Decreasing Employment Elasticity, Informalizing Labor Market and Ownership in China Andong Zhu Tsinghua University, Beijing, China Nairobi, 2007.01.

Decreasing Employment ElDecreasing Employment Elasticity, Informalizing Labor asticity, Informalizing Labor Market and Ownership in CMarket and Ownership in C

hinahinaAndong ZhuAndong Zhu

Tsinghua University, Beijing, ChinaTsinghua University, Beijing, China

Nairobi, 2007.01Nairobi, 2007.01

OutlineOutline

IntroductionIntroduction

Decreasing Employment ElasticityDecreasing Employment Elasticity

Informalizing Labor MarketInformalizing Labor Market

Ownership Changes in the Chinese EconoOwnership Changes in the Chinese Economymy

ConlusionConlusion

IntroductionIntroduction

Unsustainable trends in the Chinese EconUnsustainable trends in the Chinese Economy() omy() == Consumption rate is too low == Consumption rate is too low == Inequality/poverty == Inequality/poverty == concentration o== concentration of wealth/low labor sharef wealth/low labor share==unemploymen==unemployment/informalizing employment t/informalizing employment

China’s Changing Economic Structure, 1981-2003 (%)China’s Changing Economic Structure, 1981-2003 (%)

1981-1985

1986-1990

1980-1990

1996-2000

2001-2003

Share of GDP (expenditure approach):a

Private Consumption 52.2 51.0 46.5 47.2 45.1

Public Consumption 14.0 12.5 12.8 12.2 12.8

Fixed Capital Formation 28.1 29.2 33.7 35.0 39.5

Exportsb 7.9 12.7 19.0 20.1 25.7

Net Exports -0.3 -0.4 1.0 3.0 2.3

Contribution to GDP growth:a

Private Consumption 53.6 47.5 44.4 51.8 30.4

Public Consumption 12.4 11.2 11.0 16.3 9.5

Fixed Capital Formation 31.2 21.9 38.7 40.0 57.9

Exportsb 12.7 22.8 23.6 26.5 48.7

Net Exports -8.3 9.2 1.2 4.0 1.4

China's Capital Productivity andRate of Return on Capital

0

0.1

0.2

0.3

0.4

0.5

0.6

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

0.04

0.08

0.12

0.16

0.2

0.24

Capital Productivity Marginal Capital ProductivityIndustrial Profit Rate (right scale)

China's Investment-Output Ratioand Economic Growth Rate

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

Investment Ratio Growth Rate (right scale)

Decreasing Employment ElasticityDecreasing Employment Elasticity

　 　 Employment Growth

value-added Growth

employment Elasticity

1980-1990

Primary Industry 2.8 6.2 0.45

Secondary Industry 5.9 9.5 0.62

Tertiary Industry 7.9 12.2 0.65

Total 4.1 9.3 0.44

1990-2000

Primary Industry -0.8 3.8 -0.21

Secondary Industry 1.6 13.5 0.12

Tertiary Industry 5.1 9.1 0.56

Total 1.1 10.1 0.11

Graduates from higher education inGraduates from higher education institutes, employment ratio, employstitutes, employment ratio, employ

ment(10,000 or %)ment(10,000 or %)33

8

Total Graduates Employment Ratio unemployed

2000 107 86.39% 30

2001 115.02 89.40% 34.5

2002 145 85.00% 52

2003 212 83.00% 70

2004 280 73.00% 75

2005 338

Informalizing Labor MarketInformalizing Labor Market

0

5000

10000

15000

20000

25000

30000

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

EMP- CI TY- SOEEMP- STF&WRKEMP- CI TY

Ownership Changes in the Chinese Ownership Changes in the Chinese EconomyEconomy

Shrinking SOE SectorShrinking SOE Sector

Increasing Private Enterprises’ ShareIncreasing Private Enterprises’ Share

Increasing Foreign SectorIncreasing Foreign Sector

The Share of I ndustry Output by Ownershi p

0

10

20

30

40

50

60

70

80

90

100

1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999

Year

SOECLTI DVOtherSOE+CLT

Share in Industry Output by Share in Industry Output by Ownership (%)Ownership (%)

