IS unemployment a serious problem in China, or isn't it? If China's official statistics are to be believed, the urban unemployment rate has fluctuated by less than one per cent over the past decade, reaching 2.9 per cent of the 166 million work force last year, or about 4.8 million people. Economists usually consider an unemployment rate of less than three per cent to be full employment. But many economists say the actual urban unemployment rate is at least three times the official figure, while the total number of unemployed in China could be as high as 150 million if surplus rural labour is included. Unemployment of that magnitude has the potential to derail China's gradual transition from a planned socialist economy to a market one, if it is allowed to get out of control. Concern is not limited to Western economists either. Li Yining, one of the mainland's foremost economists and a member of the National People's Congress, recently declared that 'unemployment is more frightening than inflation' - China's public enemy No 1 in recent years. Earlier this year, a senior labour ministry official predicted in the official China Daily Business Weekly that unemployment in state-owned enterprises could more than double this year as the government allowed more hopelessly indebted ones to go bankrupt. Tao Dong, a mainland-born, Western-educated economist at Schroders Securities in Hong Kong, also took a pessimistic view. 'This is going to be the biggest headache for the Chinese government in the next 10 to 20 years.' But the big numbers of unemployed do not necessarily add up to an explosive unemployment problem for China in the short term, or point to a deterioration of the overall economic situation. According to the labour ministry's own statistics, China's urban unemployment rate stood at 2.8 per cent for the first six months of the year, with about 4.8 million people out of work. The ministry also reported that another nine million workers were 'waiting for positions', or redundant. Adding up the government's own numbers would give an urban unemployment rate of about 10 per cent. Ma Guonan, a senior economist at Peregrine Brokerage, said a sharp increase in the unemployment rate should not frighten anyone. Rather, it was a welcome signal that the long-awaited process of streamlining state enterprises to improve their efficiency and control their debts had finally begun. What is more, a statistical jump in the unemployment rate would not necessarily mean that unemployment has worsened. Official unemployment statistics focus on the state sector and urban youth, and only include urban workers who have registered as unemployed at a local employment agency. Moonlighting has also become common among laid-off workers in the cities, and the private sector has grown exponentially since Chinese patriarch Deng Xiaoping launched his market reforms in the late 1970s. Between 1978 and 1993 the number of private sector jobs and entrepreneurs leaped from 200,000 to 11.2 million, and may have reached 12 million last year, according to Peregrine's estimates. 'Our concern is not that urban unemployed may double; rather, we worry that the layoffs may not materialise, further delaying overdue state-owned enterprise reforms,' Mr Ma said. Nicholas Kwan, senior economist at Merrill Lynch in Hong Kong, said the rural under-employment problem had actually improved greatly since 1978 - declining from 35 per cent to about 25 per cent. The main reason: the emergence of rural township and village enterprises. These labour-intensive manufacturing operations employed 28 per cent of the rural work force in 1993, up from just eight per cent in 1978. In the past two years, however, increasing competition had put more pressure on township enterprises to operate efficiently. The wealth gap between urban and rural workers and between coastal and inland areas had also widened sparking resentment and prompting at least 50 million rural labourers to migrate eastward. Urban household incomes were 2.6 times larger than those of rural households last year while inland provinces continued to bear the greatest burden of unemployment. Qu Hongbin, an economist with Smith New Court Far East said the serious unemployment pressures must be viewed in the context of a fundamental shift in the attitude of Chinese labourers. 'They realise that it doesn't matter whether they have been fired or not, they'll eventually lose their jobs if their factory is not making money,' he said. But the government at all levels is not taking any chances. Huizhou, a city in Guangdong province, reported an official unemployment rate of just 1.1 per cent last year. Nevertheless, in an internal report last month the government revealed that about 100,000 workers, or about 38 per cent of the work force of state-owned and collective enterprises, were redundant. Even more worrisome was that over 40 per cent of the redundant workers were over 40 years old and had not graduated from middle school, and about 64 per cent had been laid off for more than one year. The report concluded that the unemployment rate and the number of strikes and demonstrations would rise dramatically in the next few years as more workers were laid off in the process of enterprise reform. At the central government level, Beijing has set a target of finding jobs for eight million unemployed and redundant workers over the next five years. Guangdong, with its booming economy and large capacity for absorbing excess labour in the non-state sector, plans to slash the number of unemployed by one million over two years. Huizhou has a goal of re-employing 100,000 people over the same period. The Huizhou government said it would insist that individual enterprises take most of the responsibility for finding new jobs for their redundant workers, instead of adding them to the list of the officially unemployed. It would also place stricter limits on the number of people from other cities and provinces migrating to Huizhou in search of jobs because that greatly increased competition in the local labour market. New regulations guaranteeing that local residents be given priority in the fight for jobs would be drafted. Following guidelines issued by the Ministry of Labour, Huizhou also pledged to increase the number of job training classes, provide more information about job openings and establish new social service offices, which can provide jobs for many people with relatively little investment. China has toyed with various forms of unemployment benefits since the mid-1980s, most notably allocating aid and small cash grants to the unemployed to help them support themselves. But provincial and local governments are realising that these sums are far from adequate as the difficulties and dangers of the unemployment problem mount. Guangdong has announced it will create an employment fund for redundant and unemployed workers with money from financial allocations and fund-raising and by re-allocating a portion of the unemployment welfare grants and administrative costs. But until the government publicly admits the magnitude of the problem, many doubt that measures to handle it will come quickly, or have their desired impact on a large scale.