Economic crisis in Southeast Asia? specific situation

In June 1997, a financial crisis broke out in Asia. The development process of this crisis was very complicated. By the end of 1998, it can be roughly divided into three stages: June to December 1997; January to July 1998; and July to the end of 1998.

The first stage: On July 2, 1997, Thailand announced that it would abandon the fixed exchange rate system and implement a floating exchange rate system, triggering a financial turmoil throughout Southeast Asia. On that day, the exchange rate of the Thai baht against the US dollar fell by 17, and the foreign exchange and other financial markets were in chaos. Affected by the fluctuation of the Thai baht, the Philippine peso, Indonesian rupiah, and Malaysian ringgit have successively become the targets of international speculators. In August, Malaysia gave up efforts to defend the ringgit. The Singapore dollar, which has always been strong, also took a hit. Although Indonesia was the last country to be "infected", it has been the most severely affected. In late October, international speculators moved to Hong Kong, the international financial center, targeting Hong Kong's linked exchange rate system. The Taiwan authorities suddenly abandoned the exchange rate of the New Taiwan dollar, devaluing it by 3.46 in one day, increasing the pressure on the Hong Kong dollar and the Hong Kong stock market. On October 23, Hong Kong’s Hang Seng Index fell sharply by 1,211.47 points; on the 28th, it fell by 1,621.80 points, falling below the 9,000 point mark. Faced with the fierce attack by international financial speculators, the Hong Kong SAR government reiterated that it would not change the current exchange rate system, and the Hang Seng Index rose to reach the 10,000-point mark again. Then, in mid-November, a financial crisis also broke out in South Korea in East Asia. On the 17th, the exchange rate of the Korean won against the U.S. dollar fell to a record high of 1,008:1. On the 21st, the Korean government had to seek help from the International Monetary Fund, temporarily controlling the crisis. . But on December 13, the exchange rate of South Korean won against the US dollar dropped to 1,737.60:1. The Korean won crisis has also impacted the Japanese financial industry, which has large investments in South Korea. In the second half of 1997, a series of Japanese banks and securities companies went bankrupt. As a result, the Southeast Asian financial turmoil evolved into the Asian financial crisis.

The second stage: In early 1998, the financial crisis recurred in Indonesia. Faced with the worst economic recession in history, the prescriptions prescribed by the International Monetary Fund for Indonesia failed to achieve the expected results. On February 11, the Indonesian government announced that it would implement a linked exchange rate system in which the Indonesian rupiah maintains a fixed exchange rate with the US dollar to stabilize the Indonesian rupiah. This move was unanimously opposed by the International Monetary Fund, the United States, and Western Europe. The International Monetary Fund threatened to withdraw aid to Indonesia. Indonesia is in a major political and economic crisis. On February 16, the price of the Indonesian rupiah against the U.S. dollar fell below 10,000:1. Affected by this, the Southeast Asian foreign exchange market experienced another turbulence, with the Singapore dollar, Malaysian ringgit, Thai baht, Philippine peso, etc. falling one after another. It was not until Indonesia and the International Monetary Fund reached an agreement on a new economic reform plan on April 8 that the Southeast Asian currency market temporarily calmed down. The Southeast Asian financial crisis that broke out in 1997 put the Japanese economy, which was closely related to it, into trouble. The Japanese yen exchange rate fell from 115 yen to 1 U.S. dollar at the end of June 1997 to 133 yen to 1 U.S. dollar in early April 1998; in May and June, the yen exchange rate continued to fall, once approaching 150 yen to 1 U.S. dollar. pass. With the sharp depreciation of the Japanese yen, the international financial situation has become more uncertain, and the Asian financial crisis continues to deepen.

