Trade and Employment China s Development Process

Trade and Employment China s Development Process Marion Jansen Chief Economist International Trade Centre A presentation at: WTO Public Forum Session: Shanghai WTO Affairs Consultation Centre and Fudan University: Trade and Employment China s Development Process Date: 2 October 2014

2 China: a successful export-led growth and employment creation strategy? Share of China's merchandise exports in world exports 12 Implied employment from exports grew by 28.5% in China in the period 1995-2009 2 4 1990 2000 2010 Annual GDP growth from 1989 2014 has averaged 9%

3 Adjustment challenges inherent to a successful development process Observed and expected adjustment processes in China s labour market The importance of skills and education for the next stage of the development process The role of Chinese SMEs in globalization and employment creation

4 Adjustment processes in China s labour market

Structural change in China: An increasing weight of services 5 Decade Agriculture Mining and utilities Manufacturi ng Construction VALUE ADDED Wholesale, retail, restaurants and hotels Transport, storage and communica tions Business activities, finance, housing, personal, public services 1970s -5.1 0.7 6.7 0.6-2.0-0.5-0.3 1980s -3.4 0.8-8.0 0.1 3.6 1.9 5.0 1990s -11.8 3.8-0.1 1.2 1.5-0.4 5.8 2000s -4.3 0.5 0.8 0.2-0.4-0.7 4.0 EMPLOYMENT 1990s -4.2 NA -2.2 1.9 3.1 0.7 3.8 Percentage change of sector s contribution to the economy

Structural change in China: More to come? 6 Evolution of the share of employment per sector, BRICS Share of Agriculture Industry Services world exports Brazil 1995 0.9 26.1 19.6 54.3 Brazil 2009 1.2 17.0 22.1 60.7 China 1995 2.9 52.2 23.0 24.8 China 2008 8.9 34.6 27.2 33.2 India 1994 0.6 61.9 15.7 22.4 India 2010 1.5 51.1 22.4 26.5 Russia 1995 1.6 15.7 34.0 50.0 Russia 2008 2.9 8.6 28.9 62.4 South Africa 0.5 15.6 24.2 59.4 2000 South Africa 0.5 5.7 25.7 68.6 2009 World Trade Report 2013

Adjustment in labour markets: More to come? 7 Rural-urban migration in millions Today-2025 1979-2009

Adjustment in on export side: Already moving to the next stage? 8

9 The importance of skills and education policies

10 Skills are important for exports Export diversification is higher in countries with higher levels of schooling Exporters have higher skill needs Cadot, Carrere, Strauss Kahn (2011) Exporters have higher skills needs Skills are important for growth. The more open an economy, the more important skills are for growth (Woessman, 2011) WB enterprise survey: Bangladesh, 2007

High numbers of highly educated will enter the Chinese labour market in the coming years Double challenge: 7 million graduates will enter the labour market in 2014. It is estimated that 15% of them will not have found a job within six months after leaving university 11 Create jobs for migrants from rural areas (low skilled?) Create jobs for highly educated new job entrants

Skill mismatch: an phenomenon on the increase? Skill mismatch: Skill mismatch in country X (no need to name here but not China) 12 High unemployment among the skilled Firms complain about lack of access to skilled labour Goes often hand in hand with high youth unemployment

13 Avoiding skills mismatch Provide skills that make students/workers adaptable: maths, reading and understanding, ability to employ knowledge in different settings. Provide specific skills that employers are looking for: skills anticipation mechanisms are needed. Public-private sector collaborations At sectorial level? Institutional set-up adjusted to country specificities

14 The role of Chinese SMEs in globalization and employment creation

15 Small and Medium-Sized Enterprises in China 90 per cent of all firms are SMEs 60 per cent of GDP is produced by SMEs 75 per cent of industrial value added output is produced by SMEs 75 per cent of urban employment opportunities are provided by SMEs 50 per cent of workers laid off from state owned enterprises are absorbed by SMEs 70 per cent of new labour market entrants are absorbed by SMEs (Lei Zhang and Wei Xia, 2014)

16 SMEs often find it hard to go global Lack of access to finance, including trade finance. Obstacles that take the form of fixed costs hit them disproportionally. Examples of such fix costs are myriad and include: fix costs to certify products or to make export products cross the border; investments in new technology Investments in market research or in setting up distribution channels abroad. Costs to protect their intellectual property. More on this in forthcoming ITC-WTO report on SME Competitive ness and Aid for Trade Small internal labour pool and therefore reliable on availability of skills from the formal education system.

17 High quality business environment Low costs for exports to cross border Access to information about market opportunities SMEs with viable business strategies expand and contribute to diversification and growth Access to pool of skilled labour Low costs to protect intellectual property Gains from globalization are transmitted from large to mediumsized to small enterprises => export led growth becomes more equitable and more sustainable Access to finance for promising investments

and to sum up 18

19 Trade and Employment: China s Development Process Much has changed; more change to come but Chinese proverbs continue to be valid When the wind of change blows, some people build walls, others build windmills