BEIJING, CHINA - THE Chinese government will help train 1 million unemployed university graduates over the next three years and will give loans to companies who hire them, state media said on Sunday, as the economic crisis starts to bite.

Premier Wen Jiabao warned earlier this month that college graduates face a 'grim' job market as a global slowdown seizes the economy.

Now the State Council, or Cabinet, is offering training and loans to help graduates, the official Xinhua news agency said.

Students loans will be waived either partially or in full for graduates willing to work in rural areas or join the armed forced, the report said.

The government will also offer loans of up to 2 million yuan (S$440,000) to labour-intensive companies who recruit graduates, it added.

And loans of 50,000 yuan each will be given to graduates who want to set up their own business, Xinhua said.

China has more than economic reasons to fear surging graduate unemployment. It is also a potential political time bomb.

This year will mark the 20th anniversary of the crackdown on pro-democracy protests led by radicalised students.

Unsettling discontent could spread again as millions of graduates, whose families have paid steeply for their education, look for work.

The government has encouraged more students to go to university as a way to boost skills and consumer spending, but at the end of 2008 about 1 million of that year's graduates had not found work.

With some 6.1 million students leaving colleges and universities in 2009 - about half a million more than last year - labour authorities have repeatedly warned them not to be fussy.