Anhui province is encouraging its debt-ridden state-owned enterprises to set up service companies to employ their laid-off workers.
To prevent social unrest, companies have been ordered to continue workers' insurance schemes even after they find another job.
Anhui, one of the poorest provinces in eastern China, recently issued a directive saying state-owned enterprises that formed service companies for their laid-off workers would be exempted from corporate taxes for some years, Xinhua (the New China News Agency) said.
Registration fees would be cheaper for service firms and they would have priority when it came to getting business licences, the agency said.
To encourage surplus workers to accept redundancy, those who organised themselves to provide social services would also be exempted from all charges for three years.