The third stage: In early August 1998, when the U.S. stock market was in turmoil and the Japanese yen exchange rate continued to fall, international speculators launched a new round of attack on Hong Kong. The Hang Seng Index has fallen to more than 6,600 points. The Hong Kong SAR government responded by using the Exchange Fund to enter the stock and futures markets, absorbing the Hong Kong dollars sold by international speculators, and stabilizing the foreign exchange market at HK$7.75 per US dollar. After nearly a month of hard work, international speculators have suffered heavy losses and are unable to realize their attempt to use Hong Kong as a "super cash machine" again. While international speculators failed in Hong Kong, they also suffered a disastrous defeat in Russia. On August 17, the Central Bank of Russia announced that it would expand the floating range of the ruble-dollar exchange rate to 6.0-9.5:1 during the year, postpone the repayment of foreign debt, and suspend the trading of government bonds. On September 2, the ruble depreciated by 70. This caused the Russian stock market and foreign exchange market to plummet, triggering a financial crisis and even an economic and political crisis.

The sudden change in Russia's policy has devastated international speculators who invested huge sums of money in the Russian stock market, and triggered overall violent fluctuations in the foreign exchange markets of the stock markets of the United States and Europe. If the Asian financial crisis was still regional before then, the outbreak of the Russian financial crisis shows that the Asian financial crisis has gone beyond the regional scope and has global significance. By the end of 1998, the Russian economy was still not out of trouble. In 1999, the financial crisis ended.

The outbreak of the financial crisis in 1997 was caused by many factors. Chinese scholars generally believe that it can be divided into direct triggering factors, internal basic factors and world economic factors.

Direct triggering factors include: (1) The impact of hot money in the international financial market. There are currently approximately US$7 trillion in liquid international capital worldwide. Once international speculators find out which country or region is profitable, they will immediately impact the currency of that country or region through speculation in order to obtain huge profits in the short term. (2) Some Asian countries have inappropriate foreign exchange policies. In order to attract foreign investment, they maintained fixed exchange rates and expanded financial liberalization, which provided opportunities for international speculators. For example, Thailand abolished controls on the capital market in 1992 before the country's financial system could be straightened out, allowing the flow of short-term funds to flow unimpeded and providing conditions for foreign speculators to speculate on the Thai baht. (3) In order to maintain a fixed exchange rate system, these countries have long used foreign exchange reserves to make up for deficits, leading to an increase in foreign debt. (4) The foreign debt structure of these countries is unreasonable. In the case of large medium-term and short-term debts, once the outflow of foreign capital exceeds the inflow of foreign capital, and the country's foreign exchange reserves are not enough to make up for the shortfall, the country's currency depreciation is inevitable.

Internal fundamental factors include: (1) High overdraft economic growth and the expansion of non-performing assets. Maintaining a high economic growth rate is the common aspiration of developing countries. When the conditions for rapid growth become insufficient, in order to continue to maintain the pace, these countries turn to borrowing foreign debt to maintain economic growth. However, due to poor economic development, by the mid-1990s, some Asian countries no longer had the ability to repay their debts. In Southeast Asian countries, the real estate bubble only resulted in bad debts and bad debts from bank loans; as for South Korea, because it is too easy for large companies to obtain funds from banks, once the company is in poor condition, non-performing assets immediately expand. The large number of non-performing assets has in turn affected investor confidence. (2) The market system is immature. One is that the government has excessively intervened in resource allocation, especially in loan investments and projects in the financial system; the other is that the financial system, especially the regulatory system, is imperfect. (3) Defects of the "export substitution" model. The "export substitution" model is an important reason for the economic success of many Asian countries. However, this model also has three shortcomings: first, when the economy develops to a certain stage, production costs will increase and exports will be suppressed, causing imbalances in the international balance of payments of these countries; second, when this export-oriented strategy When it becomes the development strategy of many countries, it will cause mutual squeeze between them; thirdly, the stepwise progress of products is a necessary condition for continuing to implement export substitution. It is impossible to maintain competitiveness only by relying on the cheap advantage of resources. After achieving rapid growth, these Asian countries have not solved the above problems.

World economic factors mainly include: (1) The negative impact of economic globalization. Economic globalization has brought closer and closer economic connections around the world, but the negative impacts resulting from this cannot be ignored, such as the intensification of interest conflicts between nation-states, the enhancement of capital mobility, and the increased difficulty in preventing crises. (2) Unreasonable international division of labor, trade and currency systems are unfavorable to third world countries. In the field of production, developed countries still produce high-tech products and high-tech products themselves, while the technical content of products gradually decreases towards less developed and underdeveloped countries. The least developed countries can only do assembly work and produce primary products. In the field of exchange, developed countries can purchase primary products at low prices and monopolize high prices to sell their own products. In the field of international finance and currency, the entire global financial system and institutions are also beneficial to financial powers.

