cheap labor. He explains why.

China’s economic restructuring should be more focused on industrial divisions from a macro perspective, saying adjustments of the three industries’ weights in the national economy.

Figures of 2006 reveal that, primary, secondary and tertiary industries accounted for 22.8, 48.7, and 39.5 percent of entire national gross domestic product (GDP), and occupied 44.8, 23.8 and 31.4 percent of the total employed population, respectively.

It should be noted that China’s agricultural industry remains a major composition of the national economy, and the high proportion of rural population determines the destiny of the majority of economically disadvantaged farmers. On the other end of the spectrum, the number of people engaged in industrial production does not match the industry’s overall scale in GDP. The tertiary industry, which is able to create enormous employment opportunities, is comparatively lower in GDP composition in China, indicating the smaller job market it provides.

Despite China’s soaring economic progress, an oversupplied labor market remains a big challenge, particularly when the massive invisible underemployed in the country’s rural areas is concerned. Thereby, the structural problem facing Chinese economy is not a shortage of labor, but a shrinking market demand on cheap labor as a result of industrial upgrading.

Since it ushered in the 21st century, when a knowledge-based economy has been unprecedentedly advocated, Chinese authorities have also prioritized hi-tech industrial development. The knowledge- and information-intensive hi-tech industry, however, may reduce job opportunities in that machines and high technology can replace human beings. As the hi-tech industry extends, knowledge-based production is highly enhanced, and simple labor will gradually be eliminated, guiding huge incomes into pockets of more competent workers, and subsequently an increase of unemployment of unskilled laborers. Actually investments in hi-tech R&D are very likely to end with nothing profitable, and thus a hi-tech industry-oriented economic structure could not be sustainable.

Indeed, China needs adjustments on reduction of agricultural output in total GDP and a leap in the tertiary industry to strengthen its employment capacity. As far as industrial departments are concerned, the labor-intensive manufacturing sector, rather than hi-tech industry, should be put in the first place for more job opportunities to accommodate surplus labor forces transferred from farming. An overemphasis on hi-tech development is not suitable for China’s reality; in fact it may cause loss of the competitive edge in the international labor division, worsening the current economic structure, and enlarging the income gap.

On how to make adjustments, the government should give the market a bigger role. In essence, economic and industrial restructuring demands reallocation of resources, where market adjustments are poised to be more efficient than administrative interference. Yet the government still has a big role to play in consolidating the institutional foundation of the market economy, to bolster the adjustments led by market and enterprises.

In the short term, policies are expected on free movement of industrial elements, in particular, the labor force transfer from rural to urban areas, in addition to the establishment of a more integrated market, more complete information network, and necessary subsidies to low-income industries.

In the long run, state budgets on education and R&D work, where private and corporate investments are scarce, should be reinforced for better public welfare. Only if the government takes on its due responsibilities in the adjustments, will a more innovative nation forecast, and will structural progress from low-end processing to high-end knowledge-based industrial pattern be made possible.