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Modern China
DOI: 10.1177/0097700409333158
2009; 35; 405 Modern China
Philip C. C. Huang
China's Neglected Informal Economy: Reality and Theory
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405
Author’s Note: My thanks to Kathryn Bernhardt, Christopher Isett, Yusheng Peng, Fangchun
Li, Yu Shengfeng, Xia Mingfang, and two referees for their helpful comments on the Chinese
and English versions of this article.
Modern China
Volume 35 Number 4
July 2009 405-438
© 2009 SagE Publications
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China’s Neglected Informal
Economy
Reality and Theory
Philip C. C. Huang
People’s University of China
University of California, Los Angeles
The informal economy—defined as workers who have no security of
employment, receive few or no benefits, and are often unprotected by labor
laws—in China today accounts for 168 million of the 283 million urban
employed, but the official statistical apparatus in China still does not gather
systematic data on the informal economy. Part of the reason for the neglect
is the misleading influence of mainstream economic and sociological theo-
ries, which have come from the “economic dualism,” “three-sector hypoth-
esis,” and “olive-shaped” social structure theories that held great influence in
the United States in the 1960s. This article reviews the core elements of that
modernization model, the “revolution” in development economics that fol-
lowed in the 1970s and 1980s, and the “counterrevolution” from neoclassical
economics that came with the rising ideological tide of neoconservatism. The
article argues for a balanced theoretical perspective that can more appropri-
ately capture the realities of the informal economy today.
Keywords: statistical data; economic dualism; informal economy; develop-
ment economics; neoclassical economics; social justice
The “informal economy” has grown dramatically worldwide in develop-ing countries since the 1970s, a phenomenon highlighted by agencies
like the International Labor Organization (ILO) of the United Nations,
the “Social Protection Unit” of the World Bank, and the Nobel Peace Prize
selection committees. China, with marketization of its economy, has become
part and parcel of this worldwide phenomenon in reality, even while its
state statistical apparatus continues to neglect the informal sector. This
article examines the available empirical evidence and analyzes how the
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406 Modern China
same phenomenon has been differently understood by opposing economic
theories. It calls for setting ideological excesses aside to bring out genuine
insights, and joining those together to form a balanced theoretical perspective.
China’s Informal Economy
The informal economy has become the largest sector of nonagricultural
employment in developing countries and has drawn greater and greater
attention from development economists. In “asia,”1 it has grown to about
65 percent of the total nonagricultural employment (and 48 percent in
North africa, 51 percent in Latin america, and 78 percent in Sub-Saharan
africa), according to the authoritative study by the ILO (2002). Even
though the ILO has yet to take China into full account (in part because of
want of data), this phenomenon has become undeniable in China of the
marketizing reform era, even by its own sparse official data: in 1978, there
were only an insignificant 15,000 employees outside the formal sector; by
2006, that figure had exploded to 168 million, out of a total urban labor
force of 283 million, to make up 59.4 percent of the total (Zhongguo tongji
nianjian, 2007: 128-29, Table 5-2; cf. Hu angang and Zhao Li, 2006). The
proportion occupied by the informal economy continues to expand in China
and throughout the developing world, a fact that has been underscored by
numerous studies, including those of the Social Protection Unit of the
World Bank (see, as examples, Blunch, Canagarajah, and Raju, 2001;
Canagarajah and Sethuraman, 2001; and Das, 2003).
The ILO, first established under the League of Nations in 1919 and
awarded the Nobel Peace Prize in 1969 for its championing of social justice
for laborers, defines the informal economy and its workers sensibly and
practically: as workers who have no security of employment, receive few or
no benefits, and are often unprotected by state labor laws.2 For China, the
best example would be the 120 million-odd nongmingong (peasant-workers)
employed in the cities and towns, “leaving both the land and the home vil-
lage” (litu lixiang), and another 80 million locally employed, who “leave the
land but not the village” (litu bu lixiang).3 The great majority of these 200
million nongmingong do not enjoy official urban resident status and take the
hardest, dirtiest, and lowest-paid work shunned by urban workers.
