O 230525Z FEB 09
FM AMEMBASSY BEIJING
TO SECSTATE WASHDC IMMEDIATE 2445
DEPT OF LABOR WASHDC IMMEDIATE
INFO DEPT OF TREASURY WASHDC
USDOC WASHDC
CHINA POSTS COLLECTIVE

UNCLAS BEIJING 000448 
 
 
DEPT PASS USTR FOR KARESH, ROSENBERG, STRATFORD, LEE 
LABOR FOR ILAB AND OSEC 
TREAS FOR OASIA/ISA-CUSHMAN 
USDOC FOR 4420/ITA/MAC/MCQUEEN AND DAS KASOFF 
 
E.O. 12958: N/A 
TAGS: ELAB ECON PGOV SOCI CH
SUBJECT: Graduate Unemployment in China: Financial Crisis 
Aggravates a Preexisting Condition 
 
REF: Beijing 400 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR DISTRIBUTION OUTSIDE 
USG CHANNELS. PLEASE PROTECT ACCORDINGLY. 
 
¶1.  (SBU) Summary: The Chinese government blames rising 
unemployment on the global financial crisis, but in the 
case of college graduates the crisis has only exacerbated 
a preexisting problem.  Graduate unemployment began to 
rise in 2003, as a result of policies to expand 
enrollment, while reforms that would promote demand for 
educated workers and make the education system and labor 
market more flexible lagged behind.  Steps the government 
has announced in response to the global financial crisis 
to reduce graduate unemployment may be necessary, and may 
work in the short term, according to one local expert, 
but they do not address the root causes of the problem. 
The expert believes unemployed graduates will remain at 
home, take up further studies, or find low skilled jobs 
to get by, but are not likely to contribute to social 
instability.  End Summary. 
 
¶2.  (SBU) China's State Council warned in a February 10 
document that, "under the influence of the spreading 
global financial crisis, job creation is becoming more 
difficult and the risk of unemployment is growing."  The 
"Notice on Carrying Out Job Creation Well Under Current 
Economic Circumstances," outlined government measures to 
promote employment for the two groups most affected by 
rising unemployment: migrant workers and university 
graduates.  There is a big difference between the two 
groups, however.  Unlike unemployment among migrant 
workers, which is directly connected to the contraction 
of China's export markets, graduate unemployment is 
mainly a result of government policies that produce the 
wrong number of the wrong type of graduates, and erect 
barriers between graduates and employers. 
 
Root Causes of Graduate Unemployment 
------------------------------------ 
 
¶3.  (SBU) Lai Desheng, director of the Labor Market 
Research Center at Beijing Normal University, told Laboff 
on February 12 that graduate unemployment began to rise 
in 2003, when the first students admitted under expanded 
university enrollment policies of 1999 joined the job 
market.  Lai said the problem has been growing worse each 
year, and that the global financial crisis has 
exacerbated it, with many enterprises now reducing or 
suspending recruitment.  China's Ministry of Human 
Resources and Social Security (MOHRSS) said that 6.1 
million new graduates will enter the job market in 2009, 
joining approximately 1 million from previous years who 
remain unemployed.  Despite the fact that the number of 
graduates is outpacing the number of new jobs, Lai noted 
that the matriculation rate in China is very low (23-24 
percent of the college-aged population compared to 68-70 
percent in the United States).  In Lai's view, the 
problem is not oversupply, but suppressed demand, the 
quality of graduates and market impediments. 
 
¶4.  (SBU) Lai said China's export-led growth model, with 
its focus on manufacturing and processing, has not 
created enough jobs in the pre-production (research and 
design) and post-production (sales, marketing, 
distribution and related services)sectrs f theecoomy, 
so growth has not created enough new jobs for educated 
workers.  He said the quality of graduates is also a 
major problem.  The Chinese educational system is more 
rigid than other countries he has studied, and does not 
adjust quickly enough to the changing needs of the labor 
market.  The education system also does not provide 
graduates with enough practical experience, requiring 
employers to invest heavily in training new employees who 
already have degrees, or pay a premium to recruit someone 
from the small pool of workers who already have the 
necessary skills.  Lai's observations about the quality 
of Chinese graduates track with observations by human 
resources firms operating in China. 
 
¶5.  (SBU) Lai also listed a number of structural 
obstacles to graduate employment.  First among these is 
the household registry (hukou) system, which he said 
fragments the labor market, making it difficult to match 
graduates with jobs.  Most college graduates come from 
rural areas, he said, and the hukou system forces them to 
accept jobs in cities that will not grant them permanent 
resident status, or return to rural areas where there may 
be no jobs in which they can put their education to use. 
(Note: Some employers can sponsor new hires for local 
hukous, but in the most desirable cities, the local 
government only grants this privilege to certain 
employers or for workers with highly-sought skills.  End 
note.) Lai said recruitment into the government or state- 
owned enterprises depends too much on personal 
relationships.  In the private sector, Lai said domestic 
"local protectionism" has fragmented the market for goods 
and services, and a lack of genuine competition between 
enterprises has prevented the development of large 
national employers. 
 
What the Government is Doing 
---------------------------- 
 
¶6.  (SBU) The State Council "Notice" endorses a number of 
measures to promote graduate employment, all of which are 
already being carried out in at least some jurisdictions 
in China.  These measures include: 
 
-- creating new government jobs for university graduates 
on the staffs of local governments, schools and clinics 
in underserved rural areas, or at neighborhood level in 
urban areas; 
 
-- providing cost-of living and social insurance 
subsidies, student loan repayment, and/or priority for 
graduate enrollment for students willing to serve in the 
military or work in hard-to-fill public sector jobs; 
 
--  creating research fellow positions for new graduates 
at government-funded research institutions; 
 
--  eliminating hukou restrictions and simplifying other 
bureaucratic procedures for certain employers hiring 
college graduates; 
 
--  tax exemptions and subsidies to offset social 
insurance contributions for employers who hire unemployed 
graduates; 
 
--  government loans (up to two million yuan) for small 
enterprises that hire a certain number of unemployed 
graduates; 
 
-- small government loans (up to 50,000 yuan) for 
university graduates starting their own businesses; 
 
-- graduate training programs for up to one million 
university graduates at government training centers (to 
be established).  These centers will provide a basic 
living stipend and work with local employers to offer 
practical experience. 
 
What Needs to Be Done 
--------------------- 
 
¶7.  (SBU) Lai Desheng described the steps the government 
has announced so far as "short-term demand-side" measures, 
and said they probably will help, and may be necessary to 
respond to the job crisis.  But in Lai's view, these 
measures do not address the root causes of graduate 
employment.  In the long-term, Lai said reforms meant to 
promote domestic consumption and innovation will be key 
to developing an "inclusive growth model" that will 
foster the development of competitive industrial and 
service sector employers that can offer job opportunities 
for workers in all phases of the production cycle.  Lai 
also said the government should work address the quality 
of graduates, by aligning university curricula better 
with the needs of the labor market.  He said universities 
should help more with job placement, offer more 
internships and practical training opportunities, and 
teach career planning and entrepreneurship.  Lai said he 
believed China could largely solve the problem of 
graduate unemployment within a decade. 
 
Potential for Social Instability 
-------------------------------- 
 
¶8.  (SBU) Lai Desheng said that prolonged unemployment 
among young people in general is a potential source of 
social instability (ref), but he believed that most 
unemployed graduates from urban areas would likely remain 
with their parents or pursue further studies until the 
employment situation improves.  Graduates from rural 
areas, he said, would likely have to give up, at least 
temporarily on "decent employment," and take up low- 
skilled jobs just to make a living. 
 
PICCUTA