Time to invest in human resources

Despite the fact that cheap labor is one of the greatest advantages of the Chinese economy, mechanization is becoming increasingly prevalent. And, given the national campaign to make China an innovative country by 2020, this process is likely to accelerate.

This is certainly the case at Decision, a chemical company in Southwest China's Sichuan Province that, following the introduction of an automated production line last year, notched up impressive financial results.

"It's magic, as only two technicians can finish the work which used to be done by about 30 workers," said Decision President Peng Xiancheng, whose company has grown into a leading private business in Deyang, the province's economic hub.

As part of measures to promote innovation, this country has been offering tax breaks in order to encourage the purchase of domestically manufactured production lines. That may help boost profits, but it will also mean a loss of jobs.

In this new round of reform which started at the beginning of last year, companies, instead of the government, are being encouraged to play a more central role in the country's research and development (R&D) activities with increased fiscal investment, tax breaks and even governmental procurement being put in place.

However, less attention is paid in the policy package announced in March 2006 to helping farmers and the poor improve their scientific literacy and ability to cope with technological changes. And during the implementation of this package in recent months, farmers and needy people have enjoyed far less benefits than the corporations.

If the government doesn't sense the urgency of this situation and adjust this policy imbalance, farmers and the poor will be far too unskilled to find jobs in upgraded or new workplaces, their income will not increase rapidly enough and the growing social divide will be further widened.

Already alerted by current economic and social inequality which may result in social unrest, China's leadership is unwilling to see this scenario materialize. As a result, it has put social harmony high on its agenda as we head toward 2020.

In its science policy, China has learnt two important lessons over the past 30 years. One is that its market, no matter how huge its potential, cannot lead developed countries to sell core technologies to a country with such poor scientific literacy. The other lies in the inefficiency of its R&D and its inability to efficiently put the results of its research into production due to too much government involvement in these activities.

Meanwhile, China badly needs to change its current development model, which relies heavily on huge consumption of resources and energy but constrains the supply of them, to sustain its economic miracle of 9.7 per cent average annual growth over the past 28 years.

As a result, these pro-business institutional and economic measures came up. And the companies, especially those in manufacturing, energy,information technology and agriculture, may get the lion's share of R&D investment. Its ratio to GDP is going to rise to 2.5 percent in 2020 from 1.34 percent in 2005.

But these measures, which are aimed to sustain this economic growth miracle, cannot necessarily lead to rosy employment prospects, especially for the poor. The shortage of skilled workers that has arisen in the country's economic powerhouses in eastern and southern China has already started to sound alarm bells.

And generally, the situation in China is that strong economic growth has not been matched by equally strong job creation.

The International Labor Organization said that while China's GDP grew 38.3 percent between 1999 and 2003, only 4.3 percent additional jobs were created.

China's low labor absorption partly reflects a long-term structural change from employment-intensive growth to capital-intensive growth, especially in industry. And the current innovation strategy will accelerate this trend, which means that economic growth will result in the creation of fewer jobs than ever before.

However, China's huge population is forecast to increase to 1.6 billion by 2030 from the current 1.3 billion, 60 percent of them still living in rural areas, 135 million struggling in poverty, and only 0.7 percent of its farmers having basic scientific literacy.

Nobel laureate Arthur Lewis already pointed out in the 1950s that when people move from low to high productivity activities, income inequality first rises and then falls. Consistently improving the skills of its masses of poorly educated workers will help solve employment problems resulting from innovation and technological advancement.

Given China's experience in successfully tackling the Asian financial crisis in 1997 and ensuring its long-lasting economic boom, this country can make it if it is determined enough. Since 1998, huge amounts of treasury bonds have been invested in roads, ports, embankments and other infrastructure.

It should now invest in human resources. Issuing treasury bonds as vocational coupons for farmers and the poor is an option. What's more, China has boasted of its massive financial coffers and huge foreign reserves.

The central government decided to invest 1.1 billion yuan ($137.5 million) in 2007 in science training in rural areas and it is a 53 percent increase from 2006. But that means about five farmers, on average, can receive training worth $1 in 2007 on the condition that there should be a 100 percent guarantee of no embezzlement in the process.

It is necessary to at least double or even triple this investment. Thorough supervision of this investment is also vital.

tags:economy  research and development  shortage  skilled workers  population  science  

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