David Wolf on China’s economy and foreign businesses there

I think it’s safe to say that with it’s huge leaps and bounds China is always at some sort of crossroads, whether it’s dealing with organized labor, promising national health insurance, launching a soft power campaign or what have you. One of the smartest China hands, David Wolf, has an excellent piece in Ad Age China on perhaps the most important crossroads of all, the economic one, and on what it means for foreign companies doing business there.

Suddenly, just as people in China were starting to wonder if they still needed foreign capital and know-how, we went and proved to the Chinese that we were greedy, dumb, and actually needed China’s help to pull us out of our own mess…

Not only did that that gave the government the opportunity to put an end to policies that favored foreign companies in China, it was also a signal to the Chinese people that they could no longer take for granted that foreign brands were better than their local counterparts. Maybe they were just overpriced.

China, in other words, is starting to say “no” to our employers and our clients, and the above trends suggests that this is likely to get worse. Smart Chinese competitors are figuring out that they have an opportunity to take back some of their home turf, and they are refocusing their efforts on domestic operations.

This doesn’t mean, however, that China has all the answers, and is gliding through the crisis. Wolf spells out why China isn’t out of the woods, and why the current economic crossroads is so critical, and tenuous.

The global financial crisis has revealed the fundamental weakness of the nation’s export-driven economy: even in a healthy financial environment, the world cannot buy all of the goods China needs to sell to sustain 8-10% growth indefinitely. With no social safety net, Chinese consumers are focused on saving, and industrial productivity is so embarrassingly bad that nobody even talks about it.

Political stability in China is built on an unspoken social contract: the government delivers constant improvements in opportunities and lifestyle, and the people accept single-party rule, warts and all. Delivering on that promise is getting harder as China’s export engine sputters, as inflation grows, and may become impossible if the stock-market and real estate bubbles burst and the middle class demands that the government cover personal losses.

A thought of my own that popped up while I was reading it: The “Chinese financial crisis” is a phrase we don’t hear much anymore. I think we’ve been almost hypnotized into believing there is no economic crisis in China, that it was all about the US, and then Europe, with Asia remaining largely invulnerable. Indeed, a powerful meme took hold among financial writers over the past year, portraying China’s authoritarian system as superior in many ways to democracy because the party can make things happen fast without getting tied up in lawsuits and hearings and protests (usually). And this one-party system protected China from the crisis, allowing the government to launch a massive government spending program that kept the country afloat and free of the misery faced by weak democracies.

Wolf reminds, however, that the Chinese economy right now is quite tenuous, and that the shock absorbers that have seen it through so far – namely, government spending – may not be enough to hold everything together when the economy sours (and all economies sour).

“Read the whole thing.”

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Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.

The Discussion: 30 Comments

I mentioned once before, a wee while ago, that it was hard to know who to believe. Soo many people are predicting some form of crash landing…and so many are predicting that things will change but no crash is imminent….
This “Asian invulnerability” meme – I take it that comes from the government provided statistcis? Sort of like the “Enron invulnerable” meme, or the “Greece is OK to join the Euro” meme? The same meme that lead all these rating agencies to give Lehman Brothers et al such good ratings? In which case – why do we constantly believe them?

June 10, 2010 @ 10:40 am | Comment

I think the meme comes from the fact that there is still considerable growth in China. That can’t really be disputed, but how sustainable it is – that’s the big question. I don’t put China in the same boat as Enron, where there was massive fraud and disinformation. In China, you can see the growth with your own eyes. The question is, is it just because of a government so insecure it needs to bribe it’s citizens to keep them placated, or is it genuine, sustainable growth? Yes, you can say Enron put up a good show, but that can only last so long; the downfall was inevitable. With China, you have 30 years of unbelievable growth, and while part of that may be smoke and mirrors, there’s certainly some real, measurable growth there. Not even Arthur Andersen could have kept that illusion going for three decades. So I have to say, I find that analogy imperfect. China went from dirt-poor to shockingly rich (despite the great divide between classes), and that wealth isn’t just a matter of exaggerated statistics.

June 10, 2010 @ 11:01 am | Comment

I certainly hope so :-) Mind you, after Mao, where else could China go but up?

Wonder how China would be if the Nationalists had won…

Something to think about at home. TTFN!

