ECONOMIC REFORM AND EMIGRATION PRESSURES IN CHINA* by Yiping Huang
National Centre for Development Studies Australian National University
A Report Prepared under UNDP Technical Support Services 1 ILO East Asia Multidisciplinary Advisory Team (ILO/EASMAT) ILO Regional Office for Asia and the Pacific, Bangkok July 1996
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* Unpublished document issued without formal editing by ILO. The responsibilities for opinions expressed in this document rest solely with the authors and its inclusion here does not constitute an endorsement by the ILO of the opinions expressed therein.
Organisation of the study
Setting the scene
Emigration pressures
II. Policy reforms and emigration pressures
The pre-reform era
The advent of reform
The open-door policy
The family planning policy
Agricultural reform and rural development
Reform of the state sector
Labour market development
Poverty alleviation and income inequality
Macroeconomic management
III. The institutional framework for international migration
The development stages of emigration
Key institutions
Regulatory policy
IV. Profiles of labour migrants
Types of international emigration
The origins of labour migrants
Destinations of labour migrants
Professional composition of labour migrants
V. Economic impact of labour emigration, and related future uncertainties
Impact on the domestic economy
Some uncertainties
Tables
Table 1 Demographic indicators for China, India and Indonesia, 1990 and 2010
Table 2 TVP employment and output by provinces in China, 1994
Table 3 Contracted workers in China’s state economy, 1985-94
Table 4 Gini coefficients in China, 1981-88
Table 5 Financial costs of an overseas job: China and other Asian countries
Table 6 Contracted projects and labour services cooperation, 1979-94
Table 7 Total population and population overseas by provinces, 1982 and 1990
Table 8 The major destination countries for China’s Labour Exporting (persons)
Table 9 Occupational composition of labour migrants based on contract values
Table 10 Overseas employment by occupation and region, 1994
Table 11 Education levels of emigrants and non-emigrants in Shanghai, 1990 (per cent) Charts
Chart 1 Growth rate of GDP and trade in China, 1978-95 (per cent)
Chart 2 Growth rates of population and labour in China, 1970-95 (per cent)
Chart 3 Population structure in China, 1990 and 2010 (millions)
Chart 4 Inflation rate and share of budget surplus, 1979-95 (per cent)
Chart 5 Institutions associated with the administration of emigration
Chart 6 Illegal immigrants from China to Hong Kong
Chart 7 Shares in total population and population overseas by region, 1990
Chart 8 Destinations of China’s labour-exporting
Abbreviations
APEC Asia Pacific Economic Cooperation
FDI foreign direct investment
FSU former Soviet Union
GDP gross domestic product
HRS Household Responsibility System
ICCs International Cooperation Companies (MOFTEC system)
MOFA Ministry of Foreign Affairs
MOFTEC Ministry of Foreign Trade and Economic Cooperation
MOL Ministry of Labour
MOPS Ministry of Public Security
MOT Ministry of Transportation
OESAs Overseas Employment Service Agencies (MOL system)
SEZs Special Economic Zones
SSB China State Statistics Bureau
TVPs township, village and private enterprises
WTO World Trade Organisation
Currency signs
yuan unit of Chinese currency
I am very grateful to Dr. Premchandra Athukorala (Research School of Pacific Studies, Australian National University) for stimulating interest in this subject, helping with the literature search and commenting on my work. I also benefited greatly from discussions with Mr. Manolo Abella (Migration Branch, ILO Geneva) and Dr. Piyasiri Wickramasekara (East Asia Multidisciplinary Advisory Team, ILO, Bangkok), the project coordinator, who helped on material gathering. Mr. Siwu Liu of the ILO Beijing Office was instrumental in implementing the plan for field work in China.
The two national consultants, Ms. Yuan Shuwei of the Department of Employment in the Ministry of Labour (MOL), and Ms. Yuan Tiezheng of the Academy of Labour Sciences in the MOL, made valuable intellectual contributions as well as efficient administrative arrangements during my field trip in China.
I also benefited from discussions with a large number of people in China during the field trip, of whom the following represent a partial list: Ms. Jia Li of the Office of Overseas Employment, MOL; Mr. Li Rongmin and Mr. Zhou Ping of the Department of Foreign Economic Cooperation, Ministry of Foreign Trade and Economic Cooperation (MOFTEC); Mr. Zhu Jing-Hao of the China Centre for Vocational Skill Development, MOL; Messrs. Li Donglin, Guan Fuqun and Li Baozhi of the China Star Corporation for International Economic and Technical Cooperation; Mr. Xu Baoli of the Department of Personnel and Labour, the Ministry of Transportation (MOT); Mr. Cao Xiangshi of the COSCO Manning Cooperation Inc.; Min Jie of the DASCO Manning Cooperation Inc.; Ms. Lin Zhenbiao of the Guangzhou Maritime Transport Group; Mr. Wang Xiangyun of the Shanghai International Maritime Technique Service Ltd; Mr. Xu Zhenbin of the Beijing Center for Overseas Employment; Mr. Zhu Fei of the Shanghai Labour Service Company; Mr. Wang Hongbao, Pan Zhonghang and Mr. Zhao Limin of the Shanghai Overseas Employment Agent; and Mr. Yuan Hongjun of the China Hubei Overseas Employment Introduction Bureau.
Finally, I wish to acknowledge the very helpful comments by Mr. Manolo Abella and an anonymous referee on an earlier draft. I am also grateful to Mr. Charles Hayes who edited the docuement professionally for ILO/EASMAT and also offered insightful comments for the policy recommendations section. I alone am responsible for any errors that may remain. Executive summary
1 Prior to 1979, when China introduced major economic reforms, there was very limited labour emigration, all of which was under strict government control. After reforms were enacted, emigration began to increase, especially in the late 1980s and 1990s, due to changes in institutional restrictions and economic conditions. This study examines general labour emigration in China during the period of reform, with special focus upon the dynamic relationship between policy reforms and emigration pressures.
2 Emigration pressures are currently quite high, as is reflected by a number of direct and indirect indicators. It is first indicated by the flow of internal migration, currently at 80 million people or 18 per cent of national rural workers. The underemployment rate, combining the unemployed, surplus labour and underemployed, is estimated to be as high as 20 per cent. China still has a long way to go before it reaches the turning point in international labour migration, when an economy turns from a labour exporter into a labour importer.
3 China’s labour surplus was largely formed during the pre-reform years, when urban industrialisation oriented toward the heavy industrial sectors failed to absorb surplus labour in urban as well as rural areas. People were restricted to their work units and places of household registration. The high rate of underemployed or surplus labour implies that migration was inevitable once administrative restrictions were removed and the incentives for migration were in place.
4 The open-door policy implemented over the past seventeen years has made China, since the early 1990s, one of the world’s largest exporters and the second largest recipient country of foreign direct investment (FDI). Both export expansion and FDI have concentrated heavily on the labour-intensive sectors, thus helping to employ large numbers of unskilled workers. At the same time, the open-door policy’s success is so far largely restricted to the coastal regions, in particular a handful of Special Economic Zones (SEZs). This unbalanced development pattern has induced internal migration flows of considerable size.
5 Economic reforms have had opposing impacts upon emigration pressure. The high rate of economic growth has produced a rapid increase in job opportunities, which may reduce the pressure. Reforms, on the other hand, have led to labour productivity improvement and uneven development, factors which may increase emigration pressure. It is likely that in the past years and in the near future, the second effect outweigh the first. As the economy continues to grow, the first effect will dominant the second and the emigration pressure will fall eventually.
6 Evaluating the contribution of emigration to the domestic economy is difficult, given the lack of systemic information. It is estimated that current yearly remittances are about $840 million, which is about 0.7 per cent of the country’s total exports or 1.6 per cent of its foreign exchange reserves.
7 China’s family planning policy has been quite successful in keeping down population growth and, consequently, the growth of the labour force. From the beginning of the 1990s, the annual growth rates of both population and labour were kept below 1.5 per cent, a factor which reduces emigration pressures and will continue to do so.
8 In the agricultural sector, the implementation of the Household Responsibility System (HRS) resulted in an equal distribution of contracted land areas among households, which has been favourable for holding down farmers’ tendency to migrate. Land fragmentation, however, prevents modernisation and commercialisation of agricultural production. Labour migration becomes a natural choice given improved agricultural productivity and limited per capita agricultural resources. The development of the township, village and private sector enterprises (TVPs), which employ about 125 million rural labourers, has reduced significantly the labour outflows from the rural areas. This achievement, however, has been largely restricted to the coastal regions.
9 Reforms in the state sector have not been very successful, as indicated by the high proportion of loss-making state enterprises. The number of redundant workers in the state sector is estimated at 16 million, roughly 15 per cent of its total work force. On the other hand, the state sector has already begun to accommodate migrant labour. The total number of contract workers employed by this sector was 25.8 million in 1994, accounting for 26.2 per cent of its total work force.
10 Regional labour migration in China increased rapidly due to the gradual removal of restrictions on labour markets. Rural labourers were allowed to find jobs in the cities conditional upon their proper registration with the labour administration and the public security system. The government, the MOFTEC, and, in particular, the MOL began to promote labour emigration, but there are still many factors resisting free flows of labour, both internally and internationally.
11 Since the 1980s, the government has made significant efforts to alleviate poverty in the rural areas. The reduction of the poor population from 102-120 million in the mid-1980s to 65 million in 1995 is expected to lessen emigration pressure. Nevertheless, in the process of economic reform, income gaps between coastal and inland provinces, between rural and urban areas, and among individuals, have widened markedly. Uneven regional development is a dominant determining factor in massive migration flows.
12 The macroeconomic environment has been largely unstable, with the inflation rate often out of control. It was 21.7 per cent in 1994. Decentralisation of fiscal policy, on the one hand, stimulates local economic development but on the other, reduces the economic power of the central government and its ability to oversee the issue of uneven regional development. Both conditions foster a higher propensity for labour to migrate.
13 Changes in the institutional settings and economic conditions in China facilitated or induced the growth of international emigration as well as internal migration. Gradually, a system of key institutions and a set of regulatory policies governing international emigration was established and developed.
14 MOFTEC and its associated system of international cooperation companies (ICCs) is the most important department affecting China’s current labour emigration. The Ministry sends contract labour to international projects outside the country. Since the early 1990s, the MOL has operated a system of overseas employment recruiting agencies. In total, there are now about 500 licensed agencies involved in labour exporting and emigration business. The Ministry of Foreign Affairs (MOFA) is in charge of issuing service passports, while the Ministry of Public Security (MOPS) is in charge of issuing private passports. The latter also oversees the regulations and rules governing Chinese nationals’ entry and exit at the borders.
15 China does not have a special law on labour emigration. The administration and management of overseas migration is often divided up between MOFTEC, the MOL and the MOPS, on behalf of the State Council. China does not have an overseas Labour Attaché, so the protection of the rights of Chinese nationals working outside the country remains largely the responsibility of the recruiting agencies. Chinese Embassies in the foreign countries intervene only in extreme situations.
16 The procedure for a Chinese individual going overseas is still complicated and time-consuming. On average, the contract labourer must pay a fee of $2,000-6,000 for a three-year overseas job, a sum substantially higher than that paid in many other Asian labour-exporting countries.
17 In the Chinese data, migrants are distinguished according to the channels through which they go overseas, e.g. employment contracts for international projects, employment contracts with overseas employers, migration through friends and relatives, labour migration through direct investment overseas, and illegal migration. Currently the first type still dominates China’s labour outflow. Based on the information gathered in this study, the estimated number of total labour emigrants in the mid-1990s is 380,000. However, this number possibly represented only the top of the iceberg. The total number wishing to migrate was far greater were the logistics easier and costs lower.
18 Viewing internal and international migrations in China together, there is a clear dual migration circuit. While internal migration flows move from the inland to coastal regions, the bulk of international emigrants originated from the coastal provinces, particularly Shanghai, Beijing, Tianjin, Fujian, Guangdong and Jiangsu. These coastal provinces are also likely to gain most from emigration. A very high correlation coefficient of 0.89 between the proportion of population overseas and provincial average per capita income, has been observed, although the direction of causation is not clear.
19 The destination of China’s labour emigrants has changed significantly over the past decade or so. In the 1980s, the Middle East was the main destination. East Asian economies, especially Hong Kong, Macau, Japan and Singapore, became the largest market for China’s labour emigrants, accounting for about 50 per cent. Since the late 1980s, the number of labour emigrants to the former Soviet Union (FSU) has also grown significantly.
20 Just over half of current labour emigrants are performing low-skill jobs in industries such as construction, textile and clothing manufacturing, and agriculture. Most labour emigrants, however, are skilled workers selected from domestic factories. According to the information obtained in Shanghai, the emigrant group has a relatively higher education level than that of the whole population.
21 Examining the impact of emigration on the Chinese domestic economy is difficult because of the lack of information. The overall effects are likely insignificant, as the labour emigrants accounted for only 0.6 per cent of China’s total labour force in 1995. It is estimated that the total remittances of labour emigrants are approximately $840 million, which is about 0.7 per cent of China’s total exports and 1.6 per cent of Chinese foreign exchange holdings in 1994. A more important impact of emigration is the creation of a business network and the FDI by overseas Chinese, who are estimated to account for 80 per cent of total inward investment flows to China.
22 The development of emigration pressures in China is influenced by the policies implemented in the recent past but subject to a number of uncertain factors in the future.
23 Hong Kong and Macau will return to China in 1997 and 1999, respectively. The boom of these two markets in recent years was partly stimulated by a number of large projects under construction. It remains to be seen if current emigrant flows there can be maintained after these projects are completed. The continued growth in China’s labour emigration depends heavily upon the country’s ability to open new markets. Meanwhile, the international demand for labour emigrants is also gradually switching from unskilled labour to skilled professionals.
24 In the domestic economy, the first uncertain factor relates to the stability of the political system, the society, and its open-door policy. Although there is reason to be confident that the political economy has evolved to such a stage that no one is able to reverse the general trend of reform, the possibility of political and social changes cannot be ruled out. On the one hand, emigration flows might be reduced significantly or eliminated if China goes back to a closed-door policy. On the other, any political and social instability would trigger huge emigration outflows or at least the pressure for them.
25 The state sector is still a reservoir of large numbers of redundant workers. It is unclear whether this sector can gradually absorb these workers through its own reforms and growth or whether it will have to release them before it can improve its efficiency. The latter is likely the case, which will generate further pressure on emigration by adding another 16 million workers to the unemployed pool. Even more uncertain is when this will happen, which depends on the pace of state sector and macroeconomic reforms.
26 There are signs that some inland provinces have gained momentum in economic development, which may help to narrow regional income gaps and reduce migration pressure. But it is still not clear how successful this development will be in the future and whether it will have a significant effect upon emigration pressures.
27 The choice of agricultural trade policy is another uncertain factor. Traditionally, China has had reservations over free trade in agriculture because of its food security concerns. But in order to participate in the Asia Pacific Economic Cooperation free trade process, China has committed in principle to free trade in agriculture by the year 2020. As China, in general, does not have a comparative advantage in agricultural production, structural adjustments are inevitable, which would displace part of the farming population, thus adding pressures on the labour market outside the agricultural sector.
