Since China's radical attempts at economic reforms began in 1998, millions of people have lost their jobs. The government is well aware of the political implications of unemployment.
China's welfare system has reached a crisis point after dramatic changes to the country's economy left millions out of work. Attempts to repair the damage have been too little too late, and ministers are concerned about social unrest.
When China opened up to the rest of the world in the early 1980s it began its transition to a market economy. Reforms to state enterprises began in the late 1990s, and many workers found their skills were no longer needed in the new-look industries.
The impact has been huge: between 1998 and 2001, over 25.5 million people were laid off by state enterprises, says the Information Office of the State Council, China's cabinet. In April this year the government predicted unemployment will triple in the next four years.
Before structural reforms, most people worked for the state, either in a state-owned company, factory or institute. Reforms ended the 'cradle-to-grave' system that made state-owned enterprises responsible not only for their employees' life-long employment, but also housing, medical expenses, pension, and even children's schooling.
Now the social security services can meet only about five per cent of the country's new demand, says Wang Zhikun, chief of the Social Relief Department at the Ministry of Civil Affairs – the department responsible for social services.
The system used to target the elderly, disabled, orphans and families of 'revolutionary martyrs', mostly rural dwellers. "Urban workers were guaranteed [security] through their employment, known as the 'iron rice bowl'," says Wang Zhikun.
But the reforms have taken a lot of iron out of the bowl, and many urban workers now face an uncertain future.
Recent government figures put the urban unemployment rate at 3.6 per cent for end-2001, but State Council estimates show the figure to be closer to 10 per cent. The Council expects it to worsen in 2002 after China's accession to the World Trade Organisation in December 2001, which brings with it further restructuring.
Li Jigang is a 48-year-old engineer from the south-western city of Chongqing, a centre for heavy industry that has suffered massive job cuts. He was laid off in 1997 after the armoury he used to work for shifted to civil products. "All my skills became outdated," he says.
Li's factory gave him a redundancy payment, but "the sum was eaten up in two years, and my wife became jobless when her textile mill was closed."
To help families like Li's, the Chinese government launched a programme in 1997 to provide a basic living allowance for urban residents who lost out in the reforms. By February 2002, 13 million people depended on it for survival.
"The basic living allowance is designed to ensure that the urban poor and an unemployed family's income does not drop below the minimum living standard of a locality," says Wang Zhikun.
This standard varies from city to city. In Beijing the figure is about $34 a month, but the national average is just over $18.
Despite the extra injection of cash, Wang says China's social security system has lagged far behind the country's economic and social changes.
"Having worked well under the planned economy for almost half a century, this system is confronted by a contradiction between an acute shortage of money and the growing demand for social welfare and pension services," he says.
In April, deputy minister of labour Wang Dongjin warned of serious consequences when he announced that rising unemployment "could well undermine our social stability".
"The government has been transferring back to society and family many of the welfare functions it had previously undertaken," says Sarah Cook, a British researcher at the Institute of Development Studies, University of Sussex, currently on secondment to the Beijing office of the Ford Foundation. She has examined China's social protection system in her paper, 'After the Iron Rice Bowl, Extending the safety net in China'.
She says in urban areas, healthcare has become a major concern among laid-off workers. Under current health insurance reforms, both the employee and the state employer have to make insurance contributions.
Unemployed workers, who cannot pay their own medical insurance contributions, face unaffordable health bills. The increasing costs of medical care and education means that families with children, the sick or elderly face particular difficulties.
Failure to invest in human resources, Cook warns, will end in "long-term" social costs to society.
Li from Chongqing shows how true this is. "I dare not see a doctor ever since I lost my job. I'm afraid I can not afford even medicine if I get seriously sick, since the bill is quite steep."
Zhu Ling, deputy director of the Economic Institute of the Chinese Academy of Social Sciences in Beijing, agrees with Cook. "Laid off workers who as a whole used to be regarded as the leading class feel betrayed by the government. Unless the government takes a close look at the medicare problem, social stability is unlikely to be maintained for long," she says.
Reforms are necessary, agrees Wang Zhikun. But he maintains that the introduction of the basic living allowance is the first step to reforming the existing social security system, along with help from charities.
A professor of political economy with the People's University in Beijing who does not want his name used, says: "In the long run, the basic living allowance programme can't work out, because you simply can't expect it to solve the unemployment problem."
Sarah Cook considers that the basic living allowance is "perhaps the most important short-term response of the Chinese government to the growth of urban insecurity and poverty. It is in part driven by fears of social unrest."
Fearing the prospect of unrest, the government this year has poured an additional $550 million into the basic living allowance programme.
According to the British Broadcasting Corporation, China has seen several large demonstrations by angry workers and pensioners this year. In March, up to 80,000 retired workers protested in the north-eastern towns of Daqing and Liaoyang, about unpaid pensions. Other demonstrations over unpaid wages took place in May and June.