ABSTRACT
After the XVth Congress of the Chinese Communist Party (CCP) in September 1997, the broadening and acceleration of a modern enterprise system – already endorsed during the VIIIth National People’s Congress in March 1993 – pushed the incremental and experimental process of stateowned enterprise (SOE) reforms to be reopened in a different fashion. With the diversification and increase in competition of different forms of ownership in the marketplace, the corporate governance system functioned through the motto of ‘grasping the large (SOEs), and letting the small (SOEs) go’(zhuada fangxiao).1 While this approach was initially welcome, it has ultimately shown serious shortcomings. The synchronized evolution of two key elements has created obstacles to the full absorption in the labour market of those workers who were laid-off as a result of the so-called ‘enterprise restructuring’.2 First, the legacy of the deceleration of the Chinese economy – with deflation rates (2.6 per cent in 1998 and 3.0 per cent in 1999), relatively high interest rates (around 8-10 per cent in 1998-99), low levels of domestic demand (household consumption decreased from 9.1 per cent in 1996 to 4.2 per cent in 1997, slightly recuperating to 7.4 per cent in 1999),3 and the declining external demand caused by the Asian Crisis in 1997-98 – has entailed a slowdown in job creation. Second, the increasing level of registered unemployment in urban areas (from 2.8 per cent in 1994 to 3.1 per cent in 1999)4 created a potential loss of social cohesion. Many would argue that these elements have been inevitably interlinked, given that a general economic recession provokes a shortage of labour demand. Nevertheless, the problem is not so much about a decreasing rate of labour demand, but rather about an inefficient allocation of labour supply.