54.61 35.63 7.4856.17 32.99 5.5551.52 35.07 6.3247.01 34.02 9.8337.34 37.72 13.6933.97 36.59 15.1436.32 39.39 9.1531.62 38.11 11.728.24 38.41 9.01

0

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Forei gn Owned SOE Col l ect i ve Domest i c Pr i vate

Forei gn Enterpri ses' Share i n Chi na' s I nternati onal Trade (%)

0

10

20

30

40

50

60

70

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Year

EX + IM EXIM

ConclusionConclusion

Dangers in the Chinese Economy: re-Dangers in the Chinese Economy: re-colonizingcolonizing Foreign Capital Controls the Economy;Foreign Capital Controls the Economy; Locked at the low-Ladder of the World Locked at the low-Ladder of the World

EconomyEconomy

Strengthen the State and Empower the Strengthen the State and Empower the Working ClassWorking Class

China’s Basic Economic Statistics, 1981-2001 (percent)China’s Basic Economic Statistics, 1981-2001 (percent) 6th Five Year

Plan (1981-85)

7th Five Year Plan (1986-

90)

8th Five Year Plan

(1991-95)

9th Five Year Plan

(1996-00)

1981-1995

1996-2001

Real GDP growth (Official) 10.78 7.92 12.00 8.26 10.23 8.10

Real GDP growth (Maddison)1 8.87 5.73 8.68 6.312 7.76

Inflation rate3 3.64 7.26 12.45 0.60 7.78 0.50

Energy consumption growth 4.99 5.20 5.86 -0.43 5.35 0.16

Gross domestic savings (% of GDP) 34.04 35.98 40.76 41.26 36.93 41.11

Investment (% of GDP) 34.08 36.86 39.64 37.64 36.86 37.69

State Investment (% of Gross investment)

67.09 64.91 61.18 52.51 64.39 51.64

State Investment (% of GDP) 22.87 23.92 24.25 19.76 23.74 19.47

Consumption (% of GDP) 66.24 63.52 59.38 59.34 63.05 59.42

Government Expenditure (% of GDP) 23.29 18.11 13.43 14.34 18.28 15.24

Net Exports (% of GDP) -0.30 -0.31 1.51 3.46 0.30 3.29

Foreign direct investment (% of GDP) 0.33 0.90 4.31 4.39 1.85 4.29

FDI (% of gross investment) 0.95 2.49 10.62 11.58 4.69 11.33

Household final consumption growth4 11.28 5.88 10.01 7.78 9.06 6.81

General government consumption growth4 11.66 6.90 11.40 8.74 9.99 9.19

Gross consumption growth4 11.34 6.02 10.26 7.96 9.21 7.30

Gross Investment Growth4 19.70 5.70 23.15 9.98 16.18 10.48

State Investment Growth4 15.36 5.56 17.79 8.25 12.90 7.99

China’s Basic Economic Statistics, 1981-2001 (percent)China’s Basic Economic Statistics, 1981-2001 (percent)

6th Five Year Plan

(1981-85)

7th Five Year Plan

(1986-90)

8th Five Year Plan

(1991-95)

9th Five Year Plan

(1996-00)

1981- 1996-

1995 2001

Government budget Balance(% of GDP)

-0.22 -0.79 -1.03 -1.53 -0.68 -1.71

New government debt(% of GDP) 1.5 1.89 2.39 3.93 1.93 4.08

SOE output share in industry output 71.3 57.89 45.19 29.03 58.13

SOE employment growth 2.34 2.85 1.72 -6.15 2.3 -6.08

City collective enterprise employment growth

6.64 1.33 -2.33 -13.14 1.88 -13.26

Staff and workers employed by manufacturing sector, growth5 3.2 2.81 0.51 -9.42 2.17 -9.03

total Staff and workers, growth5 3.43 2.62 1.19 -5.29 2.41 -5.1

Total employment growth 3.32 5.51 1 1.15 3.28 1.18

Share of employment in formal sector 97.89 93.12 81.02 60.67 90.68 58.07

Change of formal sector employment share in total employment

-0.55 -2.8 -0.84 -5.93 -1.4 -5.54

Gini coefficient 26.15 34.81 38.5 40.3