The impact of this financial crisis is extremely far-reaching. It has exposed some deep-seated problems behind the rapid economic development of some Asian countries. In this sense, it is not only a bad thing, but also a good thing. It provides an opportunity to promote Asian developing countries to deepen reforms, adjust industrial structures, and improve macro management. Since the tasks of reform and adjustment are very arduous, it will take some time for the economies of these countries to fully recover. However, the basic factors for the economic growth of developing countries in Asia still exist. By overcoming internal and external difficulties, there is great hope for the improvement and further development of Asia's economic situation.

The Asian financial crisis that occurred in 1997 and 1998 was another major event that had a profound impact on the world economy after the world economic crisis in the 1930s. This financial crisis reflects the serious flaws in the financial systems of the world and various countries, including many relatively mature financial systems and economic operating methods that are considered to have been selected through historical development. Many of them have been exposed in this financial crisis. issues require reflection. This financial crisis has raised many new topics for us and raised the issue of establishing new financial rules and organizational forms. This book attempts to conduct research in this area. The central question of this book's research is how to get rid of the centuries-old problems brought about by the currency supply system formed by various countries under the non-convertible paper money standard after the monetary system reform at the beginning of this century and the debt derivative mechanism formed between enterprises under the new situation. These economic problems include: (1) heavy debt burdens on enterprises, numerous bad debts in banks, and frequent financial and debt crises; (2) excessive money supply in society, excessive banking business, and increased difficulty in macro-control; (3) difficulties in government taxation , the fiscal crisis is mixed with the financial crisis; (4) Inflation entangles the social economy, bubble economies occur from time to time, economic fluctuations are frequent, and economic growth is often hindered; (5) Insufficient funds of enterprises bring operating difficulties, increasing the risk of bankruptcy and collapse Frequent corporate mergers and acquisitions reduce the stability of enterprises, increase unemployment, and are not conducive to economic growth and social stability. (6) Unequal international monetary relations have put a heavy burden on most countries in the world and caused many international economic problems. The deepest reasons for the above problems are the imperfection of the monetary system and the lack of full understanding of the new mechanisms of transaction activities between enterprises under the conditions of socialized mass production. The idea of ????this book is to establish an authoritative intermediary system for enterprise transaction settlement - the national enterprise transaction intermediary settlement system, to free the debt chain between enterprises, and to eliminate the basis for the occurrence of bad debts between enterprises and banks, so as to avoid debt and financial crises. occurrence, reduce the harm of inflation and bubble economy, and promote stable economic growth. In this innovation process, there will also be innovations in national taxation and fiscal expenditure methods, reducing the occurrence of fiscal deficits. At the same time, it will also produce innovations in corporate systems, reduce corporate bankruptcy and mergers, and enhance corporate stability. In addition, international settlement methods will be innovated and the use of international currencies will be reformed. This process is not a simple governance of economic issues, but a correction of serious defects in the paper currency system, an innovation in the currency supply and circulation system, and a major change in the financial system. Moreover, this change brings about economic operation. Adjustments to many aspects of the mechanism.

The direct impact of the Asian financial crisis on the economy

1. The value of the stock market fell by 20% to 50%

From October 1997 to October 1998 , Asian countries and regions, except China, are facing sharp declines in stock markets. Japan and Taiwan fell by about 20%, and the rest of the places fell by more than 40%; Malaysia even fell by more than 50%. In a short period of time, all countries and localities have lost more than 40% of their assets. The situation is really shocking.

2. The value of foreign exchange markets has also depreciated.

After the financial turmoil, the currency values ??of various countries and localities have successively declined. Among the Four Tigers, except for Hong Kong, which maintains its linked exchange rate to avoid the possibility of devaluation, the currencies of other Asian countries and regions (except China) have depreciated by 30 to 80%. Indonesia's depreciation was as high as 340. These have had a huge impact on the overall asset value.

