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To the extent that the Chinese government delayed the painful restructuring of SOEs until 1995, rising urban discontent, mainly fueled by increasing unemployment in the cities, was only to be expected. Nevertheless, unemployment in the Chinese context was fraught with political risks because of the huge number of laid-off and unemployed workers who had lost their jobs in bankrupt SOEs, the flimsy social safety net provided by the Chinese state, the drastic fall in their standard of living, and their low reemployment rate. Government figures show that during 1996-2000, urban SOEs shed 31.59 million workers while collectively owned enterprises (COEs) dismissed 16.48 million workers.157 This massive wave of layoffs helped drive up unemployment rates in the cities. According to a CASS estimate, the real unemployment rate in 2002 was 7 percent, twice the officially reported rate (official data on unemployment excludes laid-off workers and redundant workers in SOEs).158 Unemployment hit workers in manufacturing particularly hard. Manufacturing workers accounted for 83 percent of all laid-off workers.159 A large proportion of the laid-off workers were middle-aged and had low skill and education levels.160

For SOE employees, a social group considered relatively privileged because of the generous benefits and job security before the mid-1990s, the loss of social status resulting from unemployment was precipitous and widely recognized in the cities. A poll of more than two thousand residents in sixty cities conducted annually by a research group at CASS found that, starting in 1997, respondents began to identify workers in SOEs as the group that had benefited the least from reform; they were followed by peasants and migrant laborers, two low-status social groups in China. Similar polls conducted in 1998 and 1999 yielded the same results.161

More important, laid-off workers experienced an instant and drastic decline in their standards of living. In 2000, per capita income in the families of laid-off workers was about 55 percent of the average per capita income in urban arcas.162 In some areas, the loss of income was even more severe. In Changchun, a city in China’s rustbelt in the northeast, per capita income in the households of the workers who had been laid off was only 26 percent of their pre-lay-off level.163 For most of the laid-off workers, the government provided very limited support. In 1998, for example, only half of the laid-off workers regularly received minimum unemployment benefits from the government.164 Unemployment benefits were inadequate even when they were paid. When asked how they make ends meet, only 2.3 percent of the laid-off workers in Tianjin surveyed said they relied on government support. In Changchun, only 5 percent would count on the government to solve their economic difficulties. In Liaoning, unemployment benefits accounted for less than 7 percent of the income for laid-off workers in the late 1990s.165 To survive, most laid-off workers cut down their spending, depleted their meager savings, and borrowed from relatives and friends.166

The government’s efforts to reemploy laid-off workers were largely unsuccessful. Most of the laid-off workers found government-run reemployment programs ineffective. In Tianjin, only 13 percent of the laid-off workers found work through these programs.167 Nationwide, reemployment steadily declined. In 1998, half of the laid-off workers were reportedly reemployed. In 1999, the reemployment rate fell to 35 percent; it declined to 26 percent in 2000 and plunged to 11 percent by mid-2001.168

The combination of an inadequate social safety net and low reemployment rate directly contributed to the rising poverty rate among laid-off workers. A study of more than two hundred incidents involving industrial workers’ collective protests in late 2003 found that about 80 percent of such incidents were prompted by restructuring of SOEs, unpaid wages, arrears in unemployment and health benefits, and post-bankruptcy unemployment.169