Chinese people have a thing for working for “the system.” Officialdom as the natural outlet for good scholars has been shaping people’s mindsets since the feudal era. Although globalization and the opening up of the economy might have cooled this fanaticism somewhat among university graduates, the post-2008 era has seen a resurgence of this obsession.
Previously popular private sector employers including foreign firms have gradually lost their appeal amid heavy layoffs and salary cuts following the global financial crisis. In a recent survey conducted by ChinaHR.com, a major online recruitment agency, 53% of graduates surveyed said they hoped to land a job at a state-owned enterprise, or SOE. This is only the latest evidence that state employers are firmly back in favor.
While the allure of the state is understandable – fixed working hours and generous benefits are hugely appealing – young graduates’ preference for the state sector is worrying for the economy. If fewer graduates are willing to work in the non-state sector, then private companies that are the biggest employers and drivers of innovation are at risk of losing out on top talent, which could hurt China’s competiveness.
“This affection towards the system is dangerous as talented graduates flock to SOEs, fewer smart minds are supplied to the private sector [that] is in dire need of capable young men,” Wang Xiaozhang, a professor of sociology at Zhejiang University, told the state-run People’s Daily in an interview.
Before the financial crisis, the wind blew in a different direction. The pre-2008 era saw soaring affection towards private and foreign enterprises among fresh graduates. Foreign employers were, for a time, the byword for humanized management, high salaries and carried an excellent reputation. Working at a foreign firm was seen as an honor, whereas work at an SOE was often deemed repetitive, menial and unchallenging with low pay; ambitious and capable graduates mostly ignored such roles.
The 2008 financial crisis disrupted this new employment order. In the eyes of many graduates the crisis fundamentally revealed private and foreign firms’ vulnerability amid economic turbulence: Propelled forward by a bullish economy, they could also be destroyed by a sluggish one. Disillusioned, graduates soon came to realize that a high salary today could transform into unemployment tomorrow. There is no security in the private sector: After the storm struck, they sought refuge in the arms of the state.
Chinese society’s fondness for the “iron rice bowl,” a cradle-to-grave employment and welfare system created under the planned economy and dismantled in the 1990s, is storming back against the broad background of a slowing economy. Not only is economic growth at its lowest in over a decade but a surge in the number of university places in the same period means there are more graduates competing for jobs.
“If I need to die, I would try anything to die in the system,” has become a popular phrase on social media among struggling and increasingly insecure graduates. Because state firms dominate vast and strategically significant sectors including infrastructure, defense, telecoms and, to a significant extent, finance, it is assumed that the government would keep SOEs alive to ensure the normal functioning of the state in bad times – meaning that state employees would be the last to lose their jobs.
But even in good economic times a job at an SOE is lucrative. Government policies have the power to make or break businesses and whole economic sectors, and this uneven allocation of resources has elevated SOEs to an elite status. China Mobile and Bank of China were cited as the most sought-after employers among students graduating from university this year, according to a separate poll by ChinaHR.com. Telecoms and banking, which are basically monopoly sectors, were the most attractive fields to work in, the survey found. On the whole the average employee works stable hours with no overtime on weekends and their job is essentially assured.
Yet the biggest attraction of working at an SOE for recent graduates goes beyond comfortable hours and a steady pay-check. Many of China’s young want to live and work in the big cities, where economic growth is mature and residents have the benefit of the best healthcare and education services that the country can provide. More than four-fifths of respondents to the first survey said they want to find work in a first or second-tier city.
“Met with an elementary school classmate of my husband’s today who has just moved upward from a local branch of an SOE in his hometown to work at the firm’s Beijing headquarters. The company has moved the family’s seat of registered residence to Beijing, which solves the kid’s education problem,” Rachel, a resident of Beijing, wrote in a post on her Sina Weibo microblog earlier this year.
Under China’s housing registration system, known as hukou, only people registered in a city can access local welfare benefits. In late July the central government announced its latest plans to reform this system, but the restrictions won’t disappear overnight. Foreign and private firms are often not able to arrange a hukou transfer for their employees, something that SOEs with political connections can easily fix.