June 10, 2010 @ 11:29 am | Comment

The considerable growth in China’s economy seems to be supported by numerous industries, as housing costs continue to increase and the chinese consumer has begun to overtake others in the luxury industry. The growth China needs to sustain has the potential to turn on those international brands pouring resources into China, as Chinese companies may end up having to grow and build around the Chinese consumer.

June 10, 2010 @ 11:12 pm | Comment

That last paragraph you quote is really on the money. From my less-than-educated perspective, I’ve always thought the China “miracle” was built on unsteady ground.

The problem with the capitalist model in both China and the West is that it’s built on continuing growth, rather than something more sustainable.

The problem with Chinese products is that they still have not reached the quality/status of “global” brands, for the most part. I guess the question is, will domestic demand ever be enough to power the Chinese economy, should foreign demand become less?

Then there’s the whole economy of global foreign brands manufactured in China, which I imagine breaks down very differently.

June 11, 2010 @ 3:03 am | Comment

Certain financial advisors here (Kevin O’Leary) in Canada continue to tout investment in China as an alternative to the lackluster/has been North American and Eurozone markets. Their strategy: Invest in companies that sell to the growing Chinese middle class, make lots of money. If it was only so easy. As the article writes so well, China’s issues are complex.

On the topic of recent labour unrest in Guangdong, the financial advisor states that even if they double wages in China, they still work for pittance compared to North America. Besides, “Give poor in China some rat meat and rice and they’ll be happy”. Yes, he said this on national TV.

Where China will go is unknown. For sure quality remains a big issue for products made in China. Recalls of Chinese made products are now common and expected. I just don’t see Chinese products reaching the quality standard of foreign products, nor do I see a concerted attempt at change. Unlike the Japanese, I see Chinese companies making a quick buck today and risk their reputation rather than build a brand following for tomorrow. Until this attitude changes it will be difficult for Chinese products to compete at higher technology products.

Even if they don’t have the money, North Americans are addicted to consumerism and export oriented countries like China, Japan and Germany will happily comply. The love affair with China will continue.

June 11, 2010 @ 5:17 am | Comment

Don Tai, I agree the love affair will continue – when it comes to US consumers buying Chinese exports. Where the love affair is in question is with US companies trying to do business in China. They have an uphill battle, and if Wolf is correct, the financial crisis is making things even worse for US companies there.

June 11, 2010 @ 5:24 am | Comment

Been reading about the strikes at the factories (Honda, etc) in China – signs of an aspring middle class becomeing more assertive? Or western wishfull thinking?
As I am told, more money to the workers means more spenders at home, instead of having to rely on unstable markets abroad…which means the economy can grow internally…etc, etc…
Trouble is, middle class people like us are so politically fickle – we’re not as satisfied with our lot as our parents were….

June 11, 2010 @ 6:12 am | Comment

Don Tai: “On the topic of recent labour unrest in Guangdong, the financial advisor states that even if they double wages in China, they still work for pittance compared to North America.”

Profit margins in many Chinese industries are just 1 or 2 percent. Even a modest pay raise – particularly if combined with even a very small 3 to 5 percent revalution of the RMB – will have real consequences. In any case, the Chinese worker is not competing with the American worker – jobs lost in China are far more likely to move to Vietnam or Bangladesh than to South Carolina or even Mexico. As a Chinese official recently said, it’s not like the Americans are going to start manufacturing televisions again if China revalues.

Don Tai: “The love affair with China will continue.”

Not if Americans can purchase cheap goods elsewhere. And if the U.S. and Europe experience prolonged stagflation accompanied by relatively high unemployment of the sort that many economists are now expecting, all bets are off. Likewise, a very nasty global tradewar, with the U.S. and China as the principal belligerents, might lead to much worse than a prolonged decline in Chinese imports.

Whoever said that China at the beginning of reform had no where to go but up was exactly right. For much of the past 30 years, China was a massive country with a medium sized country’s economic influence. Under such conditions, China could adhere to an export oriented growth strategy. As China’s economic influence caught up to its size, however, this strategy has become increasingly untenable, and other influential nations are now pushing back. The next 30 years will be far, far more difficult than the first 30. (Perhaps this explains the CCP’s increasingly aggressive approach to controlling information, as well as its equally aggressive international posture. That is, recent trends do not simply reflect China’s growing confidence; they also reflect real fear of what’s coming in the next several decades. I, for one, am expecting much more of the same – i.e., with the Party’s legitimacy on the line during difficult global and domestic economic circumstances, it will resort to oppression, threats of violence, and nationalism to consolidate its hold on Chinese society. Don’t forget, the events of June 1989 were precipitated, in large part, by economic crisis.)