They work both in the formal economy as temporary, low-paid workers
without benefits and outside the formal economy in small, so-called private
enterprises (siying qiye, 私营企业; more below),4 or as self-employed getihu
(个体户), or simply as unregistered laborers in a great variety of pursuits
(more below). Indeed, the ILO, which had focused in the 1970s and 1980s
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Huang / China’s Neglected Informal Economy 407
on an “informal sector” conceptualized as separate from and outside of the
formal sector, has since emphasized the need to include workers who are
employed in the formal sector on an irregular basis. It has accordingly
revised the informal-sector concept into a broader one, the informal econ-
omy, to take account of both those working informally inside the formal
sector and those working outside the formal sector (ILO, 2002).
Statistical data for China’s informal economy are still relatively unde-
veloped, unlike for countries like India, Mexico, and South africa, whose
governments have worked together with the ILO to reorient their statistical
categories and procedures to take full account of the informal economy.5
For China, the best way to obtain an overview approximation of the infor-
mal economy is to start with the National Bureau of Statistics’ (NBS) figure
for the total of urban employed persons (chengzhen jiuye renyuan, 城镇就业
人员), which is based on the reliable 2000 population census that included
rural migrants who worked in the cities for more than six months a year,
and deduct from it the numbers of regular employees in the officially reg-
istered and counted formal entities reported annually through the enter-
prises to arrive at the number of employees in the urban informal economy.6
Thus, for 2006, we start with the NBS’s count of 283.1 million total urban
employed persons, deduct the 114.9 million persons who are employed on
a regular basis (i.e., the zhigong, 职工, or regular staff and workers) in dif-
ferent kinds of formal enterprises according to the categories used by the
NBS (i.e., “state-owned units” [guoyou danwei, 国有单位]; “collective
units” [jiti danwei, 集体单位]; “cooperative units” [gufen hezuo danwei, 股份合
作单位]; “joint ownership units” [lianying danwei, 联营单位]; “limited liabil-
ity corporations” [youxian zeren gongsi, 有限责任公司]; “share-holding cor-
porations limited” [gufen youxian gongsi, 股份有限公司]; those “with funds
from Hong Kong, Macao, and Taiwan” [Gang Ao Tai shang touzi danwei,
港澳台商投资单位]; and “foreign funded units” [waishang touzi danwei, 外商
投资单位]; Zhongguo tongji nianjian, 2007: 138, Table 5-7), and arrive at the
figure of 168.2 million employees in the urban informal economy, both
registered (as so-called private enterprises and self-employed getihu) and
unregistered, as shown in Table 1.
Most of the 168.2 million employees of the urban informal economy come
from the 120 million-odd nongmingong working in the cities, for which our
best source is the authoritative “Summary Report on China’s Nongmingong
Problem” (“Zhongguo nongmingong wenti yanjiu zongbaogao,” 2006), com-
piled at the instruction of Premier Wen Jiabao and under the leadership of the
Research Office of the State Council, with the collaboration of a
host of government units and scholars, and based on the systematic samp-
ling of 68,000 households from 7,000 villages in thirty-one provinces
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408 Modern China
(and municipalities and regions).7 according to that report, 30.3 percent
(or 36.4 million) of the 120 million work in manufacturing and another
22.9 percent (or 27.5 million) in construction, making for a total of about
64 million nongmingong who work in the urban “secondary industry.” In
addition, a total of about 56 million nongmingong work in the urban “tertiary
industry,” that is, services, including 10.4 percent, or 12.5 million, in “social
services,” such as domestics, guards of residential compounds, barber shop
and massage parlor personnel, delivery persons, garbage collectors, street
cleaners, and so on; 6.7 percent, or 8 million, mainly service personnel in
hotels or hostels and eateries; 4.6 percent, or 5.5 million, in wholesale and
retail trade, mainly small shops, stalls, and vendors; and so on.