28 Environmental depletion has become a serious problem in China, adversely affecting life and production in many areas. The Chinese government has started to take measures to protect the environment with the help of many foreign countries and international organisations. The success of environmental protection will also determine outward migration from many areas.
29 There are currently three options proposed to absorb the existing rural surplus labour, the most important being through further development of the TVP sectors and through the establishment of a large number of small cities and towns. The purpose of these two schemes, especially the former, is to stop farmers from migrating to the (existing) cities. Although no official decision has been made as to which option will be adopted, the choice and the effectiveness of its implementation also have important implications for emigration pressures.
30 There are a number of policy recommendations can be drawn from this analysis. Emigration pressure is a common phenomenon in many developing countries during the process of industrialisation. In China it is combined with the process of economic liberalisation. Policies targeted at managing the emigration pressure should not only address the general issues of industrialisation and structural change, but also be accommodated in the whole reform package.
31 Because the economic consequences of large out-flows of labour migration are mixed, a critical issue is thus to manage the labour migration within an acceptable range, without distracting domestic economic development. Since the large pool of underemployed and unemployed was already built up before the reform started, a gradual reform approach (instead of shock therapy approach) should, in general, be favoured in order to smoothly manage the emigration pressure.
32 It is desirable for China to continue to limit its population growth, at least in the next several decades. This would restrict the growth rate of the labour force and make it easier for the huge underemployed and unemployed workers being absorbed through economic development.
33 The open door policies biased toward the coastal regions, including the establishment of the special economic zones in the coastal cities, were critical and successful in initiating China’s export-oriented rapid growth. But after nearly twenty years’ of economic reform and development, such unbalanced pattern of develoment, partly induced by the biased policies, not only places the inland economies in an unfair competition position, but also results in artificially high emigration pressure.
34 It is about time to consider to abolish the favourable policy environment created for the coastal regions, especially the special economic zones. More policy attention should be paid to assist economic development in the inland regions. Such policies, if successful, can reduce substantially the emigration pressure and, at the same time, improve the well-being of the whole nation.
35 Poverty alleviation is the first step to facilitate the development of the inland regions and reduction of the emigration pressure. The Chinese government has achieved great success in lifting incomes of huge amount of poor population above the poverty line. Further policies should be designed to induce economic development in these areas instead of direct subsidy or payment.
36 Policies should be designed to encourage further development of the rural township, village and private enterprises. As spreading all the small size rural enterprises at the backyard of farm households may no longer be an efficient approach today, it would be more sensible for the government to encourage the development of a large number of local centres, namely small and medium size rural towns and cities. Thus, farmers’ living standard can be lifted significantly by participating in non-agricultural activities without migrating long-distance to the large cities or the coastal regions. Similarly, a key issue here is how to facilitate the development of the rural enterprises in the inland economies.
37 A large surplus labour pool is currently still held by the inefficient state sector. Reform measures toward the state enterprises, thus, should be taken with caution. The bottom line, however, is that an effective and efficient social security system is a ncessary condition for release of any large number of redundant workers from the state sector. Otherwise, the urban labour market could easily go out of control and the emigration pressure shoot off the roof.
38 The relative weakening of the central government’s economic power, especially its fiscal capacity, in the pace of decentralisation is not desirable for balancing regional development pattern and, thus, reducing the emigration pressure. Resource or revenue transfers between regions following the national economic interest have always been a key economic function of the central government. The central government, on the other hand, should not focus solely on the fiscal resources. It is equally important for the it to create macroeconomic environment, such as tax policies, to encourage the relatively developed regions to invest in the relatively under-developed regions.
39 In the area of management of labour emigration, it will be helpful if the legislation can be centralised at the National People’s Congress. Currently, policies regarding labour emigration are drafted and announced by various government departments, such as the MOFTEC, the MOL and the MPS, through the State Council. There is always a coordination problem. At the same time, the issue of conflict-interest exists. While both the MOFTEC and the MOL are policy-makers, their subsidiaries are also the major players in the market for labour emigration.
40 The exiting strict controls on issuing licenses for international labour service business represent partly the caution of the government. They, however, help the monopoly positions of the MOL and, especially, the MOFTEC subsidiary agencies or companies. This also leads to very high costs paid by labour migrants (compared to the other developing countries) and, thus, high barriers to migrate. The high costs may partly be the monopoly prices and partly reflect the high costs for a limited agencies searching for international markets. Gradual liberalisation of this market, that is to allow entry of other agencies, could help to pull down the prices or the barriers to emigrate and thus reduce the domestic emigration pressure.
41 Liberalisation of labour emigration market would not necessarily result in market chaos or no-protection for migrant workers’ rights. A Labour Emigration Law approved by the National People’s Congress can lay down the basic framework and principles of market operation and each party’s responsibility. Government departments (through the MOL, the MOFTEC, the MPS and the Ministry of Foreign Affairs, or a convening office under the State Council) or the People’s courts can act as the supervisors or umpire to prevent unfair competition and punish those who violated the laws or contracts. China’s successful experiences in liberalising export market are useful for reform of the labour emigration market. Increased labour emigration through market liberalisation would reduce the emigration pressure.
Organisation of the study
This study attempts to provide a general picture of emigration pressures in China, focusing on supply side dynamics and related changes in domestic policies and economic conditions to emigration pressure. In particular, the study intends to analyze the important impacts, both positive and negative, of economic reforms upon labour migration. Internal migration is frequently referred to as both an indicator of international migration pressure and as a phenomenon inseparable from the latter. To provide some ideas on the current state of international migration, the study presents a profile of labour migrants and addresses the key institutions and policy framework governing China’s international migration.
One difficulty in conducting such an analysis is the lack of comprehensive and consistent data on emigration at the national level. Emigration in China is administered by various government departments, each being able to provide only partial and incomplete information. Emigration and labour exports have not become important issues in China until very recently. Historical data has not been well recorded or maintained, not even for the MOFTEC system. Information about remittances, for example, was neither reported nor collected by any agency. This study must therefore be based largely on piecemeal information. Some estimates have been made, using available data were feasible.
Section II addresses the major policy changes of China’s reform period and their impact on emigration pressure. The main reform policies include new development strategies, the open-door policy, the family planning policy, agricultural reform and rural development, the reform of the state sector, labour market development, and macroeconomic management and income inequality. As the study shows, the impacts are rather mixed, some contributing positively and some negatively to emigration pressure. In some cases, policy changes have contributed both positively and negatively through different mechanisms.
Section III turns more directly to specific policies governing international labour migration, the key institutions involved and the current policy framework. Section IV provides profiles of the emigrants, with information about the different types, origins, destinations and occupational composition. The final section, Section V, presents an evaluation of the impact of emigration on the domestic situation in China and future directions.
Setting the scene
China has a long history of international migration, which can be traced back to the mid-seventeenth century (Sheng and Tong, 1991). Currently, there are about 30 million overseas Chinese around the world, especially in East Asia and North America (CALS, 1995). Since the advent of China’s Communist regime in 1949, international migration has been severely restricted, while pressures for both international and internal migration remain and may be growing, especially since the era of reform began in 1979.
Experts on the Chinese economy conventionally divide the history of the People’s Republic of China into two periods: the pre-reform period of 1949-78 and the reform period beginning 1979. These reforms represented measures for transition to a market-oriented socialist economy. The focus of this study is on the reform years, with an emphasis upon the relationship between the policy reforms and emigration pressure. However, the study frequently refers to the economic institutions and the labour market conditions of the pre-reform period in order to clarify the impacts of the reform policies.
During the pre-reform period, unemployment and underemployment rose rapidly, but there were almost no regional and international labour migration flows except those organised by the government, which imposed stringent restrictions on population movements. When it came to power in 1949, the Communist government adopted a closed-door economic strategy oriented toward the development of heavy industry (Naughton 1995; Garnaut, Drysdale and Huang, forthcoming). Individual emigration almost ceased to exist, except for illegal emigration and labour exports to the Soviet Union and East European countries to fulfill bilateral agreements. Stringent restrictions were placed on both internal and international labour migration.
Hidden unemployment was significant in rural China, around 100 million according to various estimates. The official unemployment rate was low in the urban areas, partly because millions of young graduates were sent to the countryside during the "Cultural Revolution" for re-education, thus reducing the pressure on urban employment. At the same time, underemployment in the urban sector remained acute. A recent estimate by the MOL puts the number of redundant workers at about 16 million, roughly 15 per cent of total employees. These huge labour pools in both the urban and rural areas are potential sources of labour migration once the restrictions on labour movements are removed and incentives for migration, such as income gaps, are in place.
Beginning in 1979, policy reforms were introduced to the Chinese economy, most of which affected labour market conditions and labour migration directly and indirectly. The most important policies, within the context of this study, include changes in the development strategy, from central planning to market orientation, agricultural reform and rural development, economy liberalization, family planning policy (actually introduced before economic reforms but more strictly implemented in the reform years), the reform of the state sector, and labour market reform.
The Chinese economy experienced dramatic changes, the most important of which can be summarised as follows: (1) the economy recorded very rapid growth at an average annual rate of 7.7 per cent for per capita income from 1979 to 1995; (2) exports expanded sharply at an annual rate of 12.5 per cent, led by the growth of labour-intensive goods (particularly textiles and clothing); (3) after a period of rapid agricultural growth from 1979 to 1984 following the implementation of the Household Responsibility System (HRS), growth in the agriculture sector became strained, and the equal distribution of contracted land areas prevented modernisation of agricultural production; (4) the rural TVPs expanded dramatically after the mid-1980s and became an important engine of China’s economic growth (currently accounting for 32 per cent of total GDP); (5) reforms of the large state sector, employing about 100 million workers, are not yet as successful as those in other parts of the economy; about 40 per cent of state enterprises generated losses in 1995; (6) labour market institutions are yet to be developed, and China still lacks an effective social security system; (7) macroeconomic instability, including a high inflation rate, is still a major problem, particularly in recent years; (8) China’s growth success has so far been restricted to the coastal regions, while most inland regions have hardly taken off in economic development; (9) income gaps are widening between inland and coastal regions, between rural and urban areas and among individuals; and (10) due to its family planning policy, China’s growth rate of labour fell to below 1.5 per cent per year. All these factors have important implications for the pattern and potential of China’s labour migration.
In discussing labour migration in China, a distinction must be made between internal and international migration. The term "internal migration" refers mainly to labour movements from one region to another, such as from inland to coastal provinces and from rural to urban areas. Such population movements are a prominent economic phenomenon in China today. The term "international migration" refers to labour flows across national borders into foreign countries. While the main focus of this study is on international migration, the two types are obviously inter-related. In general, they have the same causes, such as income differences, so international migration may be regarded as an extension, in some measure, of internal migration. But the two types of migration are often subject to different determining factors.
Large scale internal labour migration did not occur in China until the late 1980s. This may be explained by the fact that, in the early years of reform, most restrictions on labour movements were still in place and income gaps were not great enough to induce large flows of labour migration. In the mid-1980s, labour flows, from inland to coastal regions and from rural to urban areas, became increasingly large as millions of farmers left home for employment opportunities in other places. In later years, many state enterprise employees, government officials, university lecturers and others from inland provinces joined the rush to booming provinces such as Guangdong, Fujian and Hainan. In 1995, the number of internal migrants reached 80 million (Huang, 1996).
International labour migration also grew rapidly. During the eight years between 1982 and 1990, total emigrants and exports grew labour dramatically, as both recorded an annual growth rate of around 20 per cent. The author estimates that the number of labour emigrants is about 380,000 in the mid-1990s. China has become an important player in the international market for labour services, especially in the East Asian market.
In the literature of labour migration, there are two main types of labour migration: contracted labour migration and settlement migration. The former refers to cases in which Chinese individuals work overseas for a certain period, usually two to three years depending on the employment contracts, and then return to China. The latter refers to cases in which Chinese migrate to foreign countries permanently. Available information does not clearly distinguish these two types. In this study, the sum of the two types is considered total labour emigration in most cases.
The Chinese sources distinguish emigrants by the channels through which they go overseas (CALS, 1995; Song, 1994; He, 1994): labour-exporting through contracted projects (under the MOFTEC system); labour service cooperation and overseas employment (under the MOL system); individual migration through the help of friends and relatives; labour migration through direct investment, and illegal migration. Currently, the first type is still the dominant channel for China’s emigration, accounting for about half of total annual outflow.
Emigration pressures
In the literature, there are many discussions about how to define emigration pressure (for examples, see Schaeffer, 1991; Straubhaar, 1991; Saith, 1995). The general consensus is that emigration pressure can be roughly defined as the difference between the potential and actual migration flow. Obviously, emigration pressure is closely associated with the restrictions, due to policy or other social/economic factors, upon the free flow of labour across countries.
Emigration pressures can only be built by a "dam" (Saith, 1995) of barriers from either the demand or the supply side. The main factors on the demand side include changes in demand for international labour by the labour-importing countries, which may be affected by economic performance in those countries and the policies they impose on immigration. The US market, for instance, is still not officially open for Chinese labour migrants, except on a number of small off-shore islands.
On the other hand, increases in demand by labour-importing countries may not be able to meet the supply growth in China, measured by both total amount and structural distribution. Restrictions are commonly imposed by labour-importing countries based on their social and economic considerations. Supply-side factors are also important. In China, there are explicit administrative restrictions stopping labour flows both across regions and across national borders. Domestic income inequality or uneven development may induce a high propensity to migrate and, therefore, push up emigration pressure.
While demand-side factors are important in analysing China’s emigration pressures, the emphasis in this study is upon supply-side factors, particularly the effects of policy reforms upon labour migration. In essence, emigration pressure is about uneven development or perceived uneven development. We should thus pay particular attention to how policy changes in China affected economic growth, job creation, stability of earnings, poverty, uneven regional development, the growth of the labour force, and changes in the pool of unemployed or underemployed.
A number of indicators for measuring emigration pressures have been proposed in the literature. These are divided into stock indicators and flow indicators. Among the former are the size of the labour force or the number of unemployed, while the latter includes flows of labour migration both domestically and internationally. For the Chinese case, while the stock indicators provide some information about migration potential, they often fail to identify the changes in emigration pressure caused by changes in economic policies and conditions, such as uneven development across provinces.
A direct indicator of emigration pressure is the actual number of labourers who wish to migrate. Unfortunately, this information is not available for China. Although there is a system of recruiting agencies under the MOL for both domestic and overseas employment, the information it collects is still incomplete because most of its agencies operate only in the cities, and because a large proportion of individuals do not register with it even if they wish to migrate.
A more relevant indicator for China’s emigration pressure may be the scale of internal migration. Although information about internal migration is still incomplete and inaccurate estimates are often reported, the current estimate of 80 million internal migrant labourers account for 18 per cent of the national rural labour force or 26 per cent of the total inland rural labour force. This proportion unmistakably points to high emigration pressure.
Demographic changes and the unemployment rate are also suggested as useful indirect indicators of emigration pressure. Due to the government’s family planning policy, the demographic structure in China is experiencing significant change. The proportion of young workers (aged 15-30) in the total population is predicted to fall from 60 per cent in 1990 to 45 per cent in 2010, while the proportion of aged (over age 60) will rise from 9 to 12 per cent (World Bank, 1990) in the same period.
