Abstract In a sense, China does not yet have a ‘labour market’. The Chinese labour system, set up in the 1950s and based on the Soviet model, is characterised by state direction of labour, immobility, lack of incentives, overstaffing, and underemployment. On the other hand, it has avoided open unemployment and serious urban-isation problems, it has provided employees with security, and it has achieved egalitarian objectives. The Chinese government has begun a process of reform designed to improve the mobility, flexibility, incentives, and efficiency of labour. By comparison with other market reforms in China, however, labour market reform is tardy and limited.