Reform of lVocational Educafion and 19774 Training in China October 1998 Country Study Summary THE ECONOMY With a population over 1.1 billion, China is the world's most populous country. It has achieved considerable success in reducing its population growth rate, from an annual rate of 1.8 percent in the 1970s to 0.9 percent. While a The broad majority of the population continues to lve in rural areas, urban population growth rates exceed four percent annually and about a third of Chinese now live in urban areas. While still a low income country; China has made I o th great strides in social indicators since the 1970s. Infant mortality rates have more than halved, the average life poicy of the expectancy has risen to 69 years, adult illiteracy rates have fallen to 27 percent, and net enrollment rates at the G i primaiy level are now close to 100 percent. Goernment IS Economic reforms have been successfully pursued since 1978. Initially they focused on improving incentives in agriculture, and allowing the market to play a greater role in rural areas, but over the past fewyears authorities have to move to a accelerated the reform process and opened up the economy with a much stronger commitment to liberalizing the urban industrial sector. GDP growth has been phenomenal over the last decade. Between 1984 and 1993, GDP grew market system, at 10.5 percent per year, spurred not by agriculture but by the industry and service sectors which grew at more than 12 percent annually. China's stabilization policies of 1994 and 1995 have proved successful in reducing inflation, but the major and in 1995 the economy grew at over 10 percent. Labor market liberalization started relatively late in the reform process, and, although progress has beenmade, labormarkets still retain some of theirpre-reformfeatures. issue is whether THE LABOR MARKET an effective and China's labor force is predominantly rural (see table 1). In urban areas, state-owned enterprises (SOEs) and collec- e tives (COEs) account for about 85 percent of employment. Unemployment is low by intemational standards-only efficient market 2.9 percent of urban la- Table 1. Labor Market indicators, 1980-1994 force in 1994--and system can be has remained low since (In millions, unless othewise specifsed) 1980. There have been, achieved Indcator 1980 1985 1990 1994 hoever, significant shifts labor supply 429.0 501.3 571.2 619.5 in the composition of la- through a Labor demand bor demand. In rural ar- Total 423.6 498.7 567.4 614.5 eas, ibfI°ization of non-small Urban 105.3 128.1 147.3 168.0 agnprocesslaofitsmall % State,-owned 76.2 70.2 70.3 66.7 led to rapid groth in off- changes while % Collecives 23.1 25.9 24.1 19.2 farm employment in en- e % Privae o0.0 03 1.1 6.5 terprises. In urbanaeas, maintainingat % Sefemnployed 0.7 3.5 4.5 7.3a more pemissive stance the Rural 318.4 370.7 420.1 441.5 towards the private sector %Agriculture 89.0 81.9 79.4 67.5 encouraged ashift in the existing % Other 11.0 18.1 20.6 32.5 composition of employ- %Olter 11.0 18.1 20.6 32.5 ~ ~~ment away from SOEs srcue Uneployed (urban*) 5.4 2.5 3.8 5.0 and G wards pui- % of labor supply 4.9 1.9 2.5 2.9 an d C Eterpris vately-owned enterprises Noe: * Zero unyment is ausm for nual a=es. and self-employment FiLE COPY 0 China Country Study Summary 2 Aggregate trends hide the imbalances in the Chinese labor market. There is a substantial degree of under- employment reflected in large numbers of redundant Table 2. Educational Enrollments workers in SOEs and COEs in urban areas and a large (Nors) and growing labor surplus in agriculture and collec- tives. Authorities calculate that about 15 percent of the level and 7)pe 1980 1990 1994 workforce in SOEs and 30 percent of agricultural labor Prnary 146.3 122.4 128.2 is surplus. If the number of surplus workers in SOEs Juniorsecondary 45.4 39.2 43.8 alone were added to official estimates of urban unem- Senior secondary ployment, the measured unemployment rate would rise General 9.7 7. 6.6 to about 12 percent. But, there are also shortages of Specialized 1.2 2.2 3.2 skilled workers in the cities, which have emerged fol- sws 0.7 1.3 1.9 lowing rapid economic growth. Vocational education svs 0.3 2.5 3.4 and training (VET) has an important role to play in Higher 1.1 2.1 2.8 addressing these labor market imbalances. THE VOCATIONAL EDUCATION AND TRAINING SYSTEM Primary education gross enrollment ratio reached 98 percent in 1994. Secondary education is divided into junior and senior levels. Junior secondary enrollment ratios have risen from about 60 percent in 1980 to 75 percent in 1994. Senior secondary schools can be general or "vocational". The latter includes secondary specialist or technical schools (STS), skilled worker school (SWS), and secondary vocational schools (SVS). Since 1980, general senior secondary