Richard: “I don’t put China in the same boat as Enron, where there was massive fraud and disinformation.”

I remember listening to a financial analyst based in HK during the Enron fiaso of 2002. He suggested that there might be 100 Enrons in China but that the Chinese government might very well succeed in covering them up provided that economic circumstances in China remained positive. One of my pet peeves is the apparent tendency of many China bulls to believe that China is unique, that the Chinese economy operates according to very different economic laws than do economies in the West. A second pet peeve is the idea, embraced by many, that China’s system – presided over by a hard-working, well-educated, technocratic elite of superior problem solvers – is uniquely adept at handling financial/economic crisis. Such views are ignorant. If the writing is on the wall for both Europe and the U.S., you can bet your ass it is there for China as well. The Chinese government can only bail out (i.e., recapitalize) the banks so many times before the shit hits the fan. China’s day of painful economic reckoning – like everyone else’s – is coming. God help us all. If China seeks to continue its export-dependent, beggar-thy-neighbor economic policies, the trade war will be very long, nasty, and destructive.

Finally, I really wish everyone would just shut up about the so-called “Chinese economic miracle.” If what I see around me is evidence of a miracle, then I’m a monkey’s uncle. The most current Human Development Index reports that fully 36 percent of Chinese live on US$2 per day or less, while just 12 percent earn US$10,000 per year or more. Indeed, 30 years after the beginning of reform – and 60 years after the founding of the P.R.C. – China ranks just 130th in per capita GDP (ppp). Instead of “miracle,” let’s agree to call it what it is – a very modest improvement.

June 11, 2010 @ 10:30 am | Comment

I’m not making any predictions, but consider for a moment how the recent strike at the Honda plant – in which wages for many workers apparently doubled overnight – might affect manufacturing throughout China. If I were a Chinese worker working for peanuts in a factory far from home, I’d certainly be interested in these developments. I’m not making any predictions, but these sorts of things have the potential to be game changers. And make no mistake, a doubling of Chinese wages would have an enormous impact on Chinese exports, domestic consumption, inflation, etc.

June 11, 2010 @ 10:57 am | Comment

How do we define an economic miracle? I think we saw it happen under Hitler and under Roosevelt, and to a less dramatic extent under Clinton. I see it as when there is a tectonic shift, when large segments of the population see their situation change dramatically for the better. China meets my criteria. Call it what you will, but when millions of people go from the worst poverty to become self-sufficient, to be able to buy things that just a few years earlier would have been inconceivable, when they see their standard of living soar – well, what more can we expect of an economic miracle?

Now, whether it’s a sustainable miracle, and whether it’s smoke and mirrors is another conversation. But the fact remains that so far it has gone on for 30 years, and things have gone nowhere but up for hundreds of millions. Obviously it’s uneven, with hundreds of million where they were 30 years ago, but hunger has been all but abolished and to most Chinese they have participated in the greatest miracle in modern history. And it’s their country and I can’t tell them they’re wrong. I can tell them they’re wrong in their perceptions of Tiananmen Square and Falun Gong due to a government stranglehold on communications. But I can’t tell them they are still as poor or as hungry as they were 30 years ago. They aren’t. Whether this has anything to do with the CCP is irrelevant. The shift is real, and nearly every Chinese person I know, even those who detest their government (and that’s a lot of people) – they all believe their country has made a miraculous recovery since Deng took over, and it’s very hard to argue otherwise.

June 11, 2010 @ 11:01 am | Comment

“Finally, I really wish everyone would just shut up about the so-called “Chinese economic miracle.” If what I see around me is evidence of a miracle, then I’m a monkey’s uncle.”
Depends where in China, eh? Seems to me China is a country like Europe is a country. Certainly my wife and her family see it as a miracle when comparing her generation with her parents’ generation….though it has to be said that in her parent’s younger days, the miracle they see is pretty comparable to life before the various Maoist policies from the middle of the century…

