Government Subsidy in Unemployment, An Applaud Approach?

Anchor: Small enterprises provide a good portion of the job opportunities here in China, yet, they are generally among the first to be affected in an economic restructuring. To that end, the Chinese government is now plannig to allocate part of the unemployment insurance fund to assist small enterprises during financial difficulties, in a broader effort to keep the job market stable.

Wang Jing has more.

The unemployment insurance system in China has long been criticized for its lack of benefits and limited coverage, and above all, its inability to prevent people from losing their jobs and its inability to help them get re-employed.

Therefore, when the government took the initiative to give subsidies to small enterprises, by either cutting their insurance rates or funding training programs, the move was widely hailed by many experts.

Lv Xuejing, professor with the Capital University of Economics and Business, says the practices were initiated to help small enterprises that were on the verge of collapse in 2008, when the Wenchuan earthquake coincided with the global financial crisis.

She says the practice marks a breakthrough in the current unemployment insurance system.

"What we were doing was to provide premium when one loses job, about several hundreds yuan. But as to using the money to promote employment, particularly to help enterprises take the responsibility not to cut jobs, there was no such practice, nor regulations on it. The earthquake and financial crisis prompted the government to make the change. To some small enterprises, the subsidy helped them survive."

Her judgment is based on the premise that a good portion of China's unemployment insurance fund is not being utilized effectively.

Currently, employers are required to pay 2 percent of their total payroll into the fund, and individuals need to pay 1 percent for the premium. This makes up the biggest chunk of the unemployment insurance fund in the country, which, after decades of accumulating service fees, has now reached around 150 billion yuan or about 22 billion US dollars in total.

Lv believes that large stockpile of cash needs to flow back to companies and individuals when they need it the most.

However, some experts are concerned that the subsidies may unintentionally help companies that otherwise wouldn't survive market conditions.

Steve Barker is Deputy Leader of the International Technical Assistance Team of a cooperated project by EU and China on social security reform.

"It depends on one thing, that is the eventual competitiveness of that particular enterprise, because if the government is supporting the enterprise, without that support, the company will grow out of business, then that's a different thing, if they support the particular enterprise, and that is going to develop and grow, then obviously, that's a good investment, so the question is once we withdraw the subsidies, what will happen to the company."

Barker stresses what should be in place first is an evaluation criteria to make sure that the investment in the company is worthwhile. He notes this kind of evaluation system isn't in place right now here in China.

For CRI, I'm Wang Jing