Economic researchers have predicted that China's unemployment rate will jump higher as the country widens its economic reforms to over-staffed State firms.

The prediction came against the background of the Ministry of Labour and Social Security's announcement last week that all reemployment service agencies in seven provinces and municipalities including Beijing and Shanghai will be closed down.

The service, which was introduced nationwide in 1998 as an interim programme to help millions of laid-off workers from loss-making State-owned enterprises (SOEs), is scheduled to be phased out by the end of this year.

Lay-offs from SOEs, who are usually paid meagre sums for basic living necessities in line with a three-year contract by reemployment agencies, are not included in the unemployed.

After the contract expires, laid-off workers who fail to be re-employed will be reclassified as jobless.

The closure of reemployment agencies, aimed at setting up a sound labour market suitable to the market economy, is set to push up the unemployment rate higher, according to Cai Fang, director of the Institute of Population and Labour Economics at the Chinese Academy of Social Sciences.

That's because a large proportion of the remaining 3.1 million laid-off workers still at reemployment agencies will be added to the jobless rolls as a result of obsolete working skills, the researcher said.

He noted that the unemployment rate in cities has been climbing over the past few years.

A survey by Cai's institute in five major cities -- Fuzhou, Shanghai, Shenyang, Xi'an and Wuhan -- suggested that jobless rates averaged about 8 per cent between September 1996 and January 2002.

Since last February, unemployment rates in these cities have even topped 14 per cent, according to Cai.

The figures, which present an overall gloomy picture of all cities, contrasted sharply with the official urban registered unemployment rate which stood at 4.3 per cent at the end of September, with 7.93 million out of work.

The labour ministry had earlier claimed that the country was certain to meet the target of keeping the urban registered jobless rate below 4.5 per cent for this year.

But Professor Zeng Xiangquan, president of the School of Labour and Personnel at the Renmin University of China, said the government statistics fail to reflect the grave unemployment situation.

He said most Chinese labour experts tend to believe China's unemployment rate has reached 10-15 per cent and will keep rising in the coming years.

The professor said a number of factors are expected to add to the employment pressure:

The country will face an aggravated labour oversupply as the number of new job seekers entering the labour market is expected to reach about 15 million each year between 2003 and 2020.

Meanwhile, only 8 million jobs can be created annually even if the economy can maintain a growth rate of 7 per cent.

The number of redundant employees and unemployed will increase in the next few years as more loss-making SOEs close down or go bankrupt during the process of economic restructuring.

Quick decline in employment elasticity, which indicates an increase in employment in response to economic growth.

A reduction in employment elasticity suggests that the rate of increase in jobs is on the decline.

Data from the National Bureau of Statistics suggested each one-percentage-point growth in gross domestic product generated 2.4 million job opportunities in the 1980s, but the figure declined sharply to 700,000 in the 1990s.

(China Daily HK Edition November 5, 2003)