers, especially young female workers, fell short of demand. The shortage was most keenly felt in enterprises offering low pay, poor working environments and high-intensity work. Although certain areas were in great need of rural workers, it was still too early to announce a “deciency in rural worker supply” because the general labour supply in China still exceeded demand. Since the beginning of China’s reform and liberalisation, systems and policies limiting rural worker transfers were gradually abolished, and the urbanisation process picked up speed. Between 1990 and 2002, the percentage of people working in the countryside dropped from 73.7% to 66.4%, an average annual drop of 0.6%. But the rural population still made up a large portion of the total population, and surplus rural labour still stood at approximately 150 million. Every year, 10 million more rural people reached working age, posing great challenges to the task of transferring the rural work force. It was therefore more appropriate to say that enterprises’ “effective demand” for labour was inadequate than to use the phrase “deciency in rural worker supply”. Given that labour supply exceeded demand, businesses limited pay to rural workers and had done so for a long time, with the result that rural workers were unwilling to work for them. The shortage of rural workers was apparent in businesses which offered low rates of compensation, but businesses where rural workers could obtain better pay were unaffected. Surveys showed that businesses which offered monthly salaries of less than RMB 700 had difculties nding workers; businesses offering RMB 700 –1,000 had a slightly better time; while businesses offering monthly salaries exceeding RMB 1,000 had no difculty in nding workers. The shortage of rural workers was thus a natural market adjustment rather than a result of policy. However the fundamental reason for this remained businesses’ inadequate “effective demand” for rural workers. A shortage of rural workers will positively impact the country’s economy and encourage industrial structural transfer between regions. Labour shortages in south-eastern coastal regions reected the labour market’s supply, demand and payment situation, and were the result

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of market adjustments rather than policy obstacles. Current trends show that demand for labour will remain very high in regions with labour shortages; however, with businesses unable to raise salaries in the short term, the south-eastern coastal regions will still feel the lack of labour in the near future. For many years, certain coastal regions had relied on low-technology, labour-intensive industries to achieve rapid economic growth. Businesses generated prots by lowering pay and not investing in improvements to working conditions where possible in order to win more contracts. Although low pay did not attract workers, businesses could not afford to raise pay since their prot levels were already very low. Some processing businesses have hit rock-bottom: any salary increase will push them into the red. However serious labour shortages will also force them to stop production if they do not raise salary levels—a serious dilemma for these businesses. In the medium and long term, such a situation will lead to increased pay in businesses, forcing low-pay, labour-intensive processing businesses to leave the south-eastern coastal regions and move into the central and western parts of the country. The shortage of rural workers will have a positive impact on the country’s labour market. In the past, the market for rural workers was dominated by unlimited supply, thus establishing a structure of “strong capital vs. weak labour”. Such a structure may change due to inadequate “efcient supply”, even though much surplus labour remains in the countryside. Rural workers can choose to move to other locations with better conditions, thus gaining a bargaining advantage, and thus improving their pay and working conditions. Businesses are already adjusting their personnel policies, recruiting more widely with more exible age, height and gender limits. They are also improving working and living conditions for employees, and even increase bonuses, etc. 2. The Lack of Skilled Workers Surveys and statistics show that skilled workers, especially those at higher levels, are in great demand across the country. The Ministry of Labour and Social Security conducted a survey of skilled workers in 40 cities in April 2004. Results showed that technicians and senior technicians made up a mere 3% of all skilled workers, but businesses required a rate of over 14%, an indication of the chasm between supply and demand. The survey also found that the three most required talents for businesses were salesmen, senior skilled workers, and technicians or senior technicians, who respectively made up 14.4%, 12.1% and 10.9% of business demand. It is worth noting