A frothy housing market also makes state employment a prize target. A decade ago it was still reasonable for a new graduate with a decent job to buy a home, even in a big city like Beijing, but as prices have skyrocketed newer grads have been priced out. Employees at SOEs have access to cheap housing through the so-called welfare housing allocation system. Smart graduates have the calculation correct: They may not see streams of money flowing into their pockets today, but it will eventually be decent and the hidden reduction of expenditure is considerable.
Salaries at private and foreign firms are generally higher than at state enterprises, although so are the pressures. In recent years long working hours and high pressure have begun to define private sector employers, so much so that the higher salaries they offer have gradually lost their appeal once calculated at an hourly rate.
For many graduates, however, working within the system means political connections that can come in useful further down the line. This is in some ways the biggest and most pervasive source of the brain drain from private to state sector.
“Working for a government company like this gives me access to important people and connections I can use when I set up my own company,” said David, an early thirty-something employee at the Shanghai branch of a major Chinese national aircraft manufacturer who holds a PhD in aviation engineering from a top British university. David, who comes from a wealthy family, works in the client relationship department of his company in which he has no need to apply his technical skills. “A price I am willing to pay.” He asked for his and his employer’s identities to be kept hidden.
Academics are worried that this uneven allocation of resources could eventually transform into an unbalanced distribution of talent in the long run, leaving the private sector to wither even more and suppressing creativity and innovation.
“Young people longing for stability suppress a country’s energy and innovation,” said Chen Bulei, a professor at Southwest University of Political Science and Law “First-class talents should pursue innovative, challenging and high-return careers in order to set the country on the track of constant innovation,” Chen told People’s Daily.
The importance of attracting top minds to the private sector should not be underplayed.“China’s private sector generates most of the country’s employ
ment opportunities,” Bill Adams, senior international economist at PNC Financial Services, told China Economic Review. “Even more than its direct contribution to job and GDP growth, China’s private sector has been instrumental in making China’s economy more productive, more efficient, and more responsive to market forces.” According to official data from 2013, private firms create more than 90% of new jobs in China.
Policymakers at the highest levels are becoming increasingly aware of the need to support a healthy private sector. The slowing economy has forced the new administration under President Xi Jinping and Premier Li Keqiang to push ahead with cutting red tape, boosting funding to SMEs and improving vocational training to make sure the country is producing the workers that the economy needs.
In the meantime the reach of the state sector is, as the government and state media continue to announce, being scaled back. Last November’s Fifth Plenum was the trigger for a series of SOE reforms this year that include opening 80 projects to private capital and trial programs to make state firms operate more like market-focused entities. Critics say not enough is happening to make these plans a reality.
Yet the role of the private sector is slowly evolving, unlike under the previous political administration that did much to advance state interests. Private firms are growing, driving innovation and absorbing talent. Even a major psychological barrier among risk-averse graduates appears to have been broken. In a survey published in April by Universum, an employer branding consultancy, the number of Chinese university graduates looking to work at a startup in 2014 almost tripled from a year earlier, while the number of people looking to start their own firm also inched up.
It is simply too early to tell whether this trend can hold or indeed become strong enough to steer more graduates towards planning their careers in the private sector.
A desire to start their own business might be less to do with the enterprising spirit of graduates and more about frustration at the lack of opportunities at existing companies, either private or state-owned. The start-up boom is relatively new in China and young people are attracted by the huge potential rewards on offer if they join the right project; but as this field matures and they realize that most startups will fail and leave them without the promised riches, working for China’s SOEs, many of which are booming, will turn heads once again.
As long as university leavers prefer to work for government companies, private firms will continue to suffer. “Competition with state-owned enterprises, who have a reputation for offering good compensation, job security, and work-life balance, puts increasing pressure on domestic and foreign private employers to offer their Chinese workforces better compensation, job security, and work-life balance,” noted Adams. Most simply can’t afford to compete.
Young Chinese people’s obsession with security, stability and the desire to work for an SOE reveals the imperfect reward mechanism for employment outside the system, according to Chen. There has to be change. “We need to eliminate unfair advantages provided within the system and add more security to the private sector.”