enrollments have dropped at over two percent annually as these schooL have been converted into vocational schools. General senior secondary schools now enroll less that 50 percent of senior secondary students, down from 80 percent in 1980. Enrollrment in higher education institutions has more than doubled since 1980 to almost 3 million (see table 2). Vocational education Overall responsibility for the STS and SVS, and for coordination of SWS, rests with the State Education Commission (SEdC). Much of VET is provided by the education system at the senior secondary level, by labor bureaus in states and municipalities, and by SOEs. STSs and teacher training schools are run by central technical ministries, SOEs or provincial and local education bureaus, SWSs are under the Ministry of Labor and are adrninistered by central industrial mninistries, local labor bureaus, and enterprises. SVSs are administered by local education bureaus. Since 1980, enrollments in specialized secondary schools and SWSs have grown at an annual average of 10 percent, and in SVSs at 17 percent. Education levels in SVSs, which originally enrolled prinlary school graduates but since 1979 have enrolled lower secondary graduates, are rising. But education levels in STSs have been falling: in 1994, only 20 percent of the intake were senior general secondary school graduates comnpared to 30 percent in 1990. Vocational education is also provided to adults outside the regular school system. Since 1985, STSs and SVSs have been encour- aged to develop and expand enrollment in part time and short courses for workers to upgrade skills or be re-trained. About 50 nillion adults-out of a total of 60 million undergoing vocational education-were enrolled in these schools in 1994 of which 95 percent were in technical training schools. Vocational training In addition to the SWS, local labor departments also operate Employment ltaining Centers (ElCs) which provide short-term training courses (less than 6 months long for unemployed youth and workers. Enrollment in these was 3 million in 1993, of which about 75 percent were first-time jobseekers. Only one million were reported to be employed 3 China Country Study Summary after completing training. The tinistry of Labor issues regulations governing the ETCs, but it appears that they remain relatively uncontrolled in terms of the content and quality of their training. All operations are financed through tuition fees and other earnings, capital grants from the labor bureau and subsidies from the unemployment insurance fund. Enterprise based training Most large and some medium SOEs also operate Enterprise Training Centers (ENTCs), to meet their own training needs. Many ENTCs do not have workshops so practical training aspects are normally carried out in the factory. 'hile no nationwide data is available, municipality level evidence indicates that such training is widespread and short. For example, in 1992. the municipality of Dalian was reported to have about 2,500 enterprises with about 1,500 ENTCs. In Wuhan, more than 70 percent of trainees attended prograns shorter than three months. 70 percent of the training is provided for workers normally employed by the enterprise owning the ENTC. The regulations governing ENTCs are determined by technical ministries to which the parent enterprises are responsible. There is no national standard for courses, other than those provided for general education. The broad policy of the Government is to move to a market system, but the major issue is whether an effective and efficient market system can be achieved through a process of small changes while maintaining the existing structures. Management There is some overlap due to unresolved issues related to the management of the VET system. SVSs and SWSs both have three year training programs catering to junior secondary leavers; while the ENTCs provide general education as well as secondary technical and vocational school programs. STSs and SVSs increasingly offer short specialist courses for worker upgrading and retraining, as do ENTCs. Although responsibility is being decentralized to provin- cial and local governments and enterprises, some central placement is continuing. A more thorough reform of the organization and management of vocational education and training would devolve responsibilities to the training institutions in a clearly defined manner Costs SEdC has proposed that 2,000 new vocational schools be established by the year 2000. This represents an increase in the capacity of the vocational and technical schools by about 15 percent. The investnent required over the five year period to establish these schools will be about 8 billion RMB per year, which is about eight times the annual capital expenditure on primary and secondary education. This does not account for the