The nuclear family (two parents with one child) is gradually becoming the norm, an indication that emigration pressure may fall as the demographic structure continues to shift. The unemployment rate still suggests a high level of emigration pressure today. The official unemployment rate (which covers only the urban economy) is very low at 2.8 per cent, which implies just 4.8 million urban unemployed persons in China. However, if the estimates of rural surplus labour (about 100 million) and the redundant workers in the state sector (16 million) were taken into account, the unemployment picture changes significantly. By this calculation, the unemployment/underemployment rate is 20 per cent, by no means a low level. This may serve as an indication of high levels of migration pressure.
Other suggested indirect indicators include environmental stress, the spread of poverty, and clandestine migration. While these indicators are relatively harder to measure due to lack of information, a reading of the Chinese materials gives the impression that all are serious problems today. Given China’s limited per capita endowment of natural resources, environmental factors, such as the decay of arable land and the serious pollution of living and productive environments by industrial processes, may furnish additional inducements for migration in the coming years.
Another useful concept to consider in the Chinese case is the turning point in international labour migration, which is different from, but also closely related to, the Lewisian ‘turning point’ in domestic labour markets in the process of industrialisation. A turning point in international migration occurs when the economy turns from a net labour exporter into a net labour importer. Usually, this occurs after the Lewisian turning point has been reached, with a certain period of delay.
For instance, Japan is regarded as having reached the Lewisian turning point by the end of the 1950s and the international migration turning point a decade later. By contrast, there are reasons to believe that China is still far from reaching the Lewisian turning point, as is shown by comparing the country’s current per capita income (about $500) with that of Japan, Korea and Taiwan province when they experienced their respective turning points. China’s high underemployment rate (20 per cent as estimated above) is more indicative of the country’s pre-turning point status. Although there is some evidence of wage costs building up in some coastal areas such as Guangdong (Huang 1996), the low wage cost is likely to remain an advantage for the Chinese economy as a whole, especially considering that many inland economies are yet to be developed. It will thus take a long while before China reaches the turning point in international migration. II. Policy reforms and emigration pressure
China’s emigration pressures were building up during the pre-reform period. Migration did not occur then primarily because of stringent restrictions on labour movements. Broadly speaking, the policy reforms that began in 1979 may have two types of impact in this regard. On the one hand, reforms have been conducive to rapid economic growth and increases in jobs and income, and they may have reduced emigration pressures as higher income opportunities became available at home. On the other hand, it is natural for labour migration to occur when restrictions are removed.
The impact of some reform policies upon emigration pressure has been profound. Some of the policy changes and their economic consequences indeed increased the tendency of individuals to migrate. Higher incomes have induced more individuals to migrate and the uneven progress of development and efficiency improvement (labour-saving within existing units) is also an important factor pushing up migration flows. Internal and international migration are often hard to distinguish. With a view to understanding the changes that have occurred, this study examines the institutions of the pre-reform period in addition to the changes in policy environment.
The pre-reform era
When the new government came to power in 1949, it inherited a war-torn primarily agrarian economy in which rural residents accounted for more than 90 per cent of the population, and industry comprised only about 10 per cent (Lin, Cai and Li, 1994). To modernise the economy, the government formulated a development strategy oriented toward the heavy industries, following the Soviet model. At that time, however, developing the heavy industries was inconsistent with the country’s pattern of factor endowments. Consisting of large supplies on labour relative to capital. Therefore, a number of economic policies were implemented to facilitate the implementation of this development strategy. The purpose of these policies was to enable the heavy industries to have access to vast and cheap resource inputs, including capital, labour and raw materials.
Firstly, the construction of heavy industry factories required massive capital input. Capital was scarce and interest rates on capital loans was as high as 30-50 per cent per year, which was prohibitive to heavy industry investment. The government thus intervened in the financial system, establishing a system of state banks to control the allocation of funds and to set interest rates at artificially low levels. The government budget expenditure was also structured with a strong bias toward heavy industry.
Secondly, to build modern heavy industries, advanced technologies and large equipment had to be imported. Foreign exchange was scarce, and the government took control of the foreign exchange markets and virtually prohibited imports of commodities other than advanced technology and large equipment. To earn enough foreign exchange to purchase technologies and equipment, the government implemented compulsory plans to export resource-intensive products, including agricultural commodities, without considering the domestic market and the costs and benefits of such a policy.
Thirdly, to further lower the costs of heavy industrial production, the government then intervened in the agricultural markets by introducing compulsory purchase quotas and imposing low prices for agricultural products. These measures kept down living costs in the urban areas to facilitate low wages in urban industries, and pushed down the costs of raw materials. A number of agricultural institutions were introduced for this purpose: unified purchasing and marketing system for agricultural products, which replaced the free market to ensure that the heavy industries received the quantity of agricultural commodities they required; and the collectivisation of agricultural production (the commune system) to facilitate the implementation of the agricultural plan (Huang, 1995).
A notable feature of this set of policies was its inward-looking strategy. The Korean War eliminated China’s hope to develop economic relations with the West. Its only trading partners in the 1950s were the Soviet Union and the Eastern European economies. After China officially broke off relations with the Soviet Union in the 1960s, Japan became an important supplier of technologies and production equipment for China’s heavy industrial development. But foreign trade in those years was not regarded an important economic activity for achieving maximum profits or welfare. It was managed instead as a residual tool to balance domestic markets.
This heavy industry-oriented and inward-looking strategy had important implications for China’s emigration patterns. The nature of heavy industrial technology is often characterised as having a high capital-labour ratio. Urban industrialisation in the pre-reform years failed to absorb the huge amount of rural surplus labour. Massive rural-urban migration did not occur as it has in many developing economies in the course of industrialisation. In fact, even in the urban areas, the growth of the population outpaced the growth of new jobs. This was one reason that during the Cultural Revolution of the 1960s, millions of young urban graduates were sent to the rural areas.
To secure the planned agricultural output, farmers were prohibited from involvement in non-agricultural activities. Surplus agricultural labour was confined within the communes in the form of hidden unemployment. The pressure of underemployment also built quickly in the urban industries. State controls over the banking system and the related priority for heavy industry in fund allocation also eliminated the possibility for the development of small businesses, though small business itself was already prohibited in both rural and urban areas.
The household registration system in pre-reform China prohibited residents in both rural and urban areas to move away from their place of registration without official approval. Despite the significant gap between rural and urban income, the relative equality of income distribution within both rural and urban areas also reduced the natural propensity to migrate across regions (excluding rural-urban migration).
The pre-reform economic system generated a high potential for migration, though very little actually took place. The numbers of underemployed and surplus labourers became larger and larger across the country, especially in the rural areas. Labour migration was inevitable once incentives were in place and institutional restrictions were removed.
The advent of reform
From 1979 onwards, China gradually introduced a set of economic reform policies. The old heavy industry-oriented development strategy was abandoned and replaced by a comparative advantage oriented strategy. The role of central planning gradually gave way to market mechanisms. In external economic relations, the Chinese government adopted an outward-looking strategy to actively participate in international markets. At the microeconomic level, a wide range of new institutions were introduced to eliminate inefficiencies in the public ownership of agriculture and industry. More and more autonomy in decision-making for resource allocation was granted to individual enterprises, farmers and consumers. All of these policy changes, in one way or another, significantly influenced the country’s emigration pressure.
At the aggregate level, the reforms resulted in the extraordinary growth of the Chinese economy, which registered an average growth rate of 9.2 per cent for real GDP from 1979 to 1995 (Chart 1). Trade grew even faster, at 12.5 per cent, during the same period, and it is widely agreed by economists that such high growth can probably be sustained for another one to two decades (Lin, Cai and Li, 1994; Lardy, 1994; Garnaut and Huang, 1995). This may suggest that new jobs may be produced continuously to gradually absorb currently underemployed or unemployed labour.
Chart 1. Growth rate of GDP and trade in China, 1978-95 (per cent)
Sources: China State Statistical Bureau (SSB) (1995, 1996).
Before we become too optimistic about economic growth in China, however, there are two points worthy of noting in regard to emigration issue. First, the rapid growth of the Chinese economy in the recent past was built, as it is likely to be to some extent in the near future, on productivity growth. This policy entails reducing effective demand for labour in existing production units, holding other things constant. The total number of underemployed or unemployed will fall only if the creation of new jobs outpaces the number of redundant labourers released due to efficiency improvement. The net impact of growth on total effective employment requires more careful assessment.
Second, the impact of rising income levels on emigration pressure is complex. According to the literature, labour migration can only take off when per capita income reaches a certain minimum level, when the potential migrants, for instance, can afford the costs of migration. As incomes rise further, the domestic economy may reach a turning point when labour shortages occur. But as suggested earlier, China is still far away from that turning point.
The open-door policy
The open-door policy has been regarded as one of the most successful measures of China’s economic reform. To facilitate its integration into the world economy, China adopted a set of new policies, including preferential treatment for export activities and foreign direct investment (FDI). To promote exports, the government introduced a number of incentives such as tax rebates on exported goods, exemption tariffs for raw material imports for export processing, and subsidised bank loans. Foreign firms also enjoy the exemption of domestic taxes and tariffs for the import of machinery equipment and raw materials.
In 1986, China officially applied to join the GATT/WTO. More recently, China has been participating in the Asia Pacific Economic Cooperation (APEC) trade liberalisation process and has made a commitment to achieve free trade by the year 2020. Trade liberalisation has been pushed forward during the reform period on a number of fronts in order to bring China’s trade activities into conformity with international practices. The government gradually eliminated central planning for exports and imports and broke up the monopolies of a handful of large state corporations. Export and import decisions were decentralised and market mechanisms were given more role in the economy. Both tariff and non-tariff barriers to trade were reduced substantially through several measures.
Most recently, President Jiang Zhemin, at the Osaka APEC summit in 1995, announced another reduction in tariffs by one-third, beginning 1 April 1996, to bring the average tariff rate down to 23 per cent. Foreign exchange markets have also undergone significant reforms. Most importantly, since January 1994, China has unified its long-standing two-tier exchange rates, official and secondary. A number of foreign exchange centres for inter-bank transactions were established across the country, the largest ones in Shenzhen and Shanghai. Although the currency is still not freely convertible under the capital account, the daily change in the exchange rate does reflect supply and demand in inter-bank transactions. The government has also made the commitment to institute the free convertibility of the Chinese currency in one to two years (Garnaut and Huang, 1995; Huang, 1996).
The government, however, was not especially confident in its open-door policy at the beginning. It began by establishing a number of Special Economic Zones (SEZs), the most famous of which is Shenzhen of Guangdong province next to Hong Kong. All of the SEZs are concentrated in the coastal region. Preferential policies were first introduced in the SEZs, which led to their great economic success, but this approach made for an uneven pattern of development in China. Most of the country’s exports come from the coastal region and most FDI is concentrated there as well, leaving most of the inland regions outside the process of the economic boom.
In the mid-1990s, the government is gradually withdrawing preferential treatment for the SEZs in an attempt to extend the economic success to the inland economies. Similar preferential policies have been extended to the inland regions, though some have been eliminated altogether. As of 1 January 1996, the exemption of tariffs for machinery equipment imports by foreign firms was abolished and the export-tax rebate was further reduced. Preferential terms for FDI are offered to some priority sectors, such as the primary industries, transportation and other infrastructure, regardless of geographical location.
These reform policies have greatly enhanced China’s exports and FDI inflows. In about a decade and a half, the nation ascended from a virtually autarchic economy to one of the world’s largest exporters. By the early 1990s, China became the second largest recipient country of FDI, with only the US receiving more (Huang 1996).
From the beginning of economic reforms, some measures to facilitate labour exports were undertaken by the MOFTEC. Chinese companies licensed by the MOFTEC implemented projects in foreign countries directly or indirectly, using locally contracted workers and engineers. The Chinese government regarded this type of migration, which takes the form of contract labour, as export of labour services. By late 1995, 250,000 labourers had migrated through the MOFTEC system.
The literature does not provide a simple prediction for the relationship between trade and emigration pressure, which is complicated by elements that often work in opposite directions. This is also true for the entire Chinese social-economic situation, where the effects of reform have interacted with each other with mixed results.
China’s export growth was led by the dramatic expansion of the labour-intensive manufacturing sectors, especially the textile and clothing industry. The share of labour-intensive goods in total exports rose from 31 per cent in 1978 to 55 per cent in 1994, with the share of textile and clothing products rising from 19.8 per cent to 40 per cent. The development of these industries was favourable to absorbing a large amount of surplus labour.
The huge capital inflows to China may have a similar impact. Due to changes in international comparative advantages, many industrialised and newly industrialised economies have relocated their labour-intensive factories to China to take advantage of its low labour costs. A substantial proportion of FDI comes from Hong Kong, Taiwan province and Korea, which are all in the process of upgrading their domestic industrial bases by moving away from their labour-intensive manufacturing sectors to those skill intensive industries. FDI has created a large number of jobs in China.
While such investments may tend to reduce emigration pressure in China through increased domestic employment opportunities, they can also work in the opposite direction. On the one hand, because of uneven development, the export and FDI activities (and new job and income opportunities) induced significant internal migration from the inland to the coastal regions. On the other hand, rising income and increased contacts with the outside world through exports and FDI, may further induce domestic labour to migrate overseas. The current demographic pattern of international migration favors emigrants from the coastal regions and large cities, where income levels are higher and more information is available.
The family planning policy
In the 1950s and 1960s, the Chinese government adopted policies favouring high fertility by providing political and economic incentives for childbearing. Such policies resulted in a population explosion in the 1960s, which caused serious problems for the economy and the society. It became increasingly difficult to house and feed the rapidly growing population, as well as impossible to keep the growth of employment opportunities in line with that of the labour force. In the mid-1970s, there was a reversal in policy and the family planning or "one-child" policy was introduced, instituting financial penalties for those who had more than one child. Population growth consequently fell significantly, from 2-3 per cent in the 1950s and 1960s to below 1.5 per cent in the late 1970s, maintaining that approximate annual growth rate since. (Chart 2).
The lower rate of population growth had a notable impact on the growth of the labour force, which declined from its high rate prior to the mid-1980s. Since 1990, the growth rate of the labour force has been under 1.5 per cent per year. If the current family planning policy is to be maintained in China, as it likely is, the growth of the labour force will be low. This may reduce emigration pressure, particularly if the growth of new job opportunities also continues.
Family planning policy will also affect China’s future demographic structure (Chart 3). The proportion of young workers (aged 15-39) in the total labour force was 60 per cent in China in 1990, slightly lower than that in India (61.4 per cent) and Indonesia (62.1 per cent) (Table 1).
Chart 2. Growth rates of population and labour in China, 1970-95 (per cent)
By the year 2010, this proportion is likely to fall somewhat to 57.4 per cent for India and 55.1 per cent for Indonesia, according to World Bank predictions (World Bank, 1990). But in China, the family planning policy is likely to lower the proportion of young workers in the total labour force significantly to 44 per cent in 2010 (a reduction of 16 per cent).
Table 1. Demographic indicators for China, India and Indonesia, 1990 and 2010
Young workers’ Share of Age dependency
(age 15-39) share aged population ratio (population
in total labour force (above 60) of under 15 and
(per cent) (per cent) above 60 to 15-60)
China 1990 60.3 9.0 0.5
2010 44.6 11.8 0.5
India 1990 61.4 8.0 0.8
2010 57.4 8.4 0.6
Indonesia 1990 62.1 6.3 0.7
2010 55.1 8.9 0.6
Source: World Bank (1990).