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that there was also heavy demand for ordinary skilled workers, who came sixth on the demand list, or 8.9% of the total demand. All in all, businesses’ needs for all kinds of technical workers—ordinary skilled workers, senior skilled workers, technicians and senior technicians— made up 31.9% of total demand. An analysis of statistics from the labour markets of 113 cities in the second quarter showed that the supply of skilled workers at various levels did not meet labour market demand. Numbers of technicians and senior technicians fell severely short of demand, with ratios of supply to demand for senior technicians, technicians, senior workers, medium-level workers and low-level workers of 1:2.4, 1:2.1, 1:1.8, 1:1.5 and 1:1.5 respectively. The ratio of supply to demand for skilled workers exceeded that for engineering technicians. 3. The Serious Problem of Youth Employment Before the problem of laidoff and unemployed people has been solved, the labour market faces a new problem: an increasing number of young people are having difculties nding work. Labour market supply and demand information for the third quarter of 2004 showed that 70.3% of all applicants were aged 16–34. Of these, 16–24 year-olds made up 36.8%, and 25–34 year-olds made up 33.5%. College graduates also noticeably struggle to nd work. In the third quarter, the ratios of supply to demand for junior college graduates and college graduates were 0.94 and 0.84 respectively, even lower than those for medium-level and low-level skilled workers. Despite strenuous efforts from all sides to remedy the situation, the employment rate of college graduates reached just 73% in September. In 2004, the ratio of applicants to jobs for civil servant positions in government agencies was 50:1. As the supply of college graduates continues to grow, the labour market for them will face intense long-term pressure. It is therefore not surprising that many college students have found ingenious routes to jobs, such as creating their own businesses, choosing the best opportunities to work, freelance jobs, and other exible employment means. 4. Employment Policies for Laid-Off and Unemployed People Further Improved and Implemented The most eye-catching section in the social policies of 2004 was the care and concern for disadvantaged groups, best illustrated by the increased support for laid-off and unemployed people to help them return to work, expanding the sphere of the minimum subsistence guarantee to the urban poor, and safeguarding their basic rights. In 2004,

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re-employment initiatives emphasised improving and implementing reemployment policies. In line with central government plans, the Ministry of Labour and Social Security drew up the working principle of “two implementations, two improvements”, i.e., implementing government targets and responsibilities at all levels; implementing the range of policies and measures, and attempting to tackle issues with small loans and the separation of primary business activities from secondary ones; strengthening employment services, providing re-employment support activities with a programme of “policies, jobs, skills and services”; and improving control of unemployment and standardising business practices for laying off workers. More detailed information on these is given below: • Separating and implementing plans for employment and re-employment, encouraging closer integration of employment with socialeconomic development. The employment and re-employment tasks set by the State Council were implemented by local governments, which set up an aim and responsibility system and a monitoring system to ensure the effective performance of tasks. • Resolving issues with policy implementation to attempt to maximise the effectiveness of policies. Emphasis was given to solving the small loans issue. In June 2004, the People’s Bank of China, the Ministry of Finance and the Ministry of Labour and Social Security issued a joint “Announcement on the Promotion of Small Guarantee Loans for the Unemployed and Laid-off ” (Bank Issue [2004] No. 51). This required local governments to simplify loan guarantee procedures, lower the anti-guarantee threshold, and increase loan support to small labour-intensive businesses which attained a specic ratio for hiring unemployed and laid-off workers. • Distributing central nancial basic life security and special re-employment subsidy funds, improving fund distribution methods and improving management of the funds. • Strengthening employment services and training, establishing and improving a re-employment aid system. With the establishment of a public employment service system in medium and large cities, training to nd new work or setting up a business became more relevant and practical. Policies for free job introduction and training were implemented, and a re-employment aid system established and improved. The responsibilities and functions of the neighbourhood committees were also standardised.

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• Implementing the Re-employment Aid Week Project. The Ministry of Labour and Social Security and labour and social security agencies at various levels ran a Re-employment Aid Week Project with a theme of “Your Job, Our Duty” and a programme of “policies, jobs, skills and services”. • Analysing and disseminating useful experience by convening an Experience Exchange and Commendation Meeting. In September 2004, the Ministry of Labour and Social Security held a National Re-employment Work Experience Exchange and Commendation Meeting. The event was attended by Premier Wen Jiabao and VicePremier Huang Ju, who both made keynote speeches and distributed re-employment awards to 524 unit representatives and model individuals. C. Further Improvements to Rural Employment Environment in 2004 Improving the employment environment and upholding the rights of rural workers while they work in the cities has helped to safeguard the employment, survival and development rights of the disadvantaged, and contributed to social harmony and stability. The central government issued a series of documents, policies and measures aimed at protecting rural workers’ rights and improving their employment environment. The government’s White Paper in 2004 and the “Announcement on Further Improving the Employment Environment of Farmers in Cities” issued by the State Council in December 2004 underlined the main problems in upholding rural workers’ rights and improving their employment environment in urban areas. The two documents also laid down the principles for system reforms to abolish rural-urban divisions and bring about equal employment opportunities for rural workers, details of which are below: • Solving the problem of wage arrears for rural workers. By 26 November 2004, RMB 31.8 billion in wage arrears had been cleared for rural workers nationwide. Of that, RMB 16.2 billion in wage arrears was cleared within 2003, fullling the target set for that year. By the end of 2003, a total of RMB 17.1 billion in wages was still owed to rural workers, and RMB 15.6 billion had been paid back. While dealing with these wage arrears, central and local governments also established processes to ensure that rural workers receive their full pay on time. The Ministry of Labour and Social Security and