June 11, 2010 @ 11:02 am | Comment

And about Enron: Do you really think the entire 30-year economic leap China has made could be an Enron-type scenario, where it was all a shell? I say it’s very unlikely. China’s fundamentals have proven surprisingly strong. I don’t think we can deny the impressive way they stabilized the banks, which seemed on the verge of collapse in the early 2000s. Is there a huge amount of waste and fraud and absurdity in the Chinese economy? Yes, but they have one thing that proves they’ve done at least some things right: vast amounts of cash. Enron was over-extended and deep in debt with its projects in India and elsewhere. The Chinese have proven masterful in their ability to take in, hold and invest money, especially with their investments in Africa and other developing regions, ensuring the flow of minerals and resource they need will keep on coming. After the inflation scare we saw there in 2007-8 and all the warnings throughout the mid-2000s of overheating, and all the chatter (which I’ve contributed to) about the housing bubble – for all these things their economy has proven surprisingly resilient. Is it all a house of cards? Could well be. But one of the most startling aspects of China throughout the centuries has been its continuity, its weird ability to keep on going, defying all expectations. Again, maybe China is a gigantic Enron. But if it takes years or decades or even centuries for that to catch up with them, does it really matter so much?

June 11, 2010 @ 11:14 am | Comment

Gan Lu is on the right track. Talking to a lot of Taiwanese factory owners in China, they all say that the Foxconn and strike situations are making them consider increasing wages similarly at their own factories just to hedge against they same thing happening to them. These things tend to spread in China, whether it be the copycat crimes of unsatisfied middle-aged men attacking school children, or labor disputes. Combined with rise in raw material prices, labor price increases are going to have a DRAMATIC affect on the “China Price” and the country’s exports over the next few years.

One interesting anecdote from a factory. I was speaking with the Chinese factory manager of a Taiwanese-owned print plant the other day. He has been working at the factory since he was 17 and had worked his way up to managing the whole shebang, and making a VERY decent wage as finding a guy with 10 years experience at a SINGLE factory is almost impossible in China. I asked him what he wanted to do in the future with all this work experience. Did he want to go back to his hometown and open his own factory one day? Nah, he said he was going to go back and tend the family orchard. Not when he was 60 mind you, but in a couple of years.

This little exchange really impressed upon me how different Chinese workers and especially migrant workers think about employment. In the US, a guy in the position above would probably be thinking about a lifetime in that industry after such success, but in China he is perfectly willing to “give up” 10 years of ladder climbing to go grow apples in Jiangsu in his mid-thirties.

Chinese workers are no longer afraid of losing their jobs. Many are perfectly comfortable giving it all up and moving back to the countryside where the living is cheap and they can be close to their extended families. With this kind of “security of the return home” it is understandable that we are seeing more and more strikes erupting around China. Getting fired is not a worry for a migrant worker who is used to the instability of employment.

Further, when the strikes are at foreign-owned factories, you don’t necessarily have the threat of government intervention. Is the COMMUNIST Party of China going to put its popularity on the line to protect a foreign enterprise from Chinese laborers demanding better wages? I think not.

The next few years are going to be VERY interesting…Andy

June 12, 2010 @ 12:17 am | Comment

Richard: “I don’t think we can deny the impressive way they stabilized the banks, which seemed on the verge of collapse in the early 2000s.”

You can’t be serious. You simply cannot be telling me that the Chinese government’s recapitalization of the banks in the early 2000s is evidence of success. For Christ’s sake, China’s “cleaning up” of the banks cost China approximately 40 percent of GDP. Sure, China avoided an ugly collapse, but at what cost? As many economists have pointed out, the price paid was high indeed – namely, it forced Chinese households to pay for the clean-up, depressed domestic consumption, and kept the Chinese people poorer than they otherwise would be. “Impressive”? Good grief, Richard. Recapitalization rescued the banks from collapse, but did nothing to fix the problems that led to the crisis. Chinese banks were, and still are, a nightmare – made worse as a result of the fat stimulus package and wild lending of 2009. During any future crisis, the government will surely intervene again, but this time the consequences are likely to be worse, as the global and Chinese economies are now terribly unbalanced. Recaptialization will happen at the same time that China is attempting to move toward an economy based more on domestic consumption.

“[China has] one thing that proves they’ve done at least some things right: vast amounts of cash…The Chinese have proven masterful in their ability to take in, hold and invest money, especially with their investments in Africa and other developing regions, ensuring the flow of minerals and resource they need will keep on coming.”