At the same time, the share of the aged population (those older than 60) in China will rise to 11.8 per cent in 2010, which is significantly higher than that in India (8.4 per cent) and Indonesia (8.9 per cent).
On the other hand, the proportion of the labour force in the total population has increased steadily in China, from 36 per cent in 1952 to 43 per cent in 1980 to 50 per cent in the early 1990s. This significant rise was attributable to two factors, the participation of women and the transition of the demographic structure.
The participation rate of females in the labour force has increased sharply since the early 1950s. In traditional Chinese society, such as existed before the Second World War, most women did not participate formally in the labour force, except those involved in domestic work. China’s communist government has made significant efforts to promote women’s social standing and right to equal pay.
In the past few decades, population growth rates were kept at low levels while the growth rate for labour force was as high as between 2 to 2.5 per cent per year (as those born before the "one-child" policy took effect, entered the work force). It is expected that the share of the labour force in the total population might fall again due to the changing demographic structure, holding other factors constant, and because life expectancy is likely to increase over time.
Chart 3. Population structure in China: 1990 and 2010 (millions)
Source: World Bank (1990).
The one-child policy has also had an impact on the sex ratio of the population. In 1993, the sex ratio at birth in China was 117, in comparison with 108 in India, 107 in Singapore and 106 in Japan and Malaysia respectively. This may reduce the availability of female labour in the future and also cause social problems.
Agricultural reform and rural development
The Chinese agricultural sector was comprised of millions of farm households when the communist government came to power in 1949. The new government saw this system of small farms as a hindrance to its goal of economic modernisation. Partly to realise economies of scale in agricultural production and partly to facilitate the implementation of the central planning system, agricultural production was collectivised into communes in the late 1950s. Collectives were organised at three levels, the commune, the brigade and the production team. Throughout most of the pre-reform period, the production team was the basic production and accounting unit, which often consisted of about 30 farm households (Huang, 1995).
The performance of the agricultural sector, however, was unsatisfactory in the commune years, because of organisational inefficiencies. In the late 1970s and early 1980s, the Household Responsibility System (HRS) was introduced as a nationwide policy. Major production means such as arable land, though still claimed as collective property, were contracted out to individual households. Farmers were free to make production decisions conditional upon the fulfillment of state purchase quotas of agricultural products and collective levies. Because the land was divided up between households by production teams according to population of each household? when the HRS was introduced, the distribution of productive assets, arable land in this case, was fairly equal. This policy can be expected to have the impact of reducing farmers’ propensity to emigrate.
But this reform could not reverse the trend toward high emigration pressure in the rural economy. On average, there is only 0.2 hectares of arable land for each rural labourer (SSB, 1995). Land fragmentation is unfavourable to the adoption of modern production techniques and commercialising the agricultural sector. Income growth is expected to be limited if farmers continue to stay on their small parcels of land.
Additionally, the transition of the production institution and the associated improvement in labour productivity has significantly increased the level of underemployment in agriculture. In most areas, agricultural infrastructure is still poor. After the implementation of the HRS, infrastructure such as the irrigation system has even deteriorated because of weakening collective management. Agricultural prices in China are very unstable generally, reflecting the transitional state of the agricultural sector institutions, which have only started to develop new markets (Huang, 1995). Such factors increase the uncertainty of farm income and encourage labour migration out of the agricultural sector.
The first response to the emigration pressure by farmers after reform was to develop the rural TVPs. In the early reform years, especially before the mid-1980s, there were still substantial barriers to labour migration between rural and urban areas and across regions. Farmers started to organise their surplus labour, combining their own funds and other production means, for employment in simple industrial production. Farmers, therefore, quit agricultural production and entered the industrial and service sectors, while remaining within their townships and villages, exemplifying the policy of "walking on two legs" and "leaving the land but not the village".
The rapid growth of the TVP sector was one of the great successes of Chinese economic reform. The output of rural enterprises grew at an annual rate of 27 per cent from 1984 to 1995, while the share of rural enterprises in total rural output rose from 35 per cent in 1984 to 76 per cent in 1995. In 1995, rural enterprises already accounted for nearly a third of China’s GDP (32 per cent). In the past decade, the total number of employees in rural enterprises doubled to reach about 125 million in 1995, already more than that in the state sector. The share of rural enterprise employees among total rural workers also rose, from 14 per cent in 1984 to 28 per cent in 1995. In 1995, about 30 per cent of farmers’ income came from the rural enterprises. More importantly, the rural enterprises have become a major source of further increases in farmers’ income, contributing about 60 per cent of increments in farmers’ income from 1990-95.
The development of the TVP sector may have a mixed impact on emigration pressure in the rural economy. While it may reduce the pressure because it has generated huge employment opportunities and higher or more stable incomes, it could also increase the pressure because growth itself may increase farmers’ confidence and raise their ambitions to seek more stimulating opportunities outside the local community. Jiangsu may reflect reduced emigration pressure, on the part of the farming population, while the Wenzhou prefecture of Zhejiang is indicative of increased pressure for emigration.
Overall it is reasonable to conclude that rural industrial development has had a negative impact upon emigration pressure. Some provinces with successful experiences in the development of the TVP sector, such as Guangdong, Fujian, Jiangsu, Zhejiang and Shandong, have in fact become major importers of labour from the central and western regions.
Unfortunately, the success of the TVPs has so far been concentrated in a limited number of provinces, mostly in the eastern, coastal part of China. The contribution of the TVP sector in reducing emigration pressure has still been very limited in the inland provinces (Table 2), where farmers without a successful TVP sector have a higher propensity to migrate. This condition was the basis for the massive internal migration of about 80 million people from inland regions, such as Hunan, Hubei, Sichuan and Henan, to coastal China since the late 1980s.
Reform of the state sector
The relationship between state sector reform and emigration pressure could potentially represent an interesting case in the Chinese economy. The state sector, mainly the state industry, was developed in the pre-reform period under the heavy industry-oriented development strategy. The pre-reform state sector can be characterised as follows: (1) a high concentration on heavy industry with high capital-labour production technologies; (2) state ownership with all input, output and production decisions, including employment size, made by the government; (3) direct linkage between enterprises’ accounts and the government budget. Furthermore, within the enterprises, no effective links were established between a worker’s efforts and earnings and the income of individuals was not significantly differentiated.
Table 2. TVP employment and output by provinces in China, 1994
Share of TVP TVP output
TVP employee Rural labour in rural labour per employee
(thousand persons) (per cent) (yuan/worker)
East coastal provinces
Beijing 1,242 1,716 72.4 73,857
Tianjin 1,018 1,720 59.2 75,255
Liaoning 4,473 8,573 52.2 53,061
Shanghai 1,390 2,329 59.7 75,158
Jiangsu 9,420 27,826 33.9 69,554
Zhejiang 7,759 21,013 36.9 61,998
Fujian 2,998 11,342 26.4 32,138
Shangdong 14,816 35,617 41.6 45,923
Guangdong 9,155 24,931 36.7 24,052
Hainan 314 2,014 15.6 20,732
Inland provinces
Hebei 7,947 25,428 31.3 32,135
Shanxi 3,792 9,381 40.4 27,186
Inner Mongolia 1,326 5,796 22.9 18,552
Jilin 2,144 6,436 33.3 22,565
Heilongjiang 2,208 5,754 38.4 27,174
Anhui 5,874 25,428 23.1 25,455
Jiangxi 4,041 15,321 26.4 31,307
Henan 8,568 37,173 23.0 20,963
Hubei 6,121 18,262 33.5 27,056
Hunan 7,046 27,242 25.9 18,091
Guangxi 2,302 19,352 11.9 21,264
Sichuan 7,403 51,592 14.3 26,657
Guizhou 800 15,548 5.1 10,550
Yunnan 2,354 18,015 13.1 12,230
Tibet 0 924 0.0
Shaanxi 3,155 13,101 24.1 18,428
Gansu 1,686 8,680 19.4 13,321
Qinghai 105 1,500 7.0 9,619
Ningxia 206 1,570 13.1 11,311
Xingjiang 519 3,048 17.0 13,276
Source: SSB (1995).
China’s pre-reform state industry obviously failed to absorb huge amounts of surplus agricultural labour and even failed to keep pace with the growth of the urban labour force, thus contributing to the build-up of huge (explicit or implicit) unemployment pools in both the urban and rural areas. Moreover, the particular system of remuneration and wage system did not provide incentives for employees to work hard. The whole state industry became very inefficient and the underemployed pool grew within it.
The restructuring of the state sector began with initial economic reforms. Different forms of contracting and responsibility systems have been introduced at various stages of reform. Profit remittances to the government by state enterprises have been converted to taxes, while direct fund allocations to the state enterprises by the government have been changed to loans by the banking system.
The general principle of these reform steps was to grant more benefits as well as autonomy to the enterprises. State sector reforms, however, have probably been the least successful among all reforms within the Chinese economy. Recently, reform of the state sector has been a priority item of the policy agenda. While in the literature the evidence of the impact of state sector reform upon productivity is mixed (Jefferson et al. 1992; Woo et al., 1994; Huang and Duncan, 1995), the financial performance of the state sector is still far from satisfactory (Huang and Duncan, 1996).
Positive changes have occurred in some areas, though. In the mid-1980s, for instance, the government started to allow state enterprises to recruit temporary contract labour, a move which granted enterprises some flexibility in making their production decisions. The size of contracted labour in the state sector grew rapidly, from 3.3 million in 1985 to 25.8 million in 1994 (Table 3). In 1994, contract labour accounted for about 27 per cent of the sector’s total labour force.
In analyzing the numbers of contract labour, two distinctions must be made, although no detailed data is available for an empirical examination. First, a distinction must be made between those employed because of business growth, and those employed to replace existing employees. While most contracted labour was employed when the production size of the state enterprise increased, there are frequent reports that enterprises recruited contracted labour even when underemployment was serious within enterprises (Jiang, 1996). Enterprise managers were motivated to do this because they found that cheap contract labourers worked harder and were easy to manage. The share of this type of worker within the total work force is worthy of further analysis, as it has important implications for future unemployment and migration pressure.
The other distinction to be made is between those who are recruited locally and those who migrated from other regions (or from the rural areas). A relatively high proportion of the latter (which seems consistent with the estimate of total migrant labour around the country) may suggest that the reform of the state sector has induced some degree of labour migration within the domestic economy.
Table 3. Contract workers in China’s state economy, 1985-94
Contracted Shares in
workers total employees
(thousand persons) (per cent)
1985 3,320 3.7
1986 5,240 7.0
1987 7,350 9.6
1988 10,080 12.6
1989 11,900 14.2
1990 13,720 13.3
1991 15,890 14.9
1992 20,580 18.9
1993 23,960 18.9
1994 25,830 26.2
Source: SSB (1995, p.100).
The failure of state sector reform is indicated by the fact that about 40 per cent of state-owned enterprises still made losses in 1995. This soft-budget problem may be due to difficulties in dismissing redundant workers and implementing the newly introduced bankruptcy law for the state enterprises. Originally, there was an unwritten agreement between the state and the state enterprise employees that once the latter were employed, they were entitled to all welfare benefits and retirement payments. Slightly higher wages are often not sufficient to induce workers to move from the state to non-state sectors. The lack of an effective social security system makes employees even more reluctant to leave their enterprises.
The MOL has estimated that the number of redundant labourers in the state sector is currently 16 million, which accounts for about 15 per cent of the sector’s total labour force. This is a large pool held temporarily by the state sector, which will eventually be released leading to increased unemployment pressure on the rest of the economy. How fast it will leave the state sector depends on the pace of state sector reform and labour market development.
Labour market development
The labour markets were strictly controlled by the government in the pre-reform period. Workers could not move from one production unit to another. In fact, both urban and rural residents had to stay at the place of their household registration. Any kind of movement between factories or across regions had to be approved and arranged by the government.
The labour market began to undergo change during the reform period, but the process of its reform is still far from complete. In most reform years, restrictions on labour mobility across sectors and regions remained in place. The development of the rural TVP sector was largely a result of the restriction on labour flows from rural to urban areas. Rural-urban migration was officially banned by the government and also discouraged by a number of other measures. For instance, urban residents were entitled to subsidies for housing, medicare, staple food and a number of other services. Rural farmers living in the urban areas, assuming they could find jobs there, would have no access to such welfare benefits. Even if farmers were able to find jobs that paid comparably with those of urban residents, their living standards would be much lower.
But eventually large numbers of farmers, mostly from the inland areas, crossed borders to get to cities and coastal regions, as urban-rural and coastal-inland income gaps widened. Although the government did not officially abandon its old regulations on labour movements, they became largely ineffective. The issuing of identity cards since 1985 made it easier for people to move around, and was thus considered a contributing factor to migration (Skeldon, 1996). The gradual reform and elimination of the urban subsidy system also facilitated labour migration from rural to urban areas.
From the late 1980s, urban employers including those in the state sector, have been permitted to employ contract labour. Migration to urban areas became legal on the condition that labour migrants register with the cities’ labour administration. In many cities, labour migrants are also required to apply for temporary residence cards from the local MOPS departments and will be fined if they fail to do so within five months after arrival (Huang Ping, 1996). In the early 1990s, migrant labour became an important part of the labour force in many booming cities.
In the process of labour market reform, the MOL got involved, alongside the existing MOFTEC system, in the business of international labour migration, which took off in the beginning of the 1990s. A system of MOL-licensed recruiting agencies for overseas employment was established to negotiate employment contracts with foreign employers and recruit workers from the domestic labour market for overseas jobs. Most of these jobs are for short term periods of two to three years. Other government departments, such as the Ministry of Transportation (MOT), also became active in sending professionals for short-term overseas employment. But in general, the size of this type of emigration is still small.
Some resistance to labour migration is still in place, especially in the cities and coastal areas. In order to reduce the number of labour migrants, it is common for the labour administrations to restrict the numbers of labourers that can be registered. Although subsidies on foodgrain have been removed in most cities, subsidies on medicare and housing for urban residents are still substantial, which significantly disadvantages the labour migrants who have no access to these benefits. In some enterprises and other places of work, especially the collectives, migrant workers are offered special wages which are usually lower than those offered to local workers. Many city authorities also try to introduce various measures to restrict labour inflows out of concern for the rising pressure on urban infrastructure and the worsening social environment. Another unfavourable factor for labour migration is the lack of a social security system in the urban areas for migrants from other areas. Once the rural residents enter the cities, they have no income if they cannot find jobs.
A number of policy reforms and reform experiments are underway in China. In 1995, China selected some 20 cities to conduct experiments concerning the pension fund system. More than 80 million workers in nearly 600,000 enterprises, and 18 million retirees have taken part in retirement fund insurance. China is also planning improvements to its unemployment and medical insurance systems on a pilot basis. To date, more than 95 per cent of state enterprises and their workers have bought unemployment insurance policies. The recently approved World Bank Labour Market Development Project is intended to help more than half a million surplus labourers to find jobs. Using a $30 million World Bank loan, the project will be implemented in five municipalities. The money will finance the preparation of related laws and regulations, the establishment of a labour market information network, and in-service vocational training.
