Legislation entitled, “Safeguards for Labor and Society” passed last week as part of the 11th five-year plan revealed that China will lose ten million jobs by 2010, adding that “the employment situation is grim.” Other sources suggest that the unemployment rate will reach five percent.   

China has no central authority over unemployment statistics. According to experts, the actual figure could be nearly double that.     

The past three quarters of this year has seen an increase in 9,320,000 jobs in cities and towns, well above the set goal of nine million. But this will be an exception considering the likely economic slowdown over the next few years.     

Many domestic experts suggest that to solve future job shortages China should develop labor-intensive industries, the service sector, and small to middle-sized businesses. The 11th five-year plan also stresses the need to develop an economy that is sensitive to unemployment, to improve the employment structure, and increase overall employment capacity.     

This is a correct diagnosis of the problem. But the next step is to figure out how to actually develop these firms and industries.     

The World Bank’s September report on the global business environment points out that to establish a business in China one must take 13 steps over a period of 35 days. The costs of the process are equivalent to 9.3 percent of China’s annual per-capita income, with initial capital equal to 2.1 times the annual per-capita income. The report also points out that the total tax burden for such a business would be 77% of its profit. For the firms most likely to create jobs, these are significant barriers to overcome.    

Local government can add to these burdens as well; two examples are recent spikes in real estate prices and higher required contributions by businesses for public facilities. In Beijing, half of government income is derived from real estate taxes. When these costs go up, small enterprises are pushed to bankruptcy. This happened recently in Beijing’s Zhongguancun technology district.