These nongmingong are second-class citizens who do not have regular
urban resident status. They are generally low paid and work for few or no
benefits. according to the “Summary Report,” the average annual wage of
these peasant-workers in 2004 was 780 yuan a month, and the average
number of hours worked was eleven a day. In other words, while working
nearly 50 percent more time than regular urban laborers, they received an
average of just 60 percent of the pay. among them, just 12.5 percent
worked with some kind of a contract. Only about 10 percent had medical
insurance, and only 15 percent had retirement benefits.8 Many worked in
small informal enterprises or else were self-employed, with no protection
from labor laws or state-organized labor unions. Without urban resident
status, many had to bear the added burden of no health benefits and special
school fees for their children. From their ranks came the great majority of
the 700,000 odd laborers crippled that year by accidents at work. These
basic facts are confirmed by a host of other smaller-scale studies.9
They are also confirmed in the main, if not in all particulars, by the third
of three systematic international income surveys carried out for the years
Table 1
Urban Employment by Registration Status, 2006
Registration Status Number Employed (in millions) %
Employed persons 283.1 100
Formal workers and staff 114.9 40.6
Informal workers
Private enterprises 39.5 14
Self-employed 30.1 10.6
Not formally counted 98.6 34.8
Source: Zhongguo tongji nianjian (2007: 128-29, Table 5-2), Zhongguo laodong tongji nian-
jian (2007: 13, Table 1-8).
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Huang / China’s Neglected Informal Economy 409
1988, 1995, and 2002, involving collaboration between scholars from
abroad and those of the Chinese academy of Social Sciences, called the
Chinese Household Income Project. Those surveys took a subsample of the
NBS household survey, using modified criteria intended to overcome some
of the limitations of the NBS survey.10 For 2002, the survey covered a
sample of 9,200 rural households in 120 counties and 6,835 registered
urban households in seventy cities and included a subsample of rural
migrants living in urban areas. That survey found that that migrants earned
on average 50 percent less than urban residents,11 even without taking into
account differences in number of hours worked or differential access to
health services and education (gustafsson, Li, and Sicular, 2008: 12, 29;
Khan and Riskin, 2008: 76).
In addition to the 120 million nongmingong, there are about 50 million
regular urban residents who work in the informal economy, as shown in
Table 2. Many of those are disemployed (xiagang, 下岗) workers who had
lost their previous jobs in state-owned or collective enterprises and who
now work mainly in the tertiary industry of services. Solid and comprehen-
sive data are lacking, but to judge by a fairly systematic sampling of the
disemployed workers of fifty-five cities in seventeen provinces done in
1997 at the height of the xiagang phenomenon, the majority were “middle-
aged” (64 percent ages 30 to 50) and of relatively low educational back-
ground (56 percent with only a grammar school or lower-middle school
education; only 5.7 percent had received a higher education in universities
or technical colleges). The majority ended up working in the informal ser-
vice sector in transport and trade, eateries, social services, and the like; in
small so-called private enterprises; as self-employed individuals; or in the
kinds of jobs that are just one rung above those taken by the nongmingong.
Only a small proportion of those surveyed (4.7 percent) believed they had
“benefited greatly” from the government’s program to retrain and place
disemployed workers (“Chengzhen qiye xiagang zhigong” ketizu, 1997;
see also Ministry of Labor and Social Security, [2002] n.d.).
In terms of registration status by ownership form, the 168.2 million
laborers of the urban informal economy include a total of 69.6 million who
are officially registered, of whom 39.5 million work in registered so-called
private enterprises and another 30.1 million as registered self-employed. as
already noted, 98.6 million are simply not registered (with the State
administration for Industry and Commerce; see Table 1).
The so-called private enterprises are officially defined as enterprises
owned by “natural persons” (ziranren, 自然人). They therefore do not
include “limited liability corporations” or “share-holding corporations lim-
ited” that have corporate “legal person” (faren, 法人) status; enterprises
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410 Modern China
“with funds from overseas Chinese in Hong Kong, Macao, and Taiwan”; or
“foreign funded enterprises,” all of which may be considered “capitalist”
(and, of course, also not those registered as state-owned, “collective,” or
cooperative enterprises). They must therefore not be confused with what
the term private enterprises would suggest in the american context, that is,
all nongovernment enterprises. These Chinese “natural persons-owned”
private enterprises in fact account for just 14 percent of all urban employed
persons and should definitely not be equated in any sense with the whole
or the predominant part of Chinese “capitalism” (Zhongguo tongji nianjian,
2007: 128, Table 5-2).