3. After devaluation, imports and exports fell instead of rising

Some policymakers, especially international organizations such as the World Bank and the International Monetary Fund, believe that devaluation will help competition in imports and exports. force to stimulate economic recovery. But the reality is exactly the opposite. According to the 1998 forecast, except for India, all other countries and regions will experience negative growth. Exports fell by 5 to 10%. The number of entrances has dropped significantly. Except for Taiwan and Hong Kong, which only fell by 6 to 10, the rest fell by more than 12; Thailand and Indonesia dropped significantly by 30%. Showing that devaluation may not necessarily increase exports, reducing imports can only delay it.

4. The economic prospects are quite negative.

As a result, the economies of Asian countries and regions suddenly turned from high-speed growth to negative growth. Except for China, India, and Taiwan, no one was spared. South Korea, Malaysia, and Thailand are estimated to have negative growth of 6-8%; Indonesia may experience a sharp negative growth of 18%.

5. The unemployment situation is getting worse

When the overall economy shows negative growth, the unemployment problem is definitely getting worse; in all countries and regions affected by the financial crisis, the unemployment rate is higher than before. More than doubles a year. Table 5 shows that except for Taiwan and Singapore, which can remain below 4, the rest are all above 5; South Korea, the Philippines, Indonesia and other places are estimated to have unemployment rates rising sharply by more than 10.

6. Falling wages and falling property prices

Due to the large increase in unemployed people, supply in the labor market exceeds demand. Employers took the opportunity to lower wages and reduce costs. For example, wages in Hong Kong have generally been reduced by 10% to 20%. At the same time, due to weakening consumption power and poor sales market, users are unable to afford high property prices or rents. As a result, property prices and rents also fell. The situation in Hong Kong is particularly severe, with property prices falling by 30%.

The direct impact of the Asian financial turmoil on social security

1. Social security fund investment returns have suffered heavy losses

Retirement security, especially provident funds in the form of individual accounts system to accumulate huge social security funds; relevant authorities must find ways to invest to maintain and increase value. However, investment often carries great risks, especially investment in the stock and exchange rate markets, where the value fluctuates greatly. The emergence of the Asian financial turmoil has led to sharp declines in the stock and foreign exchange markets, which will cause heavy losses to many social security funds. Let’s try to take a look at the situation in Hong Kong.

Since Hong Kong has decided to develop a compulsory private provident fund, the possible impacts will be analyzed here. First, we find that global financial crises occur almost every decade. Investment returns must be analyzed cyclically and cannot be estimated out of context based on a certain peak period. For example, the last stock market crash was in 1987, so it is not appropriate to use 1983 to estimate. You should invest from after the stock market crash until another major stock market crash, such as 1997, as a cycle, in order to more accurately estimate the true return on investment.

The current Mandatory Provident Fund Bill condones high-risk investment strategies and allows 100% of assets to be invested in the stock market. Even if 100% of assets are invested in the stock market in the last year, it is only based on the current financial crisis in Hong Kong. Calculating the impact (if calculated based on the situation in Southeast Asia, the disaster will be even greater), once problems occur, it is no small matter.

In the investment cycle of the past ten years, the average annual return rate of Hong Kong’s private overall pension funds is roughly estimated to be only 6 (assuming a 30% loss in stocks). This is estimated to be lower than the average annual inflation rate of 8.8. In other words, the high-risk investment strategies of the MPF Draft are vulnerable to financial turmoil.

The Mandatory Provident Fund Office responded that the investment return in 1997 was only a loss of 7%; however, referring to the asset changes of the 10 largest families of Hong Kong listed companies, it can be seen that most losses in 1997 ranged from 30 to 50%, which shows that the author’s estimate is accurate Believable. In other words, the high-risk investment strategies of private MPF cannot withstand the financial crisis, resulting in huge losses for the public.

If we use the land fund’s prudent investment strategy (i.e. 30 stocks, 40 bond stocks and 30 bank cash), even if it encounters the negative impact of the same financial crisis, the average annual return rate for the period from 1988 to 1997 is roughly estimated to be 9.5 (Assume the stock loses 30). In other words, compared with the average annual inflation of 8.8, it can still maintain its value and increase slightly. However, according to the latest settlement at the end of June 1998, it is difficult for land fund investments to maintain their value.

