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Slower China growth plan begs for labour reform

Local authorities have resorted to putting laid-off employees from state-owned enterprises into low-paying jobs for which there is no real need
REUTERS/Thomas Peter

By Pete Sweeney

HONG KONG (Reuters Breakingviews) - China's slower economic growth requires more labour market mobility. On Sunday, the government set a GDP growth target of 6.5 per cent for 2017, down from last year's realized 6.7 per cent, while outlining a plan to cut overcapacity in domestic industries. That is well and good. But officials still want urban unemployment to stay below 4.5 per cent. Something needs to give.

In reports delivered on Sunday to the annual meeting of China's compliant parliament-like body, the National People's Congress, officials said they would reduce money supply growth, push ahead shutting "zombie" state-owned enterprises, and cut steel and coal capacity. But they also promised this would not cause any structural unemployment. Instead, the country will create 11 million jobs, one million over last year's target.

To keep unemployment in check, many local authorities in economically distressed regions have resorted to putting laid-off employees from state-owned enterprises into low-paying jobs for which there is no real need. That's not sustainable.

Millions of workers stuck in the country's rust belt need to migrate to faster growing parts of the country, or China's already worrying wealth gap will get wider. Data from Gavekal Dragonomics shows the wage gap between poor provinces exporting workers and rich ones that import labour has been widening steadily since 2012.

Unfortunately, the "hukou" household registration system that suppresses internal migrants in search of work remains in place. At the same time, municipalities worried about being swamped by laid-off workers are busy buttressing internal immigration walls.

The top-tier cities of Beijing and Shanghai have already taken in the welcome mat. Mayors have set city population caps, and have sent enforcers on raids to shut down migrant-owned small businesses, bulldoze their shanty housing, and deny them access to city services. Other wealthy Chinese cities are sure to follow suit.

But an economic rebalancing requires labour market rebalancing, and that implies geographic reallocation of workers. Migration would not only let workers retrain, it would allow factories in high cost regions to stem rising labour costs. Artificially limiting the movement of people does nothing to encourage the domestic consumption growth China wants, much less alleviate poverty. Even at a slower rate of economic growth, China's labour policy isn't keeping up.

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- China aims to expand its economy by around 6.5 percent, Premier Li Keqiang said in his work report at the opening of the annual meeting of parliament on March 5. China set a target of 6.5 to 7 percent last year and ultimately achieved 6.7 percent growth, supported by record bank loans, a speculative housing boom and billions in government investment.

- The government will reduce its broad money supply growth target to around 12 percent. The government's budget deficit target is kept unchanged at 3 percent of GDP.

- Chinese banks extended a record 12.65 trillion yuan of loans in 2016, and recent data shows that new yuan loans hit 2.03 trillion in January, the second-highest ever.

- China added 13.14 million new urban jobs in 2016, with the number of college graduates finding employment or starting businesses reaching another record, according to the report.

- China aims to create more than 11 million new urban jobs this year, even as employment pressure grows, and keep urban registered unemployment below 4.5 percent. "This year's target for urban job creation is 1 million more than last year, underlining the greater importance we are attaching to employment," Li said.

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