needs of the other 14,000 vocational and technical schools, which are sorely in need of rehabilitation because of inadequate financing. Widespread con- version of secondary general schools into vocational schools is partly responsible for this problem: average unit recurrent costs in 1994 were 2,500 RMB per year in STSs, and 1,600 RMB per year in SWSs and SvSs, which are higher than those in general upper secondary education. Financing Analysis of the source of financing for a sample of schools revealed that about 53 fercent of revenue for recurrent expenditure came from the governmenL But there were wide variations, as the share of government finance ranged from 37 percent to 64 percent, while that of tuition fees ranged from 2 percent to 38; percent. About 6 percent of the sample's operating revenue was obtained from income derived from school owned, enterprises. But, some school- owned factory workshops derived profit from special benefits, including low interest loans for investment, freedom from taxation and other controls, and monopoly rights for supply of services. China Country Study Summary 4. Relevance and responsiveness Enrollments in SVSs and STSs reflect the changing sectoral pattern of employment. Enrollment in SUSs reflects the predominantly industrial orientation of the enterprises to which they belong. These institutions graduate about 2 million students per year which is 17 percent of the total net annual increase in employment. While employment guarantees have been removed, graduates sponsored by enterprises and provincial and local governments are ab- sorbed in these organizations on completion. NOTABLE REFORMS AND OBSTACLES A frarnework for reform of VET was established between 1985 and 1993 with proposals to increase the proportion of students entering senior vocational education to 60 percent of entrants; generalize curriculum in vocational schools; and encourage enterprises, government departmnents, individuals and communities to set up training institutions. Obstacles One major obstacle to these reforms is the cost of improving or expanding training facilities. Just to expand the formal vocational education by 10 percent would require an annual expenditure of 10 percent of total (recurrent and capital) education budget, which is unrealistic given that education already has more than 15 percent of the government budget. The other obstacle is institutional capacity at the center. Given the vast size of the system, and regional variations in the demand for skilled workers, a centralized planning approach is infeasible. Under these circumstances, China has followed a pragmatic strategy relying on decentralization, greater cost sharing, and en- couraging private provision. Decentralization Management has been devolved to provincial, county and city levels. While the State Plamning Council and SEdC continue to set targets for vocational and technical school intake, in practice school managers have a good deal of freedom and power. Greater cost-sharing and private provision authors Trainees and enterprises have voluntarily bome the burden of training in high growth regions, because schools have successfully adjusted programs to meet local demands. Nongovemment budget spending for vocational education Prepared by Amit Dar and has grown rapidly and now accounts for half of total recurrent expenditure in some of the provinces. Private higher Indermit Gill, based on and secondary level education and training have been officially encouraged since 1993. By 1994, about 2.5 percent 'Reform of Vocational of SVS enrollment was private, andprivate training centers provided more than 5 percent of all training. Education and Training Reform in China' by Peter Improve coordination through local funding mechanisms Fallon and Gordon Hunt- The government is experimentingwith the establishment of funds for in-service training. Under apilot project, each ing, prepared for the Bank- of five municipalities will set up coordinating committees which will manage a Vocational Training Fund (VITF) ILO Study on 'Constraints which will become the channel for all municipal financing for provision of in-service training. The vocational and Innovations in Reform training coordination comrmittee will include representatives from government, enterprises, vocational schools and of VET. For copies of the other training organizations. The VIF will make grants on a competitive basis for the delivery of triing, to both paper or others in the public and private training providers, against criteria of quality, demonstration of market demand, and cost and series please contact outcome benefits. VrF revenues will come from the unemployment insurance fund, education tax and general Indermit Gill via email at budget for training. igillliworidbank.org or by telephone at 202-473- 3449. * I