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According to several economic indicators, the Chinese economic growth rate is expected to slow down relatively between 5% and 6% in 2009, which will significantly increase the rate of unemployment

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According to several economic indicators, the Chinese economic growth rate is expected to relatively slow down between 5% and 6% in 2009, which will significantly increase the rate of unemployment. According to the latest report that was released by the Royal Bank of Scotland (RBS),  the Chinese GDP is going to decline 5% instead of the expected 8%, which will create increasing uncertainty and economic stagnation. The Chinese economy’s growth rate fell to 9% as of the third quarter of 2008 compared to an 11.7% average in 2007. Due to the predicted increased levels of uncertainty in November 2008, many investment banks including Goldman Sachs have revised their estimates of growth rates in 2009 to lower expected figures.


Under these circumstances, millions of Chinese citizens are risking losing their jobs in 2009. The sluggish state of the economy could pose a serious socio-economic malaise to the Chinese state. Moreover, the situation is only going to get worse if Peking does not take any proper actions to create enough jobs for the millions of people that are still entering the job market in 2009.


In response to the global financial crisis, the Chinese government has made several policy adjustments to minimize casualties. The Chinese President announced his country’s commitment to liberalizing and opening up its economy to the world during the recent celebrations of China’s 30 years of reform. However, the decline in the level of exports by 2.2% in December 2008 when compared to December 2007, and the decline in the level of energy consumption in November 2008, have lead the IMF to believe that the rate of economic growth in China will fall to around 5% in 2009.


The Chinese president also assured future entrants to the job market not to fear the global financial crisis’s impact on employment, claiming that his government is taking the appropriate actions to accommodate the increasing labor force. At the same time,  figures indicate that the expected decline in the Chinese growth rate will pose serious risks to the economy since an economic growth rate of at least 8% is absolutely necessary to sustain moderate unemployment rates. The Chinese authorities could face a severe challenge resulting from the unemployed population of newly graduated entrants,  whom by far are the most rebellious group in society. This could lead to political demonstrations and a call for an absent democracy. Zhou Tianyong, a researcher at the Central Party School in Beijing wrote:


                “In terms of urban labour supply from the rural areas, there are more than 3million rural graduates looking for a job in the cities,

                     3 million landless peasants moving into the urban areas and 4 million farmers looking to make a living intowns as they earn too

                     little from growing grain, making a total of 10 million. Within the cities, new workers and those needing reemployment due to

                     corporatebankruptcies, mergers and restructuring, and past redundancies add up to at least 12 million. Added together, the two

                     figures mean that 22 million urban job need to be created every year”.


 Thus, the Chinese government proposed a $586 Billion economic stimulus plan that focuses heavily on infrastructure projects to lower the domestic demand on jobs and the economy’s reliance on exports. The package is the largest ever proposed by the Chinese government and will cover 10 areas of the economy including housing, rural infrastructure, transportation, health and education, environment, and industrial sectors. Furthermore, the Central Bank of China lowered the interest rates several times in order to effectively support micro-credit lending to small and medium size companies.


Analysts claim that real unemployment rate does not resemble the official unemployment rate as stated by the government of China, currently at around 4%.  The real unemployment rate is estimated somewhere around 12%. The 12% rate forecast is based on evidence that large firms are cutting costs by laying off workers and replacing them with machines and that almost one third of small and medium firms have gone bankrupt. It should be noted, that for every 1% decline in the economic growth rate, 8 million jobs get lost, thus a fall in growth rates between 5% and 6% in 2009 could create serious consequences on the Chinese economy. Analysts claim that the decline in exports rate alone, caused a loss of around 15 million jobs over the past year.


Joblessness in China is on the rise and fear of social unrest is becoming an agenda of concern that should not be neglected.  According to China’s minister of human resources and social security,  the employment outlook is “grim”. The threatening risk that is associated with this dilemma has caused the People’s Bank of China to slash rates by more than a percentage point, the highest cut in 11 years, in order to boost economic growth . If not dealt with effectively, the rise in the unemployment level accompanied with considerable income disparity, will surely spread chaos on the streets and destroy China’s- too good to be true-  economic miracle.


Source: www.AsiaEcon.org

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Source: www.asiaecon.org |

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