Poverty alleviation and income inequality
The Chinese government became concerned with the poverty issue in the mid-1980s. In 1985, the then Research Centre for Rural Development (RCRD) of the State Council recommended that the poverty line be set at a per capita income of 200 yuan and per household staple food of 200 kilograms. According to that standard, the poor population was estimated at 102 million at the end of 1985, about 12.2 per cent of the total rural population (Zhu and Jiang, 1994). The State Statistical Bureau (SSB) suggested that the poverty line was 260 yuan in 1988, according to their studies on the relationship between nutrition and expenditure. By that standard, there were 120 million persons in the rural population under the poverty line. These figures clearly indicate that in the mid-1980s, poverty was a serious phenomenon in the Chinese rural economy.
In 1986, the Leading Group for Developing the Poor Regions was formed under the State Council and given the responsibility to formulate policies and coordinate activities for poverty alleviation in China. One important change in policy was the transition from subsidy and income relief to development assistance to help economic development and income growth in the poor regions. The specific policy changes included: (1) more autonomy in the production and marketing of agricultural and other products; (2) direct resource input, including funds and materials, to concentrate on alleviating poverty region by region; (3) tax exemptions; (4) assistance in constructing infrastructure and developing scientific, educational, medical and irrigation facilities. Since the late 1980s, the central government has allocated about 4.6 billion yuan each year for the purpose of poverty alleviation, about 80 per cent in the form of bank loans with interest subsidies.
These policy changes were likely successful. It is reported that the total size of the poor population was reduced to 65 million in 1995, by 5 million in 1995 alone (Huang, 1996). This should contribute negatively to emigration pressures. But the challenge of alleviating the poverty of the remaining 65 million is bound to be more difficult. Generally, poverty alleviation is favourable to reducing emigration pressures. As more and more farmers in the remote areas can live on what they produce, a smaller proportion of people is likely to leave home for jobs elsewhere.
A more important factor related to labour migration is income distribution. Income gaps were indeed widened not only among regions, but also between rural and urban areas and among individuals. The rural-urban income differential, for instance, first changed dramatically in 1978 and in 1984, when agriculture led the economic reform, reducing the ratio of disposable income between urban residents and farmers from 2.4 to 1.7. The income gap widened again after that, however, reaching 2.6 in 1994.
There is only limited information about changing income distribution at the individual level over years. In a study on China’s income distribution, Chen (1994) reported estimates of Gini coefficients for Chinese rural, urban and total population for the 1981-88 period (Table 4). The estimates were relatively low compared to the other economies in East Asia, but rose steadily over time. From 1981 to 1988, the Gini coefficient rose from 0.26 to 0.3 for the whole population, from 0.15 to 0.17 for the urban population and from 0.23 to 0.29 for the rural population. In general, income distribution was more equal in the urban areas than in the rural areas during that period, which partly reflects the delayed reform and growth of the urban economy (as compared to the growth of the rural economy begun in 1979). Unfortunately, no consistent information is available on income distribution after 1988. There is some causal evidence to support the case that income inequality worsened from the early 1990s, when the economy started another round of rapid growth, and that the trend of the rising Gini coefficient likely continued, especially in the urban areas. A more crucial indicator of rising income inequality is the widening income gaps between regions, which can almost be asserted without proof.
Rising income inequality is a key to understanding trends in internal and international labour migration.
Table 4. Gini coefficients in China, 1981-88
1981 1982 1983 1984 1985 1986 1987 1988
Total population 0.2635 0.2525 0.2865 0.2705 0.2875 0.2875 0.2924 0.2961
Urban population 0.1503 0.1474 0.1491 0.1651 0.2042 0.1650 0.1666 0.1689
Rural population 0.2256 0.2333 0.2554 0.2697 0.2785 0.2884 0.2798 0.2898
Source: Estimates are adopted from Chen (1994).
Macroeconomic management
In the mid-1980s, the macroeconomic system started its transition from a resource and income re-allocation mechanism to an indirect management system. In the financial sector, the People’s Bank of China took on the function of the central bank in charge of monetary policies. The other state banks were gradually transformed into commercial banks which took economic efficiency into greater consideration in the allocation of loans. The nation’s first private bank, the Mingshen Bank, began operating in early 1996 with a focus upon mobilising funds for the private and collective sectors.
Foreign banks were introduced into the Chinese economy and are expected to soon be able to participate in domestic business using Chinese currency. The timetable for the free convertibility of Chinese currency can be regarded as already defined.
On the budgetary side, decentralisation was introduced to increase the decision-making autonomy of local governments. Parallel taxation systems were established at each of the local government levels which are responsible for tax collection for the local and central government, respectively. It was recently decided that the only avenue for the government to meet the budget deficit is through the issuance of treasury bonds and not through increases in the money supply. The central planning system has been reformed significantly, its scope restricted to limited areas. Free markets are now the dominant mechanisms determining supply and demand for most commodities.
These reforms at the macroeconomic levels have been necessary and largely successful in facilitating the transition to a market economy. They also assert significant influences upon the development of the labour market.
The transition policies have led to some macroeconomic instability (Chart 4). Relatively low in the first half of the 1980s, the inflation rate leaped upward in 1985, when macroeconomic reform was introduced. The first peak occurred in the years 1987 and 1988, when the annual inflation rate reached 17-18 per cent. It was then stabilised, mainly through the introduction of an austerity package including tight control over the money supply. In 1993, the inflation rate started upwards towards another peak, reaching an annual rate of 21.7 per cent in 1994.
Chart 4. Inflation rate and share of budget surplus, 1979-95 (per cent)
Note: The annual inflation rate is measured by the overall retail price index and the share of budget surplus is the percentage share of budget surplus (deficit) in total budgetary revenue.
Source: SSB (1995).
High inflation was often associated with the incomplete status of economic reform. The central bank still cannot make independent decisions over the money supply. When a large number of state enterprises experienced losses, the state banks were often forced to extend loans to them so they could remain in operation. When food prices rose significantly, the central bank had to allocate additional money for wage or subsidy increases for state enterprise and government employees.
High inflation implies unstable real earnings for individuals and often induces migration, especially international migration.
The operation of the state banks is also heavily influenced by government policy. Although the non-state sectors are generally the most efficient part of the economy, state industries always accounted for a dominant proportion of total bank loans. Bank loans to the rural enterprises accounted for only about 8 per cent of the country’s total credit in 1994. Rural enterprises and other small businesses, which are the main contributors to the country’s job growth, are constantly thirsty for capital, while the capital needs of the loss-making state sector are always met by the state. This pattern of capital distribution has impacted negatively on job opportunities for the unemployed and underemployed.
The changing budget situation has had a mixed impact on migration potential. The rising budget deficit, increased from 4 billion yuan in 1983 to 57.5 billion yuan in 1995, is mainly attributable to spending for non-productive activities, including subsidies to state enterprises and urban consumers.
Fiscal decentralisation, on the one hand, strengthened the economic power of the local governments, which is hopefully favourable for local economic development and the creation of more employment opportunities. On the other hand, it also decreased the power of the central government. The share of the central government in total government expenditure fell from 54 per cent in 1981 to 30 per cent in 1994. The falling proportion may reflect the central government’s declining ability to oversee an even pattern of regional development, a factor that could contribute to the widening of regional income disparities, a clear inducement for labour migration.
To summarise the complex effects of economic reform on China’s emigration pressure, we make the following points:
- A huge unemployed or underemployed pool of labour already existed in the pre-reform economy. Economic reform in general implies the removal of artificial restrictions on labour movements and is, therefore, expected to induce large labour flows, both across regions and across borders. This is particularly so in the case of China, considering that reforms improved economic efficiency and resulted in less demand for effective labour in the existing production units.
- Economic reforms induce rapid growth of the economy, which may generate increasing job opportunities and rising incomes. In particular, the development of the rural and urban non-state enterprises, the expansion of labour-intensive exports and the large inward FDI flows are favourable for domestic employment. The continued family planning policy may reinforce this effect through lower additions to the labour supply. The equal distribution of land in the implementation of the HRS, though inefficient for agricultural development, was also helpful for reducing local emigration pressure.
- Labour migration is strongly encouraged by a number of economic phenomena that have emerged with the institutional transition, such as high inflation, rising income inequality and uneven regional economic development. China’s current income level is still far from that of Japan, Korea and Taiwan province, when each experienced its respective turning point in international migration. Higher income and increased exposure to the outside world, through investment, foreign trade, the media and personal visits, also raise individuals’ propensity to migrate.
- Changes in emigration pressure in China are also subject to forthcoming reforms in some areas. Labour migration is discouraged by some existing institutions, such as the rigid economic system of the state enterprises, as well as by the lack of a social welfare system. The removal of the state enterprise system and the establishment of an adequate social welfare system in the near future is expected to release more redundant labour from the state sector and attract more labour flows.
III. Institutional framework for emigration
International migration flows, as internal ones, grew in the process of economic reform, when a system of institutions and regulatory policies was gradually introduced and developed.
Development stages of international emigration
In retrospect, the development of international emigration over the past several decades can be divided into four stages: the pre-reform period of very limited emigration flows, which were strictly managed by the government; the initial reform years, 1979-84, when labour exporting grew; the period 1985-90, when emigration flow was stagnant; and the years after 1990, another stage of rapid growth.
In the pre-reform years, a small flow of labour migration was maintained under the umbrella of intergovernmental agreements. The government managed the whole process of this type of labour migration, from recruitment wage distribution to the terms of employment. In the 1950s, the Chinese government signed agreements of economic cooperation with the governments of the Soviet Union, Mongolia and the Eastern European socialist nations. Under these agreements, China was obliged to supply labourers to these labour-shortage countries. In the 1960s and 1970s, labour exports took the form of international aid, mainly to Asian, African and Latin American developing countries. During this period, a large number of technicians, skilled workers and medical personnel served in more than 50 countries.
The managed labour exports from the 1950s to the 1970s was obviously not motivated by the individual migrants’ economic objectives, such as earning income. Rather, it was integral to the government’s broad economic and political programme. Individuals did not have the freedom of choice, and the benefits from working overseas were also limited compared to those of staying at home. Labour migration during this period was therefore kept to a minimum. During the Cultural Revolution, international migration almost ceased to exit.
The legal flow of out-migration started to grow after the institution of reforms in 1979. The years 1979-84 were regarded as the starting period of labour migration in China’s labour exporting history. The extraordinarily high growth rate for labour migration then is explained in part by the low starting base. The process was helped by the fact that at that time China’s major export markets, the Middle East and North Africa, were expanding significantly, and demand for labour there increased accordingly. According to MOFTEC statistics, the number of workers posted overseas under the labour service cooperation system increased from 2,190 in 1979 to about 50,000 in 1984, registering an annual growth rate of 87 per cent.
Labour migration from China stagnated during the period 1985-90. The number of workers under the MOFTEC system increased to only about 58,000 in 1990, registering an annual growth rate of 2.5 per cent from 1985 to 1990. The main reason for this sluggishness was that China’s labour export markets were concentrated in and heavily dependent upon the Middle East countries. After 1983, however, total demand for foreign labour by many Middle East countries decreased due to the reduction in the demand for oil by major industrial economies affected by recession. The long war between Iran and Iraq, and the Gulf War afterwards had additional negative impacts upon demands for labour migrants in the Middle East.
The years 1991-95 marked a new phase in China’s labour exports, with an average annual growth rate of 34 per cent which was mainly attributable to the efforts by the domestic emigration agencies. An increasing number of agencies got involved in labour exporting, attempting to diversify the export markets. The MOL-supervised overseas employment agencies began operating in 1992 and 1993, when the importance of the East Asian markets in China’s labour exports rose significantly while that of the Middle East markets declined steadily.
Key institutions
The State Council is the official administrator of China’s labour emigration, playing the role of coordinator, while the detailed administration of labour exports is divided between ministries, especially MOFTEC, MOL, MOPS, and the Ministry of Foreign Affairs (MOFA) (Chart 5).
Chart 5. Institutions associated with administration of emigration
MOFTEC was the ministry in charge of managing international aid projects in the era prior to reform. After reforms were instituted, it was authorised by the State Council to oversee China’s labour exports. In this regard, there are three main duties for the MOFTEC, which are managed through its Department of International Economic Cooperation: to issue licenses to agencies for exporting labour; to draft policies regulating labour exports, and to coordinate with various departments on behalf of the State Council on matters of labour service cooperation. The new "Regulations on Foreign Project Contracting and Labour Exporting of the People’s Republic of China" are currently being drafted under the coordination of the MOFTEC.
In April 1979, MOFTEC authorized the four major state engineering companies to cooperate with foreign companies on labour service. By the end of 1984, there were 54 state international cooperation companies (ICCs) permitted to export labour. The number increased by 100 each year in the early 1990s, totaling about 500 in 1995. In the 1980s, most of the licensed ICCs belonged to the MOFTEC system (or its local subsidiaries). In the 1990s, more and more non-MOFTEC agencies, such as local agencies under the MOL, and maritime companies under the MOT, gained permission to export labour.
The ICCs licensed by the MOFTEC can generally run two types of business, labour exports through contracted projects, and labour service cooperation with overseas employers. Lacking the capacity (i.e., technology, capital, international credibility) to contract international projects, most of these firms concentrate on labour service cooperation. Workers recruited under the MOFTEC system must apply for service passports through the MOFA or its provincial Offices for Foreign Affairs.
In 1992, the MOL began to establish its own system for export of labour, the Overseas Employment Service Agencies (OESAs). Based on the belief that labour-exporting is a labour business, the MOL issued the "Regulations on the Management of Overseas Employment Service Organisation" in November 1992 and started to issue licenses to agencies for overseas employment experimentation. The Ministry, through its newly established Office for Overseas Employment, has the following responsibilities: to formulate, supervise and implement regulations for the protection of overseas workers’ employment rights; to develop international cooperation in overseas employment as the representative of the Chinese government; and to provide guidance to the local Departments of Labour on the operation of overseas employment services.
In 1995, about 40 agencies received the Permit of Overseas Employment Service, most established by local Departments of Labour. They operate quite similarly to the way that the MOFTEC agencies run labour service cooperation business, with one important difference being that workers sent overseas through the MOL system hold private passports so they must apply for passports through the MOPS (or provincial Bureaus of Public Security).
The two ministries, both authorised by the State Council have overlapping functions in several areas relating to labour migration, especially in the areas of policy formulation and the division of administration duties. Both systems have their advantages in developing labour service export. While the MOFTEC system is familiar with international business practices and has the benefit of a wide range of overseas contacts (through its past business links and the Commercial and Trade Offices in overseas embassies), the MOL system has a wide network within the domestic labour market, which includes about 15,000 local job-matching agencies, 2,500 Employment Training Centres and 4,000 Vocational Schools throughout China.
Currently, the MOFTEC system still accounts for more than 80 per cent of the country’s total legal labour exports, but the number of labour migrants managed by the MOL is growing rapidly.