This shows the destructive power of the Asian financial crisis. I believe that most countries in Asia that currently adopt provident fund systems will suffer heavy losses from their funds, which will severely weaken their ability to give back.

2. The number of unemployed people has increased and the number of contributing employees has decreased.

Due to the Asian financial crisis, the unemployment rate has increased sharply, with the unemployment rate in most countries reaching 10. This means that 1/10 employees are unable to make contributions, and their employer’s contribution portion will also be lost accordingly. Then the total amount of contributions must have lost 1/10 of the fund for that year. If these conditions continue for three years, the situation will be even worse. Because estimates in most countries rarely predict unemployment rates above 10, this will cause deviations in the actuarial calculations of the entire social security fund and even affect its fiscal stability.

3. Wages fall and contributions decrease.

Employees who avoid unemployment are likely to have their employers reduce their wages. Due to the economic downturn and the growing number of unemployed people, employers will take the opportunity to reduce wages to reduce costs and increase profits. When wages fall, naturally the contribution amounts of both employees and employers will decrease accordingly while the contribution rates remain unchanged, resulting in a decrease in the total amount of social insurance. Of course this affects its fiscal soundness.

4. Business difficulties are increasing, and write-offs and non-payments are on the rise.

Due to the economic downturn, many companies will close down, lay off employees, cut wages or relocate. As a result, the portion of corporate contributions that companies are responsible for is reduced. Other companies can barely maintain operations, but find it difficult to take into account employee benefits, so they cut employee benefits. Of course, the first to bear the brunt is social security benefits: voluntary corporate pensions, medical insurance, etc. will be canceled or reduced; social security plans stipulated by national legislation may not be able to cope; the non-contribution payment rate will increase accordingly, directly affecting the social security fund. Fiscal soundness.

5. The number of unemployed people increases, and the financial burden of unemployment insurance and social assistance increases

As the number of unemployed people increases, the number of people receiving unemployment insurance benefits naturally increases, which directly increases the expenditure on unemployment insurance benefits, resulting in The financial burden increases. In addition, since unemployment insurance benefits generally only provide protection for 6 months to 1 year, those who are still unemployed after receiving them can only turn to social assistance benefits. This can be seen in the examples of Western countries; such as the United Kingdom and the Netherlands, where unemployed people receive social assistance benefits from 40% to 60% of the total. At present, the number of unemployed people receiving social assistance in Hong Kong accounts for more than 10% of the total number of social assistance cases, and they are moving towards the Western situation. This creates a heavy burden on government finances.

Enlightenment of the Asian Financial Crisis on the Development of Social Security

1. Social security funds are not suitable for investing in the stock market

From the analysis results of Tables 1 to 6 above, investing in the stock market The risk is extremely high. Even if investment in the stock market is limited to less than 30% in accordance with international practice, the consequences will be like Hong Kong land funds, which cannot withstand the financial crisis and will suffer losses. Therefore, social security funds are not suitable for investing in the stock market. The recent illegal practices of secretive hedge funds in the United States have also exposed their shortcomings and risks, causing losses of more than 100 billion U.S. dollars. This has had a knock-on impact on the international banking system, causing the U.S. government to intervene and rescue. I believe that if there are no other better supervision methods, such covert and dangerous speculative groups will continue to operate the financial market from behind every day. For social security funds that aim at social security, it is not advisable to take these risks to avoid harming the welfare of the insured persons.

2. Social security funds should be invested in social services and infrastructure, which can maintain value and create employment opportunities.

Social security funds do not invest in the stock market and can be transferred to social services and infrastructure. Not only is it stable, but it also has great outside economic benefits. At present, many Asian countries have not yet provided sufficient services to meet the needs of different target groups in accordance with policy planning. Therefore, we can take this opportunity to increase the speed of developing social services and meet social needs, thereby immediately creating employment opportunities, hiring manpower, and providing services.

