Ding Ningning& Ge Yanfeng, Research Department of Social Development of DRC Research Report No. 051, 2005

The social problems arising from China’s rapid economic development cropped up after the Asian financial crisis. The basic cause has been the deepening of the market-oriented reform, including the impact of international competition after the country joined the World Trade Organization. The principle of the central authorities in dealing with social problems gradually evolved from the “two guarantees” (the “two guarantees” refer to the guarantee ofbasic living expenses for laid-off workersand the guarantee ofbasic living expenses for retired workers and to ensure a timely and full payment of the retirement pensions) to the “five balanced aspects” (The “five balanced aspects” are: balancing urban and rural development, balancing development among regions, balancing economic and social development, balancing development of man and nature, and balancing domestic development and opening up to the outside world). The core of the principle was to emphasize a coordinated development between the economy and society. To achieve the grand goal of building a truly well-off society by 2020, one important task for the 11th Five-Year Plan is to identify the main social problems, their nature and their root-causes so as to make necessary policy adjustments.

I. The Current Main Problems in Chinese Society

Currently, the Chinese society has many problems. If all the social problems exposed by the media are included, the list can be a very long one: SARS epidemic, AIDS, Falungong cult, group gambling, prostitution, drug abuse, stealing, robbery, gang fighting, human trafficking, official corruption, unemployment, resettlement compensation, gender imbalance, hospital-patient contradiction, agriculture-related problems, urban poverty, rising crime rate, mass incidents, frequent mine accidents, widening income gap, difficulty in university graduates employment, schooling of migrant workers’ children, and lack of protection for labor rights and interests.

The accumulation of social problems has affected the healthy development of the economy. In recent years, the problems of pensions, medical care and education have increased society’s negative expectations. And the rapidly widening income inequality has led to an overall deficiency of social consumption. Therefore, the Chinese economy has been in a state of “deflation” since the 1997 Asian financial crisis, and the government has had to rely on the proactive financial policy for a long time to prop up an indispensable economic growth rate. Although another round of overinvestment has appeared since the end of 2003, the problem of insufficient consumption has remained unresolved.

If the above problems are streamlined, it is not difficult to see there are three main problems that have been playing roles for a long time. They are employment, income disparity and social security. Employment is the basic means for individuals and families to make a living and also to prevent individuals from wandering outside society. While appropriate income inequality can increase the operating efficiency of micro organizations, excess income inequality violates the principle of equity and plunges some members of society into a difficult position. Under the conditions of a modern market economy, the social security system is a major measure and the last defense line for safeguarding social equity and easing social contradictions.

II. Employment Difficulty Should Not Be Underestimated Employment will be the biggest problem China will face from the 11th Five-Year Plan to the year 2020. Currently, the problem comes from the following three areas. First, the proportion of the population of labor age is still high. Although the number of the population of labor age will decline slowly after 2010, the proportion of this population in the total population will continue to be very high. Next, the migration of large numbers of young rural people to the urban areas in the course of urbanization will aggravate the competition on the primary labor market. Third, the continuous industrial and economic restructuring in the course of rapid industrialization will bring about disturbance to the labor market at the middle and high levels. There will be no fundamental changes in the above three factors before the year 2020.

Employment has been a historic problem that has troubled human society since the birth of industrial civilization. During the 200 years between 1760 when the industrial revolution began to 1960 when Daniel Bell published his “Advent of Post-Industrial Society”, the Western world had not only been troubled by fierce class struggle but also experienced the Napoleonic Wars and the two World Wars. The problem of employment did not ease somewhat until the 1960s when birth rates declined. Even though large amounts of labor have shifted to the tertiary industry, the post-industrial society in the West still has great numbers of jobless people. Even today, employment continues to be a campaign topic for Western politicians. Even the wave of economic globalization has failed to shake the conservative attitude of Western governments in protecting employment in their own countries.

Under the system of the traditional planned economy, China once realized relatively full employment, only at the expense of economic efficiency and personal freedom. When the country is moving rapidly to a socialist market economy, we should realize that full employment is a problem that the Western market economies have long failed to solve. The existence of a jobless reserve force is a prerequisite for enhancing the efficiency of resource allocation under the conditions of a market economy. The so-called industrialization and modernization in modern times is in essence a process in which capital and technology continue to replace labor and in which employment in the sector of material production continues to contract. The main content of the class struggle in Western history was for the workers to safeguard their right of employment.

The employment problem confronting China is much more difficult than in the West. In the 19th century, the population of the whole of Europe, including the western part of Russia, was less than 200 million. In the early years of reform and opening up, China’s population was more than one billion. Although rapid economic development and accelerated urbanization have been creating several million jobs each year the process still fails to meet the job demands of the newly added urban labor pool. In addition, the migration to the urban areas of large amounts of surplus rural labor arising from contracting production quotas to households has intensified the job competition on the primary labor market. The result is that the labor market is plagued with both aggregate surplus and structural contradictions. For this reason, it will be impossible to realize full employment in the sense of Western economics in the near future no matter what policies will be taken to promote employment.

Therefore, the emphasis of the government policies during the 11th Five-Year Plan should be placed on further removing the obstacles to the peasant workers aspiring to work in the urban areas, increasing the transparency of the urban labor market, expediting the networking of information of the employment service centers across the country and providing free re-employment training for jobless people. More importantly, the emphasis should be placed on increasing the employment ability and employment quality of the labor force. As the main measure, popularizing compulsory education should be taken as a long-term policy to promote employment and the people with jobs should be encouraged to participate in continuing education and on-job training. As unemployment will continue to exist for a long time, the unemployment insurance system will meet greater and greater economic difficulties. We suggest that “employer compensation + social relief” should constitute the starting point for the basic policies on handing the unemployment problem in the future. This will help guarantee the basic living requirement of jobless families so that they will not lose hope for and confidence in the future.

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*This report is one of the series of research papers on “Guiding Principles for the 11th Five-Year Plan and the Long-Term Goals by 2020”.