Other ministries and their subsidiaries are also actively involved in the labour export business, though they must receive permission from either the MOFTEC or the MOL. The MOT, for instance, is very keen on exporting seamen. Since most seamen have a shortage of technological and linguistic skills, the MOT set up a special training programme to meet the requirements of the international environment. About 5,000 high school graduates have been recruited from the countryside in the poor regions to study for two years and practice on domestic ships before boarding foreign ones. The MOT plans to recruit another 5,000 during the Ninth Five-Year Plan period (1996-2000). The Ministry of Culture also expanded its overseas business under the heading ‘cultural exchange’. Through arrangements with relevant organisations in foreign countries, about 3,000 artists were sent overseas to perform in 1995, earning a total revenue of $3 million.
Two other important organisations involved in migration activities are the MOFA and the MOPS. MOFA is in charge of issuing service passports for all potential emigrants sent by the MOFTEC, MOT and other ministries. The MOPS is particularly powerful in the area of labour migration, being responsible for issuing private passports for other emigrants including those going overseas through the MOL system and other channels. The MOPS also administers entry and exit at all borders and the regulations that govern such movements.
Regulatory policy
China does not have a law governing labour exports or emigration. All policies in this area have been drafted by various ministries and announced by the State Council.
The control over agencies involved in recruitment for overseas employment is quite strict. All the agencies must apply for licenses from either the MOFTEC or the MOL. Currently, there are about 550 licensed agencies, which are all attached to the central or local governments.
The government has banned labour exports (on an individual basis) for non-artistic entertainment activities and domestic work. It also tries to prevent contract labourers from using short-term overseas employment as a springboard to settlement migration.
The government issues passports on a restricted basis. Chinese nationals who apply for passports must have sound reasons for overseas trips and provide valid documentation for them. More uniquely, all passport applicants must first pass through a political investigation usually conducted by their working units or local governments, an arrangement that creates difficulties for those who have personal problems with their leaders. The government also has explicit rules prohibiting overseas travel for five categories of people, ranging from high-tech intellectuals to criminals. Recently, the MOPS announced a new policy stating that individuals may only apply for passports in their place of residence, thus restricting the operation areas of the recruiting agencies to the provinces or municipalities of their registration. In some cases, recruiting agencies in the coastal provinces with the labour service contracts were required to cooperate with other agencies in the central or western provinces to recruit workers.
Recruiting agencies complain about the MOPS’s slow, complicated process of passport issuance, which in some cases has led to the delay of trips and even the loss of contracts. The MOPS system recently established some outlet companies which provide fast service for passport applicants at a fee ranging from 100 to 200 yuan.
Recruited workers must reserve their current jobs for their return with their employers or else resign from them (a choice often determined by the employer), a decision which usually has financial implications. While workers can often leave the detailed procedures for passports and visas to their recruiting agencies, they must undergo a health examination, which is often required by overseas employers and the embassies of foreign countries, and attend a short pre-departure course. A part of the training system established by the MOFTEC, the short course offers recruited workers information about the customs in the foreign country to which they are traveling, the appropriate spoken language used to survive there, and some political propaganda. All recruited workers must obtain a certificate from one of the training centres before the passport applications can be processed. The fee for attending the course runs from 600 to 1,000 yuan per person.
The Chinese government does not have Labour Attaches posted overseas. The protection of the rights and welfare of Chinese national overseas workers remains the responsibility of the recruiting agencies. Usually, before signing the contracts, the agencies clearly request the overseas employers to be responsible for the workers’ travel costs and insurance. Working conditions and other requirements are often stipulated in the contracts. The usual practice for disputes between employees and employers is for both parties to come to the domestic recruiting agencies to work out a solution or settlement. The Chinese Embassies intervene only when the situation has become extreme. Large recruiting agencies usually post representatives for liaison and coordination in the countries or regions where they send large numbers of workers. Occasionally, staff from the agencies fly to the country to settle disputes. But the rights and welfare of workers exported for small group projects, particularly those sent by the small agencies, seem not very secure if the overseas employers violate the contracts.
The domestic recruiting agencies charge workers a commission fee for each job assignment. The MOFTEC has set the rule that the commission must not exceed 25 per cent of a worker’s total annual income. For workers with annual wages ranging from $3,600 (mostly female textile workers) to $12,000 (skilled workers), the total commission paid by each worker ranges from $1,800 to $6,000 for the two-year term of the job (the average length of overseas employment). Adding an average passport and visa application fee of 450 yuan and the pre-departure short course fee of 600-1,000 yuan, the total financial cost of obtaining an overseas job amounts to about $2,000-6,200. This is much higher than that in many other Asian labour-exporting countries (Table 5).
Often, the 25 per cent charged by the recruiting agencies must be shared with the workers’ home institutions and other organisations involved in the contract process. The manner in which the commission is collected varies by agency and destination of contracted labour. For workers sent to Japan, for example, the employers usually deduct the fees directly from the wages they pay the workers and send the collected sums to the domestic recruiting agencies. In Hong Kong, however, the government prohibits the direct deduction by employers. The agencies themselves must collect the fees from the individual workers, some of whom refuse to pay, particularly in the later stage of the employment. Some recruiting agencies, therefore, ask for security bonds from the workers before employing them. The bonds usually range from 2,000 to 4,000 yuan.
Table 5. Financial costs of an overseas job: China and other Asian countries
Country Year Cost ($)
Bangladesh 1986 1,000-2,000
India 1985 800
Pakistan 1983 917
Philippines 1987 400
Sri Lanka 1986 100- 320
Thailand 1986 900-1,200
China 1995 2,000-6,000
Sources: For China, the author’s estimate based on interviews and, for other Asian countries, ILO (1988).
IV. Profiles of labour emigrants
International migration in China has grown rapidly since reform began in 1979. According to the SSB, the total population of labour and non-labour emigrants overseas was 56,900 in 1982 and 238,000 in 1990, registering an average annual growth rate of 19.6 per cent.
Types of international migration
There are five channels of labour migration: labour-exporting through contracted projects; direct recruitment (through domestic agencies) by overseas employers; migration through relatives or friends in foreign countries; migration by investing overseas; and illegal migration.
Labour exporting through contracted projects
In the early years of economic reform, sending workers overseas to work on contracted projects was the dominant form of labour-exporting, one that built upon the previous system of international aid to developing countries, which was managed by the MOFTEC. After reform, the State Council authorised the MOFTEC to administer project contracting and related labour exports and labour service cooperation. Agencies and companies wishing to do business must apply for licenses from the MOFTEC. There are now more than 500 licenses issued across the country, most concentrated on the eastern coastal areas and in large cities.
Currently there are two types of international project contracting. One method is for one or more Chinese licensed companies to tender for the whole project. The other, more common method is for Chinese companies to sub-contract a part of the project from other foreign companies. Engineers, technicians and workers are organised by the domestic companies to work overseas for a certain term, usually two years, and return to China once the projects are completed. Individual workers receive wage income and other benefits from the domestic contracting companies. In most cases, the companies also cover transportation fares to get the workers from their homes to the work places, and the costs of their job-related insurance.
Table 6. Contracted projects and labour services cooperation, 1979-94
Contracted projects Labour services Workers
Contracted Fulfilled Contracted Fulfilled overseas
value value value value at year-end
($ million) ($ million) (persons)
1979 33 .. 18 .. ..
1980 140 123 45 47 ..
1981 276 .. 228 .. ..
1982 346 189 161 159 31,771
1983 799 315 125 137 30,971
1984 1,538 494 199 129 49,971
1985 1,116 663 149 172 66,264
1986 1,189 819 170 154 47,062
1987 1,648 1,114 241 146 64,145
1988 1,813 1,253 359 177 70,884
1989 1,781 1,484 431 202 87,066
1990 2,125 1,644 478 223 57,939
1991 2,524 1,970 1,085 393 91,165
1992 5,250 2,403 1,335 646 130,984
1993 5,189 3,668 1,611 870 136,657
1994 6,028 4,877 1,960 1,095 222,578
Source: MOFTEC.
In the early 1980s, this form of labour-exporting accounted for more than 50 per cent of total outflow, most of which was sent to the Middle East. But the relative importance of this type of labour-exporting has been declining, even as its total size is still rising dramatically. There were over 250,000 labourers exported to contracted projects in 1995 and only around 100,000 at the beginning of the 1990s.
Labour service cooperation and overseas employment
An increasingly important form of labour-exporting has been labour service cooperation and overseas employment, mainly through the MOL system. In this case, the domestic agencies negotiate contracts with foreign employers, defining terms for period of employment, wages, bonuses, working hours, sharing of transportation costs, accommodation arrangements, working conditions and insurance. These intermediate agencies then go to the domestic market to recruit qualified workers either by advertisements in the media (newspapers or television), through direct contacts with enterprises or through authorising other domestic agencies. The selection of workers is usually the decision of the agencies, though there are cases in which overseas employers fly to China to conduct interviews and make the final decisions.
China’s major markets are in East Asia, particularly Singapore, Hong Kong and Macau. Currently, the duration for an overseas job is usually one to three years. After their terms are completed, contracted workers either renew their contracts with the overseas employers, if possible, or return to their homes.
Currently, workers sent overseas through the MOL system only account for a small proportion of total labour emigration. In the mid-1990s, there are only about two to three thousand workers a year. But this number is expected to grow rapidly.
Individual migration through friends and relatives
Workers also migrate to foreign countries, either temporarily or permanently, through friends and relatives. To do so, they must resign from their current positions in China and apply for private passports. Unlike workers in the previous two categories, those who migrate overseas through friends and relatives do not have any formal links with domestic departments or enterprises at home. Most such emigrants come from the southeast coastal areas, particularly Guangdong and Fujian provinces, where there have always been strong family links with the overseas Chinese community.
According to the MOL, the number of Chinese going overseas outside the MOFTEC, MOL and other official channels (excluding tourism) was 175,735 in 1990 and 207,146 in 1991. Of the 1991 total, 87,855 went to visit relatives, 33,189 to study abroad and 8,806 to settle permanently overseas.
A certain proportion of this group can be categorized as settlement migration, which was growing markedly in the early 1990s. Some 57,761 people from China entered the US during the fiscal year 1992-93, for instance, compared with just under 80,000 in the five-year period 1982-87 (Skeldon, 1996).
Labour migration through direct investment overseas
In recent years, many Chinese enterprises have established joint ventures and independent enterprises in foreign countries. These enterprises cover a wide range of industries, including resource development, agricultural and industrial production, transportation, project contracting, consulting services, medical services and the tertiary industry. As partners or owners of the foreign firms, the domestic parent-firms often send management staff and technicians to work at the foreign firms, which cover their salaries and other benefits. Officially, such staff are still the employees of the domestic parent firms to which they return after their assignments with the foreign firms are completed.
The current size of this type of labour migration is assumed to be small, though the exact number remains to be investigated. The potential for growth of this type may become greater, however, as China’s outward FDI grows. China became the largest outward investor among developing countries in the early 1990s (Huang, 1996).
Illegal migration
Illegal migration of Chinese is a phenomenon that has been largely ignored in the Chinese literature, but heavily covered in other sources. Every year, many Chinese, mostly from South China, sneak across national borders to seek their fortunes in countries as far away as the US or Australia. Understandably, a large proportion go to Hong Kong and other East Asian countries.
In Hong Kong, for example, the number of illegal immigrants from China peaked at 20,000 in 1979 (Wu and Inglis, 1994). In the 1980s, the annual number ranged between 10,000 and 20,000, with more than half arrested upon entry. In 1990, about 28,000 Chinese nationals attempted illegal migration, with about 10,000 arrested upon entry and 18,000 evading that fate (Chart 6).
According to another source, at least 100,000 Chinese emigrate illegally every year to Taiwan province, Hong Kong or Japan (Fromont, 1994, p.56; Skeldon 1996). There are also frequent reports about Chinese illegal emigrants in Macau, Republic of Korea, Indonesia, Australia and the US Official US sources have estimated that in the 1990s, perhaps 100,000 Chinese nationals a year entered the US illegally (Skeldon 1996). As expected, there are no consistent statistics on Chinese illegal emigration. The author’s conservative estimate is between 150,000 and 200,000 a year, on average.
Chart 6. Illegal immigrants from China to Hong Kong
Source: Adapted from Wu and Inglis (1994).
Student migrants
Student migrants are difficult to fit into any one of the categories discussed in the Chinese literature. It is by no means an insignificant group, although a large proportion go overseas only temporarily and do not participate in the labour force there. From 1978 to 1989, the total number of students who went overseas was about 96,000, according to the State Education Commission. Of these, about 30,000 were sponsored by the state government or through governmental arrangements, 43,000 by the students’ working departments or organisations, and 23,000 by the students themselves. During the period 1978-79, about 39,000 students (or 40 per cent) returned home after their graduation. Because of the ‘June 4th’ incident in 1989, most of the remaining 60 per cent stayed for longer periods or settled down in foreign countries. By the early 1990s, China was the leading source of foreign students in the US, Canada and Australia. There were 44,360 Chinese students in the US in 1993-94, 4,096 in Canada in 1992, and 4,534 in Australia in 1994 (Skeldon, 1996). In the 1990s, an estimated 20,000 students went overseas every year.
By compiling all the information on the different types of labour emigration cited above, we may obtain a rough idea of the total size of labour emigration in China in the mid-1990s. First, the contract labour through the MOFTEC system is 250,000. Second, the number of labour emigrants recruited through the MOL system is growing rapidly, assuming there are only 3,000 currently. Third, migration through relatives and other permanent migration was about 100,000 in 1991. Assuming that this number will stay constant over the next several years and that only half of it is labour emigration, there are 50,000 labour emigrants in this category. Fourth, emigration through investing overseas is also a small number, assumed to be about 2,000. Finally, assuming that half of the illegal emigrants are labour, another 75,000 can be added to the total size of labour emigration. Combining these estimated numbers from the five categories, we get a conservative estimate of annual labour emigration at about 380,000 in 1995 and 1996.
Origins of labour migrants
As has been observed in other countries, such as the Philippines (Saith, 1995), dual migration circuits can be discerned when China’s internal and international migration is examined jointly. While the internal migration flows move from the inland regions to the coastal areas, most significantly to the Pearl River Delta areas, a large proportion of the international emigrants originate in the coastal region.
Two population censuses, for 1982 and 1990 respectively, revealed the size of the population of overseas Chinese who still had household registration in China at the time the census was conducted, and their proportion in the total population by provinces. This information is used to analyse the distribution of origin of China’s emigrants, but it also makes clear the difference between total migrants and labour emigrants.
Although most Chinese labour migrants traditionally come from East China, the regional differences in the proportion of population overseas were not very significant in 1982. While as high as 1.36 per cent in Beijing, 0.12 per cent in Tianjin, 0.46 per cent in Shanghai, 0.1 per cent in Shaanxi, and 0.15 percent in Ningxia, it ranged between 0.01 and 0.05 per cent in most other provinces (Table 7). By grouping provinces into broad regions, we find the proportions of 0.09 per cent for the eastern region, 0.03 per cent for the central region, and 0.05 per cent for the western region.
The regional bias in emigration increased rapidly in the 1980s. By 1990, the proportion of the population overseas has grown to 4.51 per cent in Beijing, 4.98 per cent in Shanghai, 0.98 per cent in Fujian, 0.44 per cent in Tianjin, 0.3 per cent in Guangdong, and 0.18 per cent for Liaoning and Jiangsu. The proportions for most central and western provinces also increased during that period but at much slower paces. As a result, the total population overseas from the eastern region rose from 30,300 in 1982 to 194,900 in 1990 (at an average growth rate of 26.2 per cent), while the region’s share in the nation’s total population overseas also increased from 53 per cent in 1982 to 82 per cent in 1990 (Chart 7).
