Job creation and job destruction in China during 1998–2007

This paper examines the patterns of job flows in China between 1998 and 2007, when restructuring and reform of state-owned enterprises (SOEs), China's acceptance into the World Trade Organization (WTO), and rapid economic growth all took place. Using the firm-level employment data reported in the Annual Survey of Industrial Enterprises, we find that net employment in the Chinese manufacturing sector has been expanding since 2002 at an average rate of 5.4%. The underlying forces of this are the simultaneous job creation and job destruction affected by not only the reforms on SOEs, but also the changes in the foreign trade environment. Increasing China's openness to international trade and engagement in the global economy has affected the rate of job reallocation significantly and extensively. It is clear from parametric analyses at the industry level that trade liberalization has encouraged job creation and generated net job growth and that the depreciation of industry-specific real exchange rates has led to a significant increase in net employment by reducing the rate of job destruction.