The biggest benefit of investing in developing social services to increase employment opportunities is that it can provide employment opportunities for many low-skilled middle-aged people. Under normal circumstances, it is more difficult for low-skilled middle-aged people, regardless of gender, to compete with young skilled people for job opportunities. At the same time, it is more difficult for these elderly people to receive technical training and improve their skills.

However, community services, such as personal care, domestic help, home maintenance and other convenient services, are quite suitable for middle-aged non-technical people. Therefore, the establishment of these social services is necessary.

At a high level, the development of social services such as public housing, education and medical care will create job opportunities on a larger scale, solve unemployment and reduce poverty. The following uses the situation in Hong Kong to illustrate the argument.

There are currently more than 150,000 applications for public housing on the waiting list. If the Hong Kong SAR government can insist on building 50,000 public housing units every year, it will greatly reduce the number of people waiting and shorten the waiting time; it will also be able to meet the future growth of Hong Kong's population, reaching 8 million people. In addition to meeting housing needs quickly, its job creation and functional effects are significant. The construction of public housing can bring business to the construction industry and hire construction industry workers; when moving in, residents need to decorate and design, add household appliances, household items, etc., which will generate chain economic benefits and make the entire sales and department store industry prosper. Naturally increase employment opportunities. Large shopping malls in public housing estates will increase retail development.

Similarly, in order to improve the quality of education, it is necessary to build and expand existing primary and secondary schools. The current staff offices are very crowded and it is difficult for teachers to fully utilize their ability to tutor students. The current teacher-student ratio is too large, and there is a need to reduce the number of students in each class to increase teachers' care for students.

Similarly, improving medical facilities has the same effect. Today's newspapers often report that hospitals are short of beds and often have to install cots; hospitals are short of manpower, especially nurses and nursing staff. These make it necessary to increase district hospitals and recruit more medical staff to maintain and improve service quality. Building additional hospitals, adding medical technology equipment, hiring additional manpower, etc. will help create more job opportunities.

Therefore, developing overall social services can not only improve social work services, education, housing and medical facilities and services, better meet the needs of citizens, but also bring more employment opportunities.

Maybe policymakers will ask: What economic benefits can be brought by investing in social service construction? Let’s take the construction of “affordable housing” in Beijing as an example. The target of "affordable housing" is low- and middle-income families in cities. It is hoped that they will rely on their own economic income and spend 20 to 30 yuan of their family income to buy such a house in 10 to 20 years. Taking the suburbs and counties near Beijing as an example, commercial housing can be purchased for 2,000 yuan to 4,000 yuan per square meter. If the housing purchase cost price stipulated by the Beijing Municipal Government in 1997 is used, the price in the suburbs of the city is about 1,450 yuan per square meter of building. Based on a small house of 50 square meters, the cost is 72,500 yuan. If the payment is divided into 25 years, the average monthly payment is NT$240. This payment is like paying rent, accounting for 20% of the current average income of a three-person family of NT$1,200. If it is set at 25, and the middle and lower class people pay 300 yuan per month, there will be a profit of 60 yuan or 20 yuan. It can be seen that investing in social service infrastructure can maintain and increase value, and can also bring relevant social and economic benefits.

3. Basic protection should be the main focus and social security amounts should be maintained at a low level.

Due to the Asian financial turmoil that has caused the market value of the stock market to drop, it is believed that many social security funds have lost more than 20%. Worse still, it will affect the financial soundness of the fund. Therefore, the level of social security amounts should be maintained at a low level and focus on protecting basic needs; it should not be excessively expanded to protect the middle class of society. This will keep the social security fund stable and ensure sufficient financing even if it is hit by the financial crisis, so that there will be enough funds to provide social security benefits to people in basic need. In other words, before the reform of the world financial system is completed, or even after the reform, there may still be many hidden organizations such as Long-term Capital Management hedge funds taking the opportunity to speculate. The policy of "maintaining low-level social security amounts to protect basic needs" should be It has been established as a long-term national policy and should not be revised. Even if the country's economy is booming, it is not appropriate to increase the level of insurance coverage. On the one hand, it can avoid sudden damage such as the financial crisis, and at the same time, abundant resources can be used for social service-style social security. On the other hand, it can maintain citizens' motivation to work and prevent labor enthusiasm from being dampened by excessive social security amounts.