There are a number of reasons why the regional bias of emigration increased as the process of economic reform moved forward. First, the eastern provinces have a tradition of emigration and the people there have more contacts with the outside world. It is estimated that between 1801 and 1925, about 2,250 Chinese migrated to East Asia, Australasia, North America, Latin America, the European continent and Africa (Sheng and Tong, 1991). Most of these migrants came from Guangdong, Fujian and Hainan provinces. In the 1930s, there was another round of massive emigration from Guangdong, Fujian, Jiangsu, Zhejiang and Shandong provinces. It was reported that each year from 1939 to 1949, about 50,000 people migrated overseas from Fujian. Such extensive experience with international migration gave these eastern coastal provinces an advantage in the development of labour migration.
Geographically, these eastern coastal provinces are closer to foreign countries and regions such as Taiwan province, Hong Kong, Korea and Japan. Because of their relatively easy access to the foreign media, the local people in these provinces are less isolated.
Table 7. Total population and population overseas by provinces, 1982 and 1990
1982 1990
Total Population Total Population
population overseas Share population overseas Share
(million) (thousand) (per cent) (million) (thousand) (per cent)
Beijing 9.23 12.57 1.36 10.82 48.85 4.51
Tianjin 7.76 1.35 0.17 8.79 3.83 0.44
Hebei 53.01 2.55 0.05 61.08 1.55 0.03
Shanxi 25.29 0.83 0.03 28.76 1.00 0.03
Inner Mongolia 19.27 0.27 0.01 21.46 1.50 0.07
Liaoning 35.72 2.10 0.06 39.46 7.23 0.18
Jilin 22.56 0.55 0.02 24.66 2.99 0.12
Heilongjiang 32.67 0.91 0.03 35.21 3.73 0.11
Shanghai 11.86 5.46 0.46 13.34 66.48 4.98
Jiangsu 60.52 2.75 0.05 67.06 12.13 0.18
Zhejiang 38.88 0.82 0.02 41.45 4.46 0.11
Anhui 49.67 1.44 0.03 56.18 3.52 0.06
Fujian 25.87 1.00 0.04 30.05 29.50 0.98
Jiangxi 33.18 1.57 0.05 37.71 1.59 0.04
Shangdong 74.42 1.27 0.02 84.39 3.16 0.04
Henan 74.42 1.61 0.02 85.51 1.77 0.02
Hubei 47.80 2.65 0.06 53.97 6.69 0.12
Hunan 54.01 2.37 0.04 60.66 2.19 0.04
Guangdong 59.30 2.95 0.05 62.83 18.68 0.30
Guangxi 36.42 0.58 0.02 42.25 1.84 0.04
Hainan 6.56 0.56 0.09
Sichuan 99.71 4.58 0.05 107.22 6.15 0.06
Guizhou 28.55 1.57 0.05 32.39 0.86 0.03
Yunnan 32.55 0.79 0.02 36.97 1.30 0.04
Tibet 2.20 0.17 0.08
Shaanxi 28.90 2.95 0.10 32.88 3.31 0.10
Gansu 19.57 0.69 0.04 22.37 1.09 0.05
Qinghai 3.90 0.02 0.01 4.46 0.23 0.05
Ningxia 3.90 0.58 0.15 4.66 0.45 0.10
Xingjiang 13.08 0.17 0.01 15.16 1.22 0.08
Source: Interview with the Population Division of the SSB.
Notes: The data presented in this table is from the National Population Census of 1982 and 1990 respectively. In 1982, Tibet was not included in the census and Hainan was still a part of Guangdong province.
The fact that rapid economic growth in the reform period began in the eastern coastal provinces has also helped the people therein to widen their foreign contacts. Residents of these provinces encounter more outside information through FDI, trade activities, tourism, and the exchange of scholars, students and other experts. More frequent contacts with the outside world provide more motivation as well as opportunities for people in these provinces to migrate, such as through arranged labour service cooperation.
Chart 7. Shares in total population and population overseas by region, 1990
Source: Data calculated from Table 3.
Note: The east region covers Beijing, Tianjin, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shangdong, Guangdong and Hainan provinces. The central region includes Hebei, Shanxi, Inner Mongolia, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, Hunan and Guangxi provinces, and the west region contains Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xingjiang provinces.
The average human capital stock in the eastern region is higher than that in the central and western regions, in terms of foreign language ability, knowledge about the market economy, and other technical skills. It is thus easier for people from the eastern provinces to adapt to new environments overseas, an adjustment for which they are comparatively more confident, usually, than their compatriots in other provinces.
Income levels are higher in the eastern provinces, which implies that it is easier for people there to overcome the economic barriers to emigration, such as the costs of air ticket, application fees for passports and visas, and commissions paid to the intermediate overseas employment agencies.
To examine the statistical relationship between regional income levels and emigration, the correlation coefficients are calculated as follows: For the year 1990, the correlation coefficient between provincial per capita income and total population overseas is 0.87 and that between per capita income and the share of population overseas is 0.89. These positive and high correlation coefficients suggest that, in present-day China, higher income is favourable for international emigration. It is also safe to conclude that the high-income provinces benefit more from international migration.
Destinations for labour migrants
Historically, the destinations of Chinese emigrants have been concentrated heavily in Southeast and South Asia, which accounted for about 60 per cent of China’s total outward emigrants from 1801 to 1925. Only a limited proportion reached other areas of the world, such as the American, European and African continents. This geographical concentration in Asia was probably due to transportation convenience, cultural proximity and the relative lack of language constraints.
The composition of destinations has undergone a dramatic change during the reform period. Because there is no consistent data on total emigration, the discussion focuses on workers who migrate through labour service cooperation and labour export systems. In the early years of reform, the Middle East was the primary destination for China’s labour migrants, accounting for 91 per cent (29,000) of China’s workers overseas (He, 1994). Because of oil crises and political disturbances there, the number of Chinese workers working in the Middle East declined in both absolute and relative terms. In 1991, there were only about 3,000 Chinese workers in that region (3.8 per cent). The number of workers in Iraq, for instance, decreased from 24,000 in 1982 to almost zero in 1991. A similar reduction has occurred in the numbers of Chinese migrant workers in Kuwait, Jordan and other Middle East countries (Table 8).
The significant decline of the Middle East market has been accompanied by a rise of the East Asia market (Chart 8). Hong Kong, Macau and Singapore, in particular, with almost no labour imports from China in the early 1980s, became the major labour markets in the 1990s.
Table 8. Major destination countries for China’s labour emigration (persons)
1982 1985 1987 1988 1989 1990 1991 1992 1993 1994
Hong Kong 612 3,267 3,252 4,424 6,484 6,536 19,140 23,128 34,530 35,707
Macau 245 559 2,534 6,900 9,309 7,094 11,832 9,607 21,174 31,103
Japan 89 670 1,034 1,260 1,590 2,111 4,190 6,781 7,582 9,079
Singapore 2 251 3,242 3,226 2,371 2,454 5,277 9,829 14,138 20,054
Iraq 24,185 20,895 11,403 10,807 7,294 32 — — 10 2
Kuwait 641 10,649 20,258 15,791 6,725 1 741 1,018 6,919 5,248
United Arabia 6 170 351 1,060 1,234 1,518 781 549 1,316 2,069
Yemen 2,386 3,182 2,110 1,839 1,236 1,037 994 669 898 591
Jordan 1,683 2,645 973 1,176 985 356 31 36 66 63
Egypt 19 2,167 3,465 3,816 1,283 1,325 416 57 127 36
Libya 558 2,461 1,326 1,501 1,955 1,792 1,766 756 1,439 3,634
Algeria 23 503 823 1,054 1,509 1,754 1,128 741 1,129 232
FSU — — 18 656 4,253 4,741 7,524 26,467 17,175 18,204
USA 33 743 2402 2446 3,346 5,385 6,878 3,130 7,108 7,603
Source: MOFTEC.
The former Soviet Union (FSU) is another market that experienced dramatic expansion in the past decade. The number of Chinese labourers working in the Soviet Union and then its successor, the Commonwealth of Independent States, increased from almost zero in the mid-1980s to around 20,000 in the 1990s. The FSU is now a major market for China’s labour exports, with currently about 10,000 Chinese agricultural workers there.
Chart 8. Destinations of China’s labour exports
Source: MOFTEC.
The bias toward the Asian markets as a major destination of China’s labour exports has a basis in policy as well as tradition. Lack of foreign language skill is one important barrier for the Chinese to enter the international labour markets. The massive non-English-speaking population of overseas workers must either work in the English-speaking countries, where they tend to form Chinese migrant communities, or find jobs where the Chinese language is accepted. East Asia is an example of the latter, as many Chinese labour migrants work for Chinese who migrated there in recent decades or for the descendants of those who migrated even before.
The majority of the 30 million overseas Chinese live in East Asia and a large proportion of them are entrepreneurs. Because of the national and cultural links, it is relatively easy for these overseas Chinese to make arrangements with the domestic recruitment agencies when their firms need to import labour. In fact, the business network of the overseas Chinese has been a key facilitator in the promotion of FDI to China, and China’s labour-exporting.
Another reason for this pattern is the immigration restrictions imposed by the host countries on China’s labour exports. The markets of Western Europe and North America are basically closed to Chinese labour.
Professional composition of labour migrants
China is a densely populated country with a huge pool of unskilled labour. The composition of the international emigrant population can therefore be expected to be biased toward the lower skill levels.
Several sets of data are available for analysing the occupational composition, each revealing a part of the story about China’s emigrants. Table 9 provides a summary of information under the category of labour service cooperation. The composition was calculated based on the contract values and it may therefore, show a downward bias for low skill groups.
Table 9. Occupational composition of labour migrants based on contract values
( Per cent of total )
1986 1987 1988 1989 1990
Information and computer 0.14 0.21 0.79 0.28 1.34
Medical 0.24 0.71 0.32 0.78 1.81
Other experts 1.91 2.5 3.51 1.71 1.52
Seamen 8.29 7.14 7.88 25.71 18.47
Agriculture 16.27 3.13 0.71 0.99 2.04
Chefs 24.12 24.82 29.00 26.92 34.69
Textile and clothing 7.33 10.25 7.74 13.94 8.82
Construction materials 2.44 16.38 4.72 10.48 2.46
Machinery technicians 8.25 3.74 3.59 3.78 7.28
Others 28.06 28.13 37.92 14.06 18.25
Total contract value ($ million) 170.18 240.73 358.85 431.36 478.15
Source: MOFTEC.
The largest groups of labour migrants are construction workers, textile and clothing workers, seamen and machinery technicians. While the vocations of the group "others" are not clear, it is safe to conclude that more than half of China’s labour migrants are in the low-skill occupation category and only a very small proportion can be classified as skilled workers.
Compared with the non-emigrant workers, the emigrants, on average, possess much higher skill levels. Even within the ordinary workers group as in the agricultural, construction and textile and clothing industries, the emigrants must be skilled workers in their home enterprises to be selected.
Table 10, based upon data from MOL-supervised overseas employment agencies on the number of workers they recruited in 1994, reveals basically the same story about the professional composition. Again, workers in the agricultural, construction, manufacturing, clothing, and food service sectors accounted for more than 60 per cent of the sample. Seamen, medical personnel, computer experts and research staff amounted to only 15.5 per cent.
As a group, emigrants have a very high level of education. About 86 per cent of them have had high school education and above (Table 11). It is therefore, clear that migrants in the low-skill segment of the international market largely come from the high-skill segment of the domestic labour market.
Compared to the earlier two tables, Table 11 provides a relatively more complete picture, as it covers only those who have emigrated through other channels as well as those who emigrated through labour service cooperation. But the story revealed in Table 11 may also be distorted compared to the national picture, firstly because it only covers those who went overseas holding private passports issued through the MOPS system in Shanghai, therefore omitting the sub-sample of the emigrants holding service passports. The author’s presumption is that that a sub-sample of emigrants would, on average, have higher levels of education compared to the group reported in Table 11. Another source of distortion in the table is the fact that it is likely that the average education level in Shanghai is higher than that of the nation as a whole, so the educational gap between the emigrant and non-emigrant groups is likely to be wider at the national level.
Table 10. Overseas employment by occupation and region, 1994
North South Australia & Total
Asia Europe America America South Pacific Africa Persons Share
(%)
No. of Workers 3908 183 89 150 72 252 4654 100.0
share (%) 84.0 3.9 1.9 3.2 1.5 5.5 100 ..
Agriculture 356 4 — 31 — 6 397 8.5
Construction 639 4 5 91 1 6 756 16.2
Manufacturing 939 3 1 13 21 56 1033 22.2
Clothing 68 90 — — 27 170 355 7.6
Food service 287 34 13 8 18 4 364 7.8
Seamen 314 — — — — — 314 6.8
Medical care 34 9 5 2 — — 50 1.1
Research 18 3 7 — — — 28 0.6
Computer 306 4 9 1 5 — 325 7.0
Others 937 32 49 4 — 10 1032 22.2
Source: Office for Overseas Employment, MOL.
Table 11. Education levels of emigrants and non-emigrants in Shanghai, 1990
(per cent of total persons )
Education Level Emigrants Non-Emigrants
University 53.7 7.1
High school 32.1 21.1
Middle school 11.0 34.2
Primary school 2.5 24.5
Illiterate 0.7 13.1
Average year of schooling (years) 13.6 8.2
Source: Adapted from Hua (1994).
V. The economic impact of labour emigration, and related future uncertainties
Impact on the domestic economy
In discussing the impact of labour migration upon the domestic economy, the literature generally focuses upon its effects on employment and skill formation and on remittances. Due to the lack of systemic information, a comprehensive assessment of the impact of emigration on domestic employment and skill formation is impossible. A rough estimate of the size of remittances is given below. Also discussed is the indirect impact of FDI by overseas Chinese, and their links in the international business community.
The first judgment one could reach about the size of remittances is that it cannot be significant at the national and regional levels, given the size of emigration relative to the whole population. Although China’s emigration has undoubtedly grown rapidly during the reform period, its size is still not significant within the scale of its own population or even that of much smaller countries, such as Thailand and the Philippines. The current migration only accounts for a tiny proportion of the total population.
Unfortunately, there is no data on total inward remittances, but MOFTEC officials have estimated that a worker’s average remittance is around $200 per month (as a minimum). On the assumption that only 350,000 of the estimated total of 380,000 labour emigrants send their savings back home, the volume of annual total remittance can be estimated at $840 million, which is equivalent to 0.7 per cent of China’s total exports in 1994 ($121 billion) or 1.6 per cent of Chinese foreign exchange holdings at the end of 1994 ($51.6 billion). Net foreign exchange earnings from labour exports in 1994 were similar to those from the export of some minor goods, such as furniture ($844 million), knitted or crocheted wool garments ($847 million), or coal ($771 million).
These remittances, however, can be very significant for individual households and even for some local communities. There is evidence that in some areas, the agencies use overseas employment opportunities as a poverty alleviation measure. The economic situation of the family improves quickly once a member is involved in employment overseas and starts sending back remittances. Overseas employment as a means of poverty alleviation is limited to those jobs that are not especially well paid, for which the agencies cannot recruit workers from the relatively developed areas.
