State-Owned Enterprise Reform and the Wave of Layoffs

Background: SOE Distress and the "Three-Year" Goal

By the mid-1990s, under the combined pressures of intensifying market competition, heavy historical burdens and overcapacity, large numbers of state-owned enterprises were losing money. In the mid-1990s the center adopted the policy of "grasping the large and letting go of the small" — concentrating on improving large SOEs while freeing small and medium-sized ones through reorganization, mergers, leasing and sale. In September 1997 the CCP Central Committee set an explicit three-year target for SOE reform: within about three years, through reform, reorganization, technical upgrading and better management, to lift most loss-making large and medium-sized SOEs out of difficulty. Zhu Rongji — Vice-Premier, and Premier from 1998 — was the principal driver of this round of reform. Cutting staff to raise efficiency and "laying off and redeploying" workers became a key means of turning enterprises around, and vast numbers of employees left their jobs as a result.

Re-employment Service Centers and the "Three Lines of Protection"

On 9 June 1998 the CCP Central Committee and State Council issued a circular on ensuring basic living security and re-employment for laid-off SOE workers (Zhongfa [1998] No. 10), requiring every SOE with laid-off workers to set up a re-employment service center. According to the State Council Information Office white paper of 2002, laid-off workers who entered a center received a basic living allowance and had their social insurance contributions paid by it for up to three years; those still without work afterwards could draw unemployment insurance for up to two years; and those still in difficulty could then apply for the urban minimum living allowance — the so-called "three lines of protection."

Scale

According to the same white paper, from 1998 to 2001 a cumulative total of more than 25.5 million workers were laid off from state-owned enterprises, of whom more than 16.8 million found new jobs. China Economic Weekly, citing the China Labour Statistical Yearbook, put the cumulative number of laid-off workers over the years at about 30 million. The impact was concentrated in old industrial bases: heavy-industry cities in the Northeast and industries such as textiles in cities like Shanghai were hit hardest. In Shanghai alone, by incomplete count, more than one million state-sector workers were laid off from the 1990s onward, most of them severing their employment through a lump-sum "buyout of years of service."

Worker Protests in the Northeast

Unpaid wages and pensions, inadequate compensation and opaque restructuring procedures provoked many collective protests during the layoffs. According to a 2002 Human Rights Watch report, from March to May that year well-organized workers' protests broke out in three northeastern cities — Liaoyang in Liaoning, Daqing in Heilongjiang and Fushun in Liaoning — bringing tens of thousands of laid-off, unemployed and retired workers from dozens of factories and mines into the streets. Their demands included payment of wage and pension arrears, higher severance, and a restored role for workers' congresses; local governments paid some arrears while deploying large security forces and detaining some organizers.

Winding Down and Assessments

Around 2001 the government announced that the three-year goal of lifting SOEs out of difficulty had been largely achieved. On 6 April 2003 the State-owned Assets Supervision and Administration Commission (SASAC) was formally established, opening a new phase of SOE reform centered on the management of state assets; re-employment service centers were subsequently closed and laid-off workers gradually moved into the unemployment insurance and social security system. Official accounts present the period as one in which SOE reform was pushed forward smoothly while a social security system was still being built; researchers and those who lived through it focus more on the price paid by tens of millions of workers who lost their "iron rice bowl," and on the long-term social consequences for old industrial bases such as the Northeast.