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the Ministry of Construction issued a joint document, “Temporary Measures for Paying Rural Workers in the Construction Sector”. Similar regulations were drawn up by various local governments to ensure payment and prevent delays. Cracking down on illegal job brokers, re-adjusting the labour market and providing free employment services to rural workers. Abolishing irrational limits and charges on farmers seeking work in urban areas. The Ministry of Labour and Social Security announced the abolition of the certicate system which had targeted rural workers for over a decade, and local governments also scrapped various certicates required by rural workers to enter urban areas. This reduced the cost burden on farmers migrating in search of work and improved their employment environment. Improving training for farmers. In September 2003, the Ministry of Labour and Social Security together with the Ministries of Education, Science and Technology, Construction and Finance drew up a national farmers’ training programme for the period 2003–2010, dubbed the “Sunshine Project”. In 2004, 2.5 million rural labourers received introductory training, vocational skills training and on-thejob training before transferring to non-agricultural industries and moving to urban areas. Solving education problems for rural workers’ children. In February 2004, the General Ofce of the State Council published “Suggestions on Improving the Provision of Compulsory Education for Children of Farmers Working in Urban Areas”, a document jointly drawn up by the Ministry of Education, the Ofce of the Committee for Organisational Establishment of the Central Committee of the Communist Party of China, the Ministry of Public Security, the State Development and Reform Commission and the Ministry of Labour and Social Security. Under this plan, the main facilities providing children of rural workers in urban areas with compulsory education would be the full-time public primary and middle schools in the areas where the rural workers work. Exploring ways to include rural workers in the urban social insurance system. Local labour and social security departments tentatively addressed this issue based on the situation of the rural workers. While some areas began to provide comprehensive insurance for rural workers, others provided case-by-case insurance for workrelated or major illnesses and other items, and still other areas combined social insurance with commercial insurance to provide

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personal accident insurance for rural workers. The Ministry of Labour and Social Security issued “Suggestions on Encouraging Employees in Mixed Nature Enterprises and Non-Public Economic Organisations to Take Out Medical Insurance” in June 2004, which required local labour and social security departments to provide medical insurance to rural workers who have established working relationships with employers. • Pushing forward reform of the urban household registration system. In December 2004, the State Council issued an “Announcement on Further Improving the Employment Environment of Farmers in Urban Areas”, which required local governments to accelerate reform of the household registration system, and under which, rural workers with stable jobs and accommodation could enjoy equal rights with local residents and take up appropriate responsibilities. • Publishing and implementing labour protection and oversight regulations. In November 2004, the State Council issued the “Regulations on Monitoring Labour Security”. Implementing these will have a signicant effect on pushing forward the country’s labour protection legislation and on improving the employment environment. Due to the huge surplus of labour in the market, the relation of labour to capital is seriously out of balance, resulting in rampant violations of workers’ legal rights, illegal activity and the outing of labour laws. To tackle this problem, the legal status of labour oversight needs to be raised, and its implementation measures and forces strengthened. Once the Regulations are applied, labour protection laws, regulations and rules can be more effectively implemented. The law enforcement agencies responsible for labour protection oversight must also be empowered to crack down on, and prevent, violations of labour and social security laws, regulations and rules, so as to ensure their better implementation. Only through the imposition of sanctions for violations of labour protection can labourers’ legal rights to pay, contracts, holidays and leave, social insurance and other items be effectively protected.

III. Employment Trends in 2005 and Suggestions The employment situation in 2005 remained serious, with a major issue being the growing conict between the need for sufcient employment and the huge population of inadequately skilled workers. These structural

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issues will worsen, posing great challenges to employment bodies, a situation which can be described as follows: The rst problem was the over-supply of labour, with 24 million people seeking work in towns and cities. Assuming continued economic growth of 8%, only 10 million people would nd work under the current economic structure, resulting in 14 million people a year unable to nd jobs. At the same time, problems with rural workers seeking other employment and farmers who have lost their land were also worsening, the combination of which two problems would be very difcult to solve. The second problem was the disparities in regional development. The central and western regions of the country, traditional industrial bases and areas with struggling industries or depleted resources all had greater difculty in offering employment. In these regions, a full third of people who nd employment run the ongoing risk of losing their job again. The third problem lay in the employment structure. A great number of laid-off and unemployed people were unable to nd work, however there was also a serious shortage of skilled workers in high demand in certain emerging industries and businesses. Because most available labour was at low levels, the lack of skilled workers—especially highlevel talent—has created a “bottleneck” in economic development. Furthermore, the shortage of rural workers will worsen with growing regional demand. And nally, over 3 million college graduates annually will join the graduates of 2004 who were unable to nd work, increasing employment pressure on the younger generation. The fourth problem was the re-employment of laid-off workers from collective enterprises. Such workers numbered about 2 million, and are very difcult to re-employ. In 2005, the national economy will probably maintain its ongoing rapid development momentum, with an estimated 8% growth rate. As various labour protection policies are further implemented, a better environment for labour protection will emerge, but great pressure remains on both urban and rural employment, and this is not reducing overall. China now has 13 million laid-off and unemployed people (comprising 5 million laid-off SOE and collective enterprise workers, and 8 million unemployed from the previous year); in 2005, 11 million more people will require jobs, including workers new to the market, ex-servicemen, college graduates (3.38 million), etc. Certain industries, regions and groups are particularly suffering, while another onerous task will be to

