China moves to avert unemployment crisis

China has warned that farmers in rural areas will be hurt when it joins the WTO

By CNN's Marianne Bray
in Hong Kong

BEIJING, China -- China says it will scrap a decades-old system that ties people to work where they are registered to live, as it strives to head off an unemployment crisis.

The move to ditch restrictive migration policies within the next five years comes as the world's most populous nation nears a 15-year quest to join the World Trade Organization (WTO).

While China is keen to join the global trade group, it has warned of rising unemployment.

Hundreds of millions of workers face losing their jobs as ailing state firms lay off more workers and both farmers and companies face more competition.

China has a large number of subsistence workers who farm simply to survive, while many workers are underemployed, with jobs that aren't necessary or efficient at state-backed companies.

Economists have warned that competition will severely hurt inefficient farmers in the countryside.

By making the labor market more flexible, China expects the move will help tens of millions of jobless rural workers find jobs.

'Two Chinas'

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Although China's coastal areas are vibrant and dynamic, many of its inland areas -- especially the west -- are vulnerable, analysts say.

Indeed, many commentators refer to "two Chinas."

One China centers around the 900 million Chinese living in rural areas with a per capital income of less than $100 per year, John Thomson, managing editor of China Online told East-West Center's Asia Pacific Executive Forum earlier this year.

The other is the 400 million who live along the coast and Yangtse River basin with an annual income of around $800.

Chinese officials estimate there are around 150 million people out of work in the countryside, and their numbers are estimated to rise by five to six million each year.

It is therefore not surprising that Chinese authorities expect close to 50 million people will flock to the cities and find work there.

Analysts say China needs to allow more free movement of labor as it shifts away from less intensive agriculture.

But those living in the cities fear it will strain social services and increase crime as millions of jobless workers head to cities.

Private sector onus

China expects close to 50 million people will find work in the cities

Under a government plan, China will establish an "employment registration system" issuing social security numbers to people as a way to guarantee benefits, Xinhua has said.

China will also try to create more jobs by relying on the private sector and encouraging more flexible work arrangements, including self-employment.

The State Development Planning Commissio said China would be able to create 40 million new urban jobs annually, Xinhua said.

China's unemployment rate is just 3.3 percent overall. It is also Asia's fastest-growing economy.

Reuters contributed to this report.