In the reform era, a more significant contribution of migrant workers to the Chinese economy is the forming of links with the overseas business community. The overseas Chinese business network is quite powerful in East Asia and North America, creating many opportunities for the businessmen themselves as well as being instrumental in many economic cooperation activities between China and other countries.
In recent years, the overseas business community has played a particularly important role in the FDI in China. From the early 1990s, China became the largest recipient country of FDI in the developing world. In 1994, the realised contract value of FDI amounted to $34 billion, of which about 80 per cent was invested by overseas Chinese. The high proportion of FDI by overseas Chinese in total FDI might be unique for China. As Chinese overseas make every effort to become business practitioners or entrepreneurs, when they succeed, they accumulate capital overseas, which to some extent reduces the size of remittances. This means that wealth stays in the foreign countries rather than sent home.
A positive contribution by labour migration to the Chinese economy, such as FDI, only materialises a long period after the migration. But there is evidence that a large number of the recent emigrants in the US, Canada and Australia are actively involved in trade and other avenues of economic cooperation between China and these countries (Skeldon, 1996). Such bridge-building will prove to be valuable to China’s economic reform and growth.
Further research is required to gauge a broader picture of the impact of emigration upon domestic economic growth. The information collected for this study does not yet reveal any signs of a negative impact of emigration upon the Chinese economy.
Some uncertain factors
Future developments in China’s emigration will be affected by changes which have already taken place during the reform period, as well as by developments in the rest of the world.
Two important factors which are likely to persist are the high rate of economic growth and the low rate of population growth. The combined effects of these two factors may help to reduce emigration pressures, because of rapidly increased employment opportunities and the slower rate of growth in the labour supply. The income factor, of course, has mixed effects on individuals’ propensity to migrate. There are, however, a number of uncertain factors which might shape emigration trends in China in the next several decades.
The analysis of emigration pressure in this study has so far focused upon the supply-side factors, mainly those that resulted from changes in policy regimes, but demand-side factors are by no means less important. In fact, Saith (1996) has gone so far as to argue that emigration pressure is a problem for the North (the labour importers). The demand-side factors are undergoing significant changes and will continue to do so. As the industrialised world gradually recovers from the economic recessions of the early 1990s, the total demand for international labour migrants may rise.
Japan and the NIEs of Hong Kong, Taiwan province, Korea and Singapore have the potential to become important labour importers in the Asia-Pacific region. Japan was regarded as having reached the turning point in international migration by the late 1960s or the 1970s, while Korea and Taiwan province did so one to two decades later. These economies are already very important destinations for China’s labour exports. Of the total number of contract labourers sent under the MOFTEC system, about half went to China’s neighbouring East Asian economies: about 15.9 per cent to Hong Kong, 13.9 per cent to Macau, 9 percent to Singapore, and 4.1 per cent to Japan.
Potentially, the East Asian economies can play greater roles in China’s labour emigration, but a number of concerns and possible changes must be considered. (1) The boom of labour-importing from mainland China by Hong Kong and Macau in the 1990s has had some temporary factors behind it. The two Western colonies are to be returned to China in 1997 and 1999 respectively, after which the large proportion of China’s labour emigrants to these two economies (currently nearly 30 per cent) will vanish from international migration statistics. (2) More importantly, the current strong migration flows from China to Hong Kong and Macau are partly stimulated by the large projects being constructed there, such as the new airport in Hong Kong. Once these projects are completed, it remains a question whether emigration flows can still be maintained at their current levels. (3) The demand for imported labour is expected to rise quickly in Japan and Korea, but both have relatively strict controls over labour migration, especially for workers from mainland China. To some extent, the pressure to import labour in Japan and Korea has been transformed into pressures to relocate domestic labour-intensive industries to China and other low labour-cost countries.
The FSU is a market with great potential as well as uncertainties. The FSU currently takes about 8 to 9 per cent of China’s total contract labour. Apart from agricultural production in the Far East of the FSU, there are many opportunities in other regions and sectors. But whether the FSU can continue to play an important role in China’s labour emigration also depends on the success of its own economic reforms.
In recent years, some domestic agencies have opened up the African and Latin American markets, but another leap forward for China’s labour exports is highly dependent on its ability to open the North American and Western European markets. This seems very difficult, as both have their traditional and more convenient suppliers (Latin America for the North American market and Eastern Europe for the Western European market).
Another important arena of change relates to the demand for labour emigrants with different skill profiles. Before the 1990s, low skilled workers comprised a large proportion of total international emigrants, partly because of the boom of the construction sector in the Middle East. The recent trend is that, while the Middle East demand for construction workers declined, the demand for skilled and professional management people to work in industry increased (Athukorala 1993). This change will also impact significantly on emigration pressure in China. As the importing countries increasingly demand professionals instead of low-skill worker, the standards for potential emigrants may also rise. Language ability as well as professional skills will become important requirements.
As regards the domestic economy, a number of uncertainties exist. The major ones are outlined below.
The foremost uncertain factor relates to the stability of China’s economic policy. Succession of leadership after Deng Xiaoping is an important .issue in this context. More specifically, will China continue its open-door policy and allow labour outflow? While making predictions is always difficult and risky, especially for a large country like China, we are reasonably confident that the chances are slim that China will not reverse its open economy policies.
There are many unstable factors within the Chinese economy, such as high inflation, income inequality and uneven regional development. But the political economy has evolved since the late 1970s in such a way that it favours strong growth and integration into the world economy. Virtually no one in China can reverse this general trend. Even after the unfortunate ‘June 4th’ incident, China maintained its open-door policy and pushed forward economic reforms. International migration, as a part of its outward-looking strategy, is likely to continue to grow.
But risks do exist. Whether or not China can increase its confidence to integrate into the world economy also depends upon the attitude of the international community toward China. The difficulties in WTO membership negotiations and the often troublesome Sino-US relations may have some negative implications for China. If China closes its door again, its labour emigration might be reduced or stopped altogether. At the same time, any political, social and economic instability could trigger a massive outflow of migrants.
Further reform of the state sector and continued development of the domestic labour market will definitely release more redundant workers. It is argued that unsuccessful state enterprise reform so far relates closely to difficulties in implementing the bankruptcy law and in the dismissal of redundant workers by enterprises. The success of current reform measures in the state-owned enterprises (SOE) is yet to be seen, but the consequences for the labour market seem clear. The urban unemployment rate is expected to rise from the current 2.8 per cent to 7.4 per cent at the turn of the century (according to MOL), which may generate additional pressure on emigration (including internal emigration). But when this effect materialises depends upon China’s pace of state sector reform and labour market developments.
The regional development pattern has begun to change. The past economic boom concentrated in the coastal regions, especially in the Pearl River Delta and the Lower Yangtze River Delta. There are signs that rapid growth in these areas has gradually pushed up labour costs and caused labour shortages. For instance, in Dong Guan, one of the most dynamic cities in Guangdong province, about 10,000 enterprises are short of unskilled labour. Many manufacturers in Guangdong began to either upgrade their production structures, using relatively capital-intensive technologies or to relocate their factories to inland provinces where labour costs are still low. On the other hand, economic growth in some provinces in the central region, including Henan, Hebei, Jiangxi, Hunan and Hubei, has begun to accelerate (Huang 1996). This whole process of shifting growth centres from the coastal to inland regions may take a very long time. (The coastal region may stand permanently as the centre for China’s economic growth).
The extension of growth towards the West of China has important implications for future emigration pressures. Most current internal migrants come from inland provinces. As the inland economies gradually gain momentum in economic growth, individuals’ propensity to migrate internally may fall, while the propensity to migrate internationally may rise (thus maintaining the current relationship between income and international migration). Overall, emigration pressures are likely to fall as a result of greater regional development. Whether the inland economies can really take off in economic development and thus close the gap between the coastal regions, will be determined by many factors, including policy directions and the extent of infrastructure development.
While it is clear that China will continue its trade liberalisation, uncertainties still exist as to what trade regime China will adopt for its agricultural sector. China was reluctant to introduce a free trade regime to the agricultural sector, especially its domestic grain market, because of its strong concerns over food security. It does not have the confidence to permit domestic consumption to rely upon grain imports.
During the Osaka APEC summit in 1995, however, President Jiang Zhemin agreed in principle with other leaders to realise free trade in the Asia-Pacific region, including the agricultural sector. According to that commitment, all barriers to agricultural trade in China will be removed before 2020. China, however, does not have a comparative advantage in agriculture given to its limited per capita endowments of agricultural resources (Huang, 1995b). Free trade in agriculture would require a significant structural adjustment in agricultural production and the consequent loss of jobs for a certain proportion of agricultural labour. This factor itself may increase emigration pressures.
Environmental degradation has become an important problem for China’s economic growth. Industrial pollution has increased dramatically. Natural resources are depleted. Such factors significantly reduce people’s living standards and also impose certain limits to growth in some areas. The government has already adopted measures to protect the environment, but it is still to be seen how effective these will be. Increased environmental stress, in general, pushes up emigration pressures significantly.
China must determine a nationwide policy strategy on how to absorb the huge agricultural surplus labour, for which there are three basic options. The first is to maintain the status quo, which implies allowing farmers to move around the country to find jobs anywhere, with a significant proportion ending up in the large cities. The second option is to adopt the TVP model for rural industrialisation. Farmers would be able to leave agricultural production and find jobs in TVP enterprises without having to leave their homes. A third proposition is to develop a very large number of small cities and towns specifically for the purpose of rural industrialisation and absorbing agricultural surplus labour.
Each option has its own advantages and disadvantages, although there are indications that the third is more widely preferred. Both the second and the third options entail the goal of minimising the numbers of farmers entering the existing cities. The government’s final choice among these options will, to some extent, determine the pattern of internal migration in the future. VI. Policy recommendations
Emigration pressure is a common phenomenon in many developing countries during the process of industrialisation. In China it is combined with the process of economic liberalisation. Policies targeted at managing the emigration pressure should not only address the general issues of industrialisation and structural change, but also be accommodated in the whole reform package.
Because the emigration pressure will start to fall when per capita income reach a certain level (the turning point), policies faciliate rapid economic growth are in general favourable over long term. But at early stage of development, as China’s current situation, reform and development tend to increase the emigration pressure. Policy reforms should thus be designed careful, taking the effects on emigration pressure into account.
The economic consequences of large out-flows of labour migration are mixed, as discussed earlier. The critical issue is thus to manage the labour migration within an acceptable range, without distracting domestic economic development. Since the large pool of underemployed and unemployed was already built up before the reform started, a gradual reform approach (instead of shock therapy approach) should, in general, be favoured in order to smoothly manage the emigration pressure.
It is desirable for China to continue to limit its population growth, at least in the next several decades. This would restrict the growth rate of the labour force and make it easier for the huge underemployed and unemployed workers being absorbed through economic development.
The open door policies biased toward the coastal regions, including the establishment of the special economic zones in the coastal cities, were critical and successful in initiating China’s export-oriented rapid growth. It, however, widened the income gaps between the coastal and the inland regions. While the inland economies still face significant barriers to development such as poor infrastructure, under-developed business network, and low levels of human capital, the advantageous coastal regions, especially the special economic zones, continue to enjoy favourable tax and other policies. After nearly twenty years’ of economic reform and development, such pattern not only places the inland economies in an unfair competition position, but also results in artificially high emigration pressure.
Continuously disadvantaging the inland regions may not be in the national interest of China. As the coastal regions have already experienced nearly two decades’ rapid growth and still maintain strong growth momentum, it is about time to consider to abolish the favourable policy environment created for these regions. More policy attention should be paid to assist economic development in the inland regions. Such policies, if successful, can reduce substantially the emigration pressure and, at the same time, improve the well-being of the whole nation.
Poverty alleviation is the first step to facilitate the development of the inland regions and reduction of the emigration pressure. The Chinese government has achieved great success in lifting incomes of huge amount of poor population above the poverty line. Further policies should be designed to induce economic development in these areas instead of direct subsidy or payment.
Development of the rural industry has proven to be an effective avenue to reduce the emigration pressure and has been a good example of alleviating poverty through development. Policies should be designed to encourage further development of the rural township, village and private enterprises. As spreading all the small size rural enterprises at the backyard of farm households may no longer be an efficient approach today, it would be more sensible for the government to encourage the development of a large number of local centres, namely small and medium size rural towns and cities. Thus, farmers’ living standard can be lifted significantly by participating in non-agricultural activities without migrating long-distance to the large cities or the coastal regions. Similarly, a key issue here is how to facilitate the development of the rural enterprises in the inland economies.
A large surplus labour pool is currently still held by the inefficient state sector. Reform measures toward the state enterprises, thus, should be taken with caution. While the past gradual reforms have only achieved very limited success in this area considering the increasing losses and stagnant productivity performance, any big bang-type of reforms are not desirable in regard to the management of emigration pressure. But this should not rule out the possibility of implementing some more dramatic measures in the state sector in order to improve its efficiency. Gradual privatisation of some small and medium size state enterprises may be an effective starting point. The bottom line, however, is that an effective and efficient social security system is a ncessary condition for release of any large number of redundant workers from the state sector. Otherwise, the urban labour market could easily go out of control and the emigration pressure shoot off the roof.
The relative weakening of the central government’s economic power, especially its fiscal capacity, in the pace of decentralisation is not desirable for balancing regional development pattern and, thus, reducing the emigration pressure. Resource or revenue transfers between regions following the national economic interest have always been a key economic function of the central government. The central government, on the other hand, should not focus solely on the fiscal resources. It is equally important for the it to create macroeconomic environment, such as tax policies, to encourage the relatively developed regions to invest in the relatively under-developed regions.
In the area of management of labour emigration, it will be helpful if the legislation can be centralised at the National People’s Congress. Currently, policies regarding labour emigration are drafted and announced by various government departments, such as the MOFTEC, the MOL and the MPS, through the State Council. There is always a coordination problem. At the same time, the issue of conflict-interest exists. While both the MOFTEC and the MOL are policy-makers, their subsidiaries are also the major players in the market for labour emigration.
The exiting strict controls on issuing licenses for international labour service business represent partly the caution of the government. They, however, help the monopoly positions of the MOL and, especially, the MOFTEC subsidiary agencies or companies. This also leads to very high costs paid by labour migrants (compared to the other developing countries) and, thus, high barriers to migrate. The high costs may partly be the monopoly prices and partly reflect the high costs for a limited agencies searching for international markets. Gradual liberalisation of this market, that is to allow entry of other agencies, could help to pull down the prices or the barriers to emigrate and thus reduce the domestic emigration pressure.
Liberalisation of labour emigration market would not necessarily result in market chaos or no-protection for migrant workers’ rights. A Labour Emigration Law approved by the National People’s Congress can lay down the basic framework and principles of market operation and each party’s responsibility. Government departments (through the MOL, the MOFTEC, the MPS and the Ministry of Foreign Affairs, or a convening office under the State Council) or the People’s courts can act as the supervisors or umpire to prevent unfair competition and punish those who violated the laws or contracts. China’s successful experiences in liberalising export market are useful for reform of the labour emigration market. Increased labour emigration through market liberalisation would reduce the emigration pressure. References
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