China losing jobs as productivity soars

By DAR HADDIX, UPI Business Correspondent

WASHINGTON, July 9 (UPI) -- China is losing manufacturing jobs in the same industries where the United States and other developing countries are seeing jobs vanish, as productivity improves and China sees economic restructuring, a Conference Board study finds. But while China's manufacturing jobs are declining, service-sector jobs are increasing.

"As its manufacturing productivity accelerates, China is losing jobs in manufacturing -- many more than the United States is -- and gaining them in services, a pattern that has been playing out in the developed world for many years," according to the study, "China's Experience with Productivity and Jobs: Benefits and Costs of Change," released Thursday. The report is a joint venture with the National Bureau of Statistics in China.


Productivity advances have occurred broadly across the industrial sector, with 36 of China's 38 major industries seeing increases between 1995 and 2002.


China's soaring productivity stems from downsizing and restructuring of government companies, and upsizing of foreign firms and firms with foreign investment as well as private domestic Chinese firms, according to the study.

China's increase in service jobs and decline in manufacturing jobs is not only part of its economic development but also fits in with domestic and global demand, the study said. Services made up 33.5 percent of China's gross domestic product in 2002, up from 30.7 percent in 1995. In the United States, there are five service-providing jobs for every goods-producing job.

"Both [the Chinese and U.S.] economies will need to find ways to re-employ these workers as the structural changes continue to alter their old industries," the study said.

The Conference Board is a New York-based business membership and research network group. The study is based on data for China's 51,000 large- and medium-sized firms in the manufacturing, mining and utilities industries.

China formally sanctioned private enterprise in 1999, entered the World Trade Organization in 2001, and constitutionally guaranteed private property in 2004, steps that are helping the country integrate into the global economy.

Partly as a consequence of China's global economic debut -- and partly due to their own increasing productivity -- developed nations saw jobs offshored to China. But between 1995 and 2002, China lost 15 million manufacturing jobs, and the United States lost 2 million, the study said.


During that time, China's industrial labor productivity also grew at a 17 percent annual rate. This means that each hour of labor in 2002 produced three times as much as it did in 1995. Thirty-six of the 38 major industries saw productivity climb -- in fact, 27 of the 38 saw annual average productivity grow more than 10 percent annually -- while U.S. manufacturing productivity during the same period grew 4 percent annually. With China starting at a much lower productivity level than the developed world, it is able to grow productivity much faster. Restructuring activity is also expected to lead to more productivity increases.

Across the industrial sector, 26 of the 38 major Chinese industries lost jobs. Industries with the highest job losses included steel processing (557,000), machinery (588,000) and non-metal mineral products (429,000).

The three manufacturing industries showing any substantial job gains in China are electronics and telecommunications (374,000), garments (160,000) and leathers and furs (129,000). Most of these positions were in firms with some kind of foreign ownership.

Foreign investment has been a key driver of productivity in China. "Since the economic reforms began in China, foreign-owned and foreign-invested firms have always been more productive than government-controlled enterprises," the study said. Foreign-owned and foreign-funded companies saw 28 percent annualized growth between 1995 and 2002, while state-run firms saw only 3 percent growth.


While about half of all state-owned enterprises continued to flounder and rely on considerable state subsidies to operate as late as 1995, special economic export-oriented zones with foreign investment and private-ownership structures produced nearly 8 percent annual growth between 1990 and 2002.

But when a foreign company partners with a Chinese company in a joint venture, they have been even more productive, the study shows. Joint U.S.-, European- and Japanese-Chinese ventures were seven times as productive as state-owned companies in 2002. Such partnerships allow foreign companies to access the domestic market, and benefit from the "local know-how" of the Chinese firm.

Joint ventures also benefit from more capital equipment and higher-skilled labor, but even more importantly, a better management style, according to study author Robert McGuckin.

On the other hand, Chinese joint-stock companies, public companies where the state is still the primary shareholder, only demonstrated productivity levels slightly higher than traditional state-owned firms.

A surplus of underutilized workers at state-run enterprises made profitability almost impossible, and resulted in huge layoffs once economic reforms began to be implemented. Between 1995 and 2002, the proportion of state-employed workers fell from 89 percent to 49 percent, resulting in the loss of 12.1 million jobs. An IMF working paper estimates that there are still between 10 and 11 million underutilized workers in state firms, the study said.


One example of the power of private ownership is Vietnam, where farmers who were granted ownership of small farms went from famine to exports of rice in 12 years, according to a report prepared last year for the United Nations by David Dapice of the Vietnam Program Center for Business and Government at Harvard University.

State data indicates that China's current unemployment rate is an astonishing 23 percent, compared to 5.6 percent in the United States. The number of people unemployed in China in 1999, estimated at about 169 million, is greater than the entire U.S. workforce today.

China is still evolving and finding its niche in the world economy. Domestically, agriculture still employs half of China's population, compared to 2.5 percent of the U.S. population and 4 percent of the European populace. And on Thursday, media reports said that the United States and China are battling over China's revocation of Viagra's patent in China, opening its market for generic manufacturers to make the drug. But a major U.S.-China WTO spat was also resolved, with China saying it would end tax policies that favor Chinese manufacturers and designers of semiconductors, the U.S. Trade Representative's office announced.

McGuckin noted that 12-15 percent of U.S. jobs are created and destroyed every year as its economy evolves. Now, China is experiencing this "creative destruction" as well, he said.


"One wants to do everything possible to ease the transition, but you don't want to stop it," he said.

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