The CASS blue paper lists five reasons behind the worsening unemployment situation in 2008. First, the number of fresh college graduates reached a historical high of 5.59 million. Second, natural disasters took a toll on job vacancies. Third, price rises for energy and raw materials in the international market, shrinking export demand, rising labor costs and the impact of the financial crisis caused many export-oriented small and medium-sized companies to close their doors. Fourth, some energy-consuming and high-polluting factories were forced to close down. Fifth, 2008 was the last year that state-owned enterprises were allowed to go bankrupt under government incentive packages.

Chen Guangjin, Deputy Director of the Institute of Sociology at CASS, said at a press conference in December that the Chinese labor market will face aggregate labor supply exceeding labor demand for a long time.

According to Chen, in 2009 and 2010 China's total labor supply is expected to have an annual net growth of 5 percent to 6 percent, equaling 8 million to 10 million people. If migrant workers and newly laid-off workers in cities are added, at least 20 million people will enter the labor market in search of a job each year. Chen said every percentage point of GDP growth could create 800,000 to 1 million jobs; therefore 9-percent GDP growth, which China is pursuing for 2009, could at most create 12 million jobs if people retiring is taken into consideration.

"We still have a supply-demand gap of 8 million to 12 million jobs and this situation won't change until the middle of the 21st century," Chen said.

According to another report by CASS, in the first half of 2008 the number of private companies, most of which are small and medium-sized, grew by only around 2 percent, compared with a growth rate of 10.7 percent in 2007. The report said since small and medium-sized companies are a major creator of new job opportunities, financial difficulties experienced by these companies would have a serious negative impact on unemployment figures.

Tougher 2009

"The unemployment situation in 2009 will worsen unless the macro-economic situation in China turns around, which hinges on the performance of the global economy," Li Wei, a researcher with CASS and a major author of the blue paper, told Beijing Review. He said the incentive policies of the Central Government to create new jobs and expand domestic demand would take some time to show effects.

The blue paper identifies three factors contributing to the chilly job market in 2009. First, the economic growth rate and exports will drop further in 2009. China's total exports will fall victim to dwindling demand in the United States and Europe due to the economic slowdown. Second, pay raises in 2008 have driven up corporate labor costs, forcing small and medium-sized companies to reduce their production scale or close down. Third, tight monetary policies have already caused financial difficulties for small and medium-sized companies.

Fresh college graduates are likely to be worst hit by the gloomy labor market. The population of fresh college graduates has skyrocketed from 4.13 million in 2006 to 6.11 million in 2009. It was estimated by the blue paper that at most 70 percent of last year's graduates had found jobs by August 2008, while around 1.5 million remained unemployed at the end of 2008. The blue paper said the unemployment rate of university graduates in 2008 was more than 12 percent.

At a national conference on December 5, Chinese Finance Minister Xie Xuren announced a series of job-creating incentives introduced by the Central Government in 2009. Government-invested large public projects in forestation, water reservation and environmental protection will try to hire migrant workers who cannot find work. The Ministry of Finance will give tax relief to small and medium-sized companies that hire university graduates and tax incentives will also be given to graduates who start their own businesses. The ministry will increase the money it allocates to vocational training for laid-off and migrant workers and give subsidies to migrant workers who go back to rural areas to start their own businesses. It will also allow companies experiencing financial difficulties to lower their social insurance premium so they can remain in business.