CHAPTER TWENTY

China’s Nightmare: No Jobs for the Millions

THERE ARE NO UNEMPLOYMENT figures in China, but huge numbers of people are grossly underemployed. They may nominally be on a payroll, but there is no work for them.

The crushing shortage of jobs in China is rarely ever mentioned, and least of all by the Chinese. Yet it may be the greatest obstacle to economic growth and performance. This reluctance to discuss the problem was exemplified recently during a week-long symposium in Beijing on economic and enterprise reform that I took part in. The symposium was organized by the World Bank at the behest of China’s prime minister, Zhao Ziyang. However, the 30 Chinese members of the symposium—all senior government members—pushed all discussions of the job shortage onto the handful of attending foreign experts.

After years of spectacular advances, China’s agricultural output is now stagnating because there are far too many people tilling the land. Reducing the peasant population from about 800 million to 400 million would almost certainly double farm output. Yet even 400 million would still represent 40 percent of the total population, or at least five times as much as developed countries now employ on the land to produce vast surpluses.

Imaginative Experiments

The Chinese are promoting “village industries” to help unemployed peasants. These may be the most imaginative social experiments going on anyplace today, but at their most successful they could employ only thousands, not millions.

But where would those millions of underemployed peasants go? There are neither jobs nor housing for them in the overcrowded, desperately job-short cities. Indeed, the first demand of urban workers on the enterprises that employ them is that they start new businesses (called “collectives”—and pay substantially lower wages) to provide jobs for their own jobless children.

Overpopulation has been the curse of China for 200 years and in large part has been responsible for the social convulsions periodically ravaging the country from the Taiping Rebellion of the 1850s to Mao Tse-tung’s “Cultural Revolution” 20 years ago. But despite draconic, not to say brutal, birth control imposed by the present regime, population is still growing, and with it the need for jobs.

Hence the Chinese are caught on the horns of a fearful dilemma between the imperative of economic performance and the imperative of jobs. Only very rapid economic growth and stellar economic performance can ultimately provide jobs. But fast growth and economic performance, whether on the land or in industry, require giving priority to productivity and profit, along with the willingness to close inefficient plants and lay off their employees—and also the willingness to fire or demote inefficient or lazy workers.

Yet the present regime owes much of its popular support to the promise of lifetime employment regardless of performance. In the short run—and that may mean 10 years—emphasis on economic performance thus must aggravate the job pressures that already are a central problem. This would hit hardest those people least able to fend for themselves, the least skilled, least productive, least energetic and least trained—in a country that knows neither labor mobility nor training.

Adding to the difficulty are the different priorities of the central and local governments. The emphasis in Beijing is of necessity on economic performance; all the talk is of the need for more profit, higher productivity, more plant discipline. For the central government, a vastly increased supply of consumer goods—and of goods of vastly improved quality—must be the first priority. Without the incentives that only an increased consumer-goods supply can provide, the economic drive, both on the farm and in the cities, would soon falter; it shows signs of slowing down now.

But in the provinces, the cities and the villages, jobs are the first priority. The constant pressure on local governments to provide jobs explains, for instance, why there are now 30 million bicycles in government warehouses that are so shoddy they are unsalable even though the bicycle is China’s main vehicle. Provincial and city governments forced local manufacturers to keep on making the bicycles long after they had become unsalable—the alternative would have been layoffs. Similar surpluses of unsalable poor-quality goods, made only because the goods provided employment for large numbers of unskilled and untrained people, are said to be building up in tractors, black-and-white TV sets and light trucks.

Equally difficult is the second dilemma confronting the Chinese policymakers: the choice between economic growth and inflation. Growth will require dismantling the spider’s web of regulations, controls, and negotiations that paralyzes economic activity and forces managers to spend three-quarters of their time negotiating with myriad government and party agencies. Prices and wages are so grossly distorted that no one really knows what an enterprise, an industry, or a village community actually produces, let alone at what cost.

For instance, businesses are charged a 5 percent interest rate on all the money they take in—yet the inflation rate is 8 percent or 9 percent, so that businesses actually are subsidized by a negative rate of interest (there are persistent stories of businesses that borrow from the state bank at 5 percent and smuggle the money to Hong Kong, where it yields up to three times that). Since the real cost of money in China—a country with a critical shortage of capital formation—is probably close to 20 percent, the much-vaunted “profits” of Chinese enterprises are pure fiction; I doubt there is a single Chinese business that is actually in the black. All other prices—for raw materials, finished goods, housing, or labor—are similarly out of touch with reality.

Worse still, all costs—for raw material, finished goods, wages, taxes, shares in the fictitious profits, rents, and so on—are constantly negotiated by each enterprise with a multitude of governments, party agencies, and works councils. Enterprises commonly pay four different prices for the same raw material: one price for the 30 percent supplied by the central government, another for the 30 percent supplied by the provincial government, a third for the 10 percent supplied by the city, and yet another price for the last 30 percent obtained in barter deals from customers. In each of these deals there are different “concessions”—a higher tax rate for the central government; employing more people for the provincial and local authorities; or better-quality goods at lower prices for the barter partners.

There will be little economic growth unless this nightmare of regulations and negotiations is replaced by the discipline of a market economy. There will be only more unsalable goods like the 30 million shoddy bicycles—and no incentive for farmers or workers. But removing controls is almost certain to bring sharp price increases. In relation to incomes, China’s prices are actually quite high. But in relation to any cost—and especially to the cost of a bloated and singularly inefficient labor force—they are kept artificially low. “Eventually” a market economy will, of course, correct the imbalance. But “eventually” may mean four or five years, perhaps even longer, as China is still desperately short of trained and skilled people able to exploit the opportunities of a free economy.

But five years of inflation? Every Chinese policy maker knows that it was not Mao but inflation that ultimately defeated Chiang Kai-shek 40 years ago. Hence few people dare even talk of anything but “gradual decontrol,” even though it has never worked before anywhere. The first step in “gradual decontrol” will be taken next spring when rents in government housing are nudged from 1 percent to 2 percent of a worker’s monthly salary—still no more than a fraction of true cost, and probably not even enough to cover the cost of the utilities, such as electricity, that currently are provided without any charge. If this rent increase does not cause trouble, the next step may be one that was urged on the prime minister by the “foreign experts” at the Beijing symposium: raising the interest rate for money that is being charged businesses and villages. But in all likelihood the rise at first will be only to a fraction of the true cost.

No One Wants to Yield

There is a good deal of discussion today, inside and outside China, of the political obstacles to that country’s economic reform: the resistance of an entrenched bureaucracy to anything that threatens its power, and the Stalinists and Maoists who, while temporarily beaten, are only waiting for the reformers to stumble. Even the strongest advocates of rapid and radical economic reform are not willing to yield an iota of political control and domination by government and party for the sake of economic performance and growth.

But the crucial issues, the ones on which the success, and perhaps even the survival, of the present regime ultimately may depend, may be tactics rather than ideology or political strategies: China’s ability to balance economic performance with the pressure for jobs, and decontrol with control of inflation.

[1987]