Liaoning Governor Bo Xilai admitted it would be an immense challenge to the province.

'This is a difficult task,' Mr Bo said. 'It is difficult because it is complex and [Liaoning] is short of capital.'

Instead of making employers manage the unemployment fund, the new system will be administered by financial managers. Various parties, including employers and employees will contribute to the scheme. It will also cover medical and retirement insurance.

Although China is a socialist country, the Government has started developing a social security system only in recent years. Workers had cradle-to-grave welfare provisions in the Maoist-era but many state-owned enterprises - the majority of them in heavy debt - have not honoured their pension and medical commitments in recent years.

According to Xinhua, another salient feature of the new experiment was that China would formally begin to define workers laid-off by employers as 'unemployed' and drop the misleading term xiagang , which roughly translated means 'stepping down from work'.

The Chinese Government expected massive lay-offs three years ago when it invented the term. Under such redundancy arrangements, the workers are allowed to keep their employment relationship with their employers.

Under government rules, workers who have 'stepped down'from work are qualified to receive monthly assistance for up to three years from retraining centres in their areas.

However, researchers say many of these centres operate under a quota system and often there is no money to pay the workers.

They have criticised the arrangement, saying it merely postpones the inevitable pain and complicates the labour market.