4. Unemployment insurance should not be established, causing financial burdens

Whether unemployment insurance should be established has often become a controversial issue in policy reform. However, after the Asian financial turmoil, its sequelae obviously resulted in massive unemployment. Except for Singapore, Malaysia and Taiwan, which can still maintain unemployment rates below 5, most other countries and regions are close to 10 or above. The financial cost of providing basic unemployment insurance benefits to such a large unemployed army will be astronomical. To spend this amount all at once will place a heavy burden on the government's finances, which are already hit by the economic downturn. Therefore, it is appropriate to formulate a sound social security policy and avoid setting up unemployment insurance. To protect the unemployed, social assistance can be used to provide minimum living security to ensure that they will not fall through the social safety net. This kind of social security arrangement will be more appropriate in dealing with crises such as the financial crisis.

In fact, unemployment insurance arrangements in Western countries generally provide unemployment insurance benefits to the unemployed for six months to one year. If they have not found a job by then, they can only apply for asset-based income test. Social assistance relief to solve basic living problems. Therefore, if basic living security is the main focus, there is no need to provide transitional unemployment insurance benefits to the unemployed who have certain asset savings.

Even for China, which has not been affected by the financial crisis, providing unemployment insurance benefits to all involuntarily unemployed people, including those middle-class unemployed people with certain asset savings, will cause many sequelae.

(1) Unemployment insurance finances are prone to deficits. Since the establishment of unemployment insurance in 1986, unemployment insurance expenditures in 1992 reached the total of the previous years due to the increase in the number of unemployed people; unemployment insurance expenditures in 1994 were 1.2 times the total of the previous seven years; some areas have already been unable to make ends meet. The remaining funds can only maintain the basic living standards of 2 million people for one year, but it is predicted that from 1995 to 2000, due to corporate bankruptcy and layoffs, the number of employees who will be reduced in production and laid off will reach 18 million, with an average of 3 million per year. Increasing the unemployment insurance fund by 10 times may not be enough to cope with the situation ("China Reemployment Project Implementation Guide", 1998).

(2) There are various expenses under the unemployment insurance system, including medical expenses, funeral subsidies, relatives' pensions, production self-help expenses and management expenses, etc., which are difficult to supervise and audit. Therefore, it has been proposed to establish a social supervision agency composed of representatives of employers, workers, trade unions and public groups, but its effectiveness needs to be confirmed.

(3) The current scope of application is limited to state-owned enterprises. If it is extended to various enterprise systems and breaks the boundaries between urban and rural areas, the responsibilities will exceed hundreds of millions of people, including 120 million workers in township enterprises. Whether it can be afforded is questionable.

A more feasible approach is to use the minimum living security system to provide a "safety net" for the unemployed to ensure their basic living needs. Relevant resources can be used to fund reemployment services and provide vocational training subsidies to encourage improvement of skills, preparation for job change, job search and production self-help. This is better than setting up unemployment insurance benefits. In fact, China’s current national policy also puts the relief function of unemployment insurance first. Therefore, it is more direct and effective to streamline and correct names than to use minimum living allowances and vocational training allowances (detailed analysis can be found in Mo Taiji et al., "Hong Kong Industrial Relations and Social Security", 2000, China Labor Press).

5. Establish a poverty line as a safety level for social assistance benefits.

If unemployment insurance is not established, a proper social assistance system must be in place. However, many social assistance systems are subject to changes due to political disputes and fail to effectively provide an appropriate level of protection to meet the needs of those least able to help themselves. A more well-founded approach is to choose an appropriate method and establish an official poverty line, which will serve as the basic guarantee for the social assistance system and serve as the last line of defense for society in the form of a social safety net to protect citizens. This will efficiently take care of those most in need, ensure social stability, and maintain good law and order.

References

1 Li Luoli, editor-in-chief, 1998, "The Second Shock Wave - From the Southeast Asian Financial Crisis to the Global Economic Change", Guizhou People's Publishing House.

2 Editor-in-chief Jiang Jianqing, 1998, "Analysis of Overseas Financial Trends", Shanghai University of Finance and Economics Press.