Modernising China's social security system is the key to further reform of state-owned enterprises (SOE), according to one of the architects of the changes.
Vice-Premier Wu Bangguo told the China Business Summit yesterday that the creation of a social safety net was vital to support people who could be laid off as the reforms continued.
Reforming China's SOEs is seen as essential if the economy is to thrive after more sectors are opened up to foreign competition when the mainland joins the World Trade Organisation.
But Beijing no longer has the resources to pay laid-off workers a comprehensive welfare package if they lose their jobs in the restructuring. So it is moving from a 'pay-as-you-go' welfare system to an insurance-based one.
Mr Wu - who is one of the leaders of the programme to reform the SOEs - said creating a stable system was the biggest obstacle standing in the way of further modernisation. 'The biggest worry is the state [social] security system because without that it is impossible for enterprises to exit from the market,' he said.
Mr Wu also pointed to market irregularities and the deteriorating world economic climate as other obstacles to further reform of the SOEs. 'It will take time for us to establish the Social Market system which can help prevent shoddy and fake goods, and protect against the breach of intellectual property rights,' he said.
He told the summit - which is sponsored by the World Economic Forum - that the slowdown in the world economy would also take its toll on the Chinese economy, but he was confident the strength of domestic demand would help to compensate.
He said China would build 1,200 kilometres of railway lines and 2,200km of roadways each year to help boost domestic demand.
'We will insist on the expansion of domestic demand as a long term strategic principle,' Mr Wu said. 'We have a large domestic market so we are confident about future developments. We have to expand domestic demand.'