A cargo ship is being built at a private shipyard on the bank of the Yangtze River in Yichang, central China's Hubei province, April 13, 2015. [Photo / IC]

The central government recently earmarked a special fund of 27.64 billion yuan ($4.22 billion) to help employees laid off in the country's bid to eliminate manufacturing overcapacity.

The establishment of the special fund is indeed necessary, since finding jobs for the laid-off workers is a top concern at a time when the country is bidding to eliminate overcapacity, a key step toward pushing forward its supply-side reform and industrial restructuring.

Efforts to cut the overproduction in steel, coal, cement and construction materials industries were launched in 2011, but they have made sluggish progress. This can mainly be attributed to the fact that it has not been clearly defined who is responsible for paying the bills for the huge costs involved in this arduous task. Without available funds to relocate and reemploy workers, no local government or enterprise wants to lay off large numbers of workers because of the potential social repercussions.

It is estimated that in the labor-intensive steel and coal sectors alone, as many as 1.8 million employees will have to be laid off this year if overproduction is to be eliminated in these industries. The overcapacity in these sectors must be addressed, but how to ensure reemployment and social security for those who lose their jobs are top priorities.

The government has learned the lessons from the wave of unemployment China experienced in the 1990s as a result of the reform of State-owned enterprises and it will not push for large-scale lay-offs without effective policies and fiscal guarantees to ensure the livelihoods of laid-off workers.

Local governments should not covet the central government money without thinking how to use it to benefit those made redundant. Any misuse of the fund should be severely punished.