They are almost all small businesses. In 2006, there were a total of
5 million such entities registered, of which those registered in the cities and
towns employed a total of 39.5 million workers (and those registered in
“rural” areas, 26.3 million), making for an average of 13 workers per enter-
prise (Zhongguo tongji nianjian, 2007: 150, Table 5-13).12 according to the
sixth systematic sampling survey of these enterprises done (once every two
or three years since 1993) in 2005, with questionnaires completed by one per
thousand of these units throughout the country, just 1.13 percent of the enter-
prises were larger entities that employed over 100 workers.13 The great
majority were small-scale enterprises averaging, we have seen, just 13
workers per enterprise. The largest proportions were in manufacturing (38.2
percent), shops and eateries (24 percent), social services (11.1 percent), and
construction (9.1 percent). Workers in such informal units generally enjoy
little in the way of benefits or job security or labor law protection (“Zhongguo
siying qiye yanjiu” ketizu, 2005).
To be sure, the “employed persons” of these 5 million small private enter-
prises include their owners, who might be considered small-scale private
Table 2
Urban Employment by Registration Status and
Nongmingong versus Urban Residents (in millions)
Registration Status Number Employed
Total 283.1
Formal 114.9
Informal 168.2
Nongmingong 120
Urban residents 48.2
Source: Zhongguo tongji nianjian (2007: 128-29, Table 5-2); cf. “Zhongguo nongmingong
wenti yanjiu zongbaogao” (2006).
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Huang / China’s Neglected Informal Economy 411
capitalists, as well as a small number of highly skilled and well-paid indi-
viduals. But the great majority of the 39.5 million persons included in the
category are common employees working for less favorable terms than
those in the formal economy.
as for the 30.1 million listed as urban self-employed getihu, they, together
with another 21.5 million “rural”-registered getihu, worked in a total of 26
million such entities nationwide in 2006, to make up an average of 1.9
employed persons per entity—generally the person registered, often working
with a relative or friend or two (Zhongguo tongji nianjian, 2007: 151, Table
5-14). These “self-employed” persons include small-shop and stall owners,
old- and new-style artisans and apprentices, proprietors of small eateries and
food stalls, repair shop owners, and the like. Employment in such entities, of
course, generally does not come with benefits or job security.
Finally, there are the nearly 100 million unregistered urban informal
employees. They operate at even lower levels with still less job security,
many of them temporary help, such as domestics, home-based workers
(like seamstresses and laundresses), delivery boys/girls, apprentices, street
vendors, and the like. Together the three main groups of the informal
economy (private enterprises, the self-employed, and the unregistered) add
up to a composite picture of low pay, little job security, few or no benefits,
and no protection under state labor laws—that is, our definition of the
major characteristics of the informal economy.
These 170 million urban informally employed persons may be seen as
at the level, or just a rung above, the 80 million peasant-workers who are
locally employed in rural, nonagricultural informal units, including indi-
viduals working in the “township and village” industries (the secondary
industry) and sundry services (the tertiary industry), especially transport
(such as people hauling goods by truck, small tractor, pedicab, bicycle, or
animal or human power) and trade (owners of small shops or stalls, itiner-
ant vendors), and social services (traditional and semimodern and modern
artisans, barbers, repairmen, and so on). These 80 million, of course,
qualify fully as a part of the informal economy by our definition.14
Outside of the above, there are just under 300 million persons engaged
mainly in “agriculture” (in the broad sense to include forestry, husbandry,
and fishing and not exclusive of periodic involvement in commercial activi-
ties, as the NBS explains; Zhongguo tongji nianjian, 2007: 463, Table 13-4).
These peasants may of course also be counted among those in the informal
economy, according to our definition, for they enjoy few b
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