September 20, 2000
China's membership of the World Trade Organization could throw millions out of work, but the government is gambling it will also create new jobs, analysts said on Wednesday. China hopes to join WTO within months after getting a boost from U.S. Senate approval of permanent normal trade relations on Tuesday.
Entry to WTO will force ailing state industry to consolidate or risk closure to compete with foreign giants. In agriculture, more imports of foreign farm goods could accelerate the shedding of rural labor, forcing the government to create jobs or face massive social unrest. Analysts said the solution lies with new jobs in the service sector and private industry. But China must revamp its social security system and make the economy more efficient to smooth the way, they said.
"Services are the big growth sector, which will be more than enough to absorb all of what is shed in industry and a lot of the people being shed from agriculture," said Deepak Bhattasali, chief economist at the World Bank in Beijing. "The question is can it grow fast enough to absorb all of them and the backlog."
Analysts cautioned that the government would have to retrain workers and not all would be able to switch industries with ease. Under WTO, China's tariffs on a wide range of agricultural products will tumble and foreign producers are already licking their lips over the potential market. Chinese farmers will probably have to move to more value-added crops - such as fruit, flowers and vegetables - and away from grains and cotton, analysts said.
MILLIONS TO LEAVE FARMING
WTO entry will help boost rural incomes, but it will not slow the loss of jobs from the agricultural sector, estimated at 40 million over the next decade, they said. "There is a continuous decline of workers in agriculture taking place, irrespective of WTO or not, and that's going to continue," Bhattasali said.
Industry, especially the state sector, could face an even greater shock, analysts said. China's protected state companies have stumbled forward with government subsidies, but WTO will change that with the blessing of policymakers, they said. "China is now at a point where the easy reforms have been done," said Christian Murck, general manager of Chase Manhattan Bank in Beijing. "They have been struggling for several years with the issue of whether to take some very difficult steps to restructure state-owned enterprises and the banking system."
"Having agreed to move ahead with the WTO agreement and remove some of the barriers to greater foreign participation in the economy ... all of this is going to go ahead." Analysts expect the automotive and home appliance sectors to be the biggest losers as consolidation takes hold. At the end of 1999, China had 6.5 million workers laid off from state firms who were still without jobs.
Beijing aims to cap the urban unemployment rate at 3.5 percent this year, but analysts say that projection omits workers sent home on partial pay and the under-employed.
SERVICE SECTOR TO HELP
"There needs to be an adjustment mechanism to somehow manage the social cost of WTO," said Bruce Murray, representative for the Asian Development Bank in Beijing. WTO should create new opportunities as foreign investment boosts employment, but the government must also set up a social safety net, retrain laid-off workers and make the labor market more flexible to let people find jobs, he said.
"At the end of the day, you have to create the jobs that are necessary to absorb workers," he said. "It's got to come from the service sector, the small and medium-sized enterprises and the private sector." China's economy is overwhelmingly state-controlled, leaving private firms with difficulties in raising capital and getting the same benefits as government-backed companies.
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