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generate employment for rural workers moving out of the countryside. At the same time, it is expected that economic growth speed will be slower than the previous year, which also has implications: in recent years, every 1% of economic growth only generates approximately 0.1% increased employment. In 2005, there will be further problems besides the employment of rural workers and college graduates, as well as the shortage of skilled workers. One will be to solve historical difculties in the central and western parts of the country, where there is intense pressure to regenerate old industries. The eastern part of the country needs to explore long-term mechanisms to encourage employment, with an emphasis on general planning for rural and urban employment and improving the employment environment for rural workers in cities. This requires employment generation in 2005 to expand in scale as well as increase in quality. As well as upholding workers’ rights, more attention must be paid to the employment and basic social security of the disadvantaged, and to establishing a long-term mechanism while alleviating the most serious problems at present. Employment and re-employment targets in 2005 are: 9 million newcomers to the job market, 5 million laid-off workers and unemployed people, of which 1 million are in the “4050” category, and maintaining the urban registered unemployment rate at 4.6% (a target which is referred to as “95146”); providing 4 million laid-off workers and unemployed people with re-employment training, 300,000 people with career-creation training, and 5 million rural workers with training for other jobs; vocational skills verication should see a 20% increase in scale on the basis of ensuring quality training for 150,000 new technicians. With this in mind, there are four crucial elements to employment generation in 2005. First is actively developing industries and trades with greater potential for providing jobs to full “95146” employment and re-employment targets. Since jobs are scarce, the employment structure must be adapted as the economy develops in order to nd new resources for jobs. Therefore, when working towards government targets to encourage employment and re-employment, tackling difcult issues such as small loans and separating primary business activities from secondary ones, and ensuring that policies reach their full potential in encouraging employment and re-employment, special attention must be given to developing industries and trades with greater potential for providing jobs, to transfer a greater portion of the driving force of economic growth to employment. At

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present, the information technology industry, tourism, beauty treatment and hairdressing, interior decoration and real estate management are industries with great momentum and plentiful employment resources. Further measures should be considered to encourage these industries to increase the jobs that they offer. Second is evaluating positive employment policies and improving policy focus on disadvantaged regions, industries and groups. 2005 will be the third year of positive employment policies, and these are scheduled to conclude at the end of the year. It is therefore necessary to evaluate the effects of these policies and study the extension of such policies in disadvantaged regions, industries and groups. Attention must also be given to solving historical problems in regeneration, employment difculties in traditional industrial bases, cities with depleted resources, and the difculties of disadvantaged trades. While helping the disadvantaged to nd jobs, attention should also be paid to the employment of the young, including college graduates. Third is further improvement of the employment environment for rural workers seeking work in cities, and exploration of policies and measures to incorporate urban and rural employment. Although there were certain breakthrough improvements in the rural workers’ employment environment in 2004, much work remains to be done controlling and removing policy obstacles limiting farmers moving to urban areas for work. An especially urgent task is to develop a new management system or policies to incorporate urban and rural employment. Some of the issues to be resolved include improving management of rural workers working in different regions; incorporating rural workers working in different regions and cities into urban free public employment training; offering “one-stop” training, transfer and legal protection services for farmers; and implementing the “Sunshine Project” vocational training project for rural workers. Further major issues remain to be solved: household registration for rural workers, their children’s education, their stable employment and accommodation, the transfer of land and social security, etc. These issues must be explored in order to meet urbanisation targets for a prosperous society in the next 15 years. Fourth is pushing forward vocational training of more high-level talent and increasing business competitiveness. Human resources have become the world’s most important strategic resources, since the competition between national powers is actually a competition of talent. Pursuing the strategic empowerment of the nation with talent and training high-level talent of all kinds will ensure China’s strategic aim

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of building a prosperous society. China has a serious shortage of highlevel talent and is unable to meet the demands of economic development—demand currently exceeds supply ve-fold. Across the board, in training, selection, verication, employment, incentives, exchanges, protection, etc., policies and measures that will promote an increase in talent must be drawn up and implemented. A comprehensive improvement to the workforce’s capacity for employment, work and upgrading is the best chance to meet the needs of developing China’s economy.