Labor Institution Transition in China's State-Owned Enterprises—The Reflection of Soft Budget Constraint

• Main Authors: Fu-Yu Chi, 紀芙玉
• Other Authors: Jen-Der Lue
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/96350317995401241890

碩士 === 國立中正大學 === 社會福利所 === 94 === The rapid growth of the Chinese economy has attracted much attention from the globe. With economic globalization and China’s economic reform, foreign investment has been flowing into China due to its rich resources, including raw materials, land and inexpensive labor force. Industrial products made in China now can be seen in any part of the world. The dramatic growth of China’s economy is largely attributed to Dong Xiaoping’s market reform in 1978. By introducing a free market system, China’s domestic economy has been growing sharply. In the transitional process, the role of private sector has become increasingly important both in labor market and in the fiscal system. On the other hand, under the soft budget constraint, the state-owned enterprises (SOEs) do not have the ability for competition and innovation. As the economic transition has been strictly monitored by the state, the government is responsible for the cost of the transition. This has been a challenge to the central government. SOEs played an important role in the early times of national building. The state developed and nationalized heavy industry, and controlled their governance, to assure its control over re-distribution of resources. The state assigned job positions to works and provided life-long employment. In addition, the state’s welfare system provides protections ‘from cradle to grave’. These all helped to improve people’s loyalty towards the state. However, after market reform in 1978, the noble position of SOEs declined. The policy of marketizing SOEs’ has brought problems on redundant laborers. The state adapted the ‘laid off’ strategy in response to this problem. This strategy has linked the redundant laborers to the unemployment insurance. Up to this stage, the so-called three levels of social protection system -- the ‘laid off’ workers’ basic income security, the unemployment insurance, and the minimum living standard system – has been accomplished. In 2003, the dual system of labor redundancy and unemployed merged, and redundant workers are protected by the unemployment insurance. The state reinforced SOEs’ managerial ability, and at the same time split their welfare obligations. The state provided subsidies to SOEs to offset their cost induced by economic transition and to reduce social cost. Theoretically, market economy will result in hard budget constraint. However, due to subsidies provided by the state, the soft budget constraint system has survived within the SOEs. This has resulted in the existence of many idle laborers in SOEs. Laid off workers faced the problem of identity transfer after being made redundant. During this period, SOEs provide protection for their living standard through labor protection. This has resulted in mass fiscal burden on the SOEs, and has become an obstacle for SOEs’ move towards market economy. This is the reason that the state has maintained the soft budget constraint strategy in response to the declined profits of SOEs and the cost of turning ‘laid off’ into unemployment protection, to combat the worsening unemployment problem. This research argues that the market transition and the separation of SOEs and employment protection are the main factors that have contributed to the state’s subsidies to unemployment insurance through soft budget constraint. The strategy of soft budget constraint has also changed the relationship from central authority to the cooperation between central and local governments and SOEs.