Possessing vast amounts of cash is hardly clear proof that China’s done something right. Moreover, possessing US$2.5 trillion in foreign reserves is not good evidence that China has been good at investing – either domestically or abroad. China’s accumulation of vast foreign reserves has depressed wages and domestic consumption, allowed the economy to become dangerously imbalanced, and raised the possibility/likelihood of a global trade war the likes of which we’ve not seen in a long, long time. (China’s foreign reserves have, however, enriched and empowered the Chinese state.) Moreover, as trading nations with large surplusses are generally more vulnerable to trade wars than nations with trade deficits, this imbalance has put China in a tough spot. During the 1990s and early 2000s, the U.S. economy looked like a world beater. Indeed, many people then said some of the same things about the U.S. that they’re saying about China now – e.g., the U.S. is special, doesn’t operate according to the same economic principles that govern other economies, etc. It’s only now, in retrospect, that we see that the U.S. in 2000 was laying the foundation for global economic crisis. That China has appeared to avoid the worst aspect of the crisis says less about the wisdom of its leaders than about the structural characteristics of the Chinese economy. Such characteristics are as likely to invite economic hardship as they are to defend against it. The next global economic crisis may very well begin in Beijing and Shanghai, not New York or London. As I said earlier, China’s leaders have neither established the perfect system nor discovered the secret to economic success.

As for China’s investments in Africa, I’d suggest that everyone wait a decade or more before pronouncing it all a big success. My fingers are crossed, but I see no evidence that China’s investments will result in what Africa needs most – good governance. Chinese investment in Africa is apparently quite popular with the political elite, but much less so with the general population. In the end, there are as many forms of imperialism as there are imperialists. It would be a great (and sad) irony to find that China’s investments in Africa constitute little more than the latest imperialist adventure – albeit with Chinese characteristics. Time will tell. However, absent good governance, Africa is likely to find that China isn’t all that different from the British, the Dutch, the French, etc.

Finally, the long term consequences of China’s “masterful” investment in places like Iran, Sudan, Myanmar, North Korea, and Africa are as yet unknown. Likewise, China’s investments in responsibly governed places like Australia have generated much ambivalence. I expect resistance to Chinese investment to grow, even as the global economy continues to rely on Chinese investment. Until China reforms it politics – something that is increasingly unlikely to happen in an atmosphere of intense global economic competition – discomfort (hostility!) with Chinese investment is bound to grow. The recent Lowy poll is a good example – 70 percent of Australians believe that Chinese growth has been good for Australia, but 70 percent also believe that China’s goal is to establish hegemony in Asia, and 60 percent believe that Australia has allowed too much Chinese investment.

“But one of the most startling aspects of China throughout the centuries has been its continuity, its weird ability to keep on going, defying all expectations.”

What’s that mean? I’m at a loss. As far as I’m concerned, China has no monopoly on continuity or its ability to “defy all expectations.” In fact, one might argue that the defining characteristics of human history are its continuity and unpredictabily. In any case, China is hardly unique in this respect. (I often think that the defining characteristic of China – if there is one – is NOT its uniqueness; rather, it’s a particular Chinese resistance to comparison that results from a stubborn BELIEF in their own essential uniqueness. Such is the difference between identity and the politics of identity.)

June 12, 2010 @ 1:28 am | Comment

CCP = God

It can do wonders. It has the weid ability to feel the way when crossing the river that every time miraclely there would be a stepping stone underneath.

After all, China had never acrossed the river since it has only wandered along the shallow side of the river bank looking for stepping stones. Therefore, anyone wishes political reform will be very disappointed, because CCP has never acrossed the river.

June 12, 2010 @ 6:13 am | Comment

Gan Lu, we’ve had these arguments too many times. We can all find sources to back up our personal POV. See this new Forbes blog post to see what I mean. Anything can happen, brilliant people on both sides see the same numbers and the same white papers and come to wildly different conclusions. You really said it all with one sentence, “China avoided an ugly collapse, but at what cost?” A very high cost. But as long as they are able to cope with that cost, they’ll keep on going. And I’ve read brilliant analyses praising China for cleaning up its banks, and I’ve read others saying it’s an illusion and China is on the verge of collapse and others say that China can keep on going with similar growth for at least another 20 years. My own prediction: banks in China will be stable enough to keep on going for decades. I am no economist and I can’t prove anything. I can only guess based upon my usual formula, to learn as much as I can.

“My fingers are crossed, but I see no evidence that China’s investments will result in what Africa needs most – good governance.”

You’re completely right. And China doesn’t care very much, which is why we saw such an uproar over Darfur. China is not there to help provide good governance. They are there to make the most cut-throat deals possible so they can grab as much goodies as possible at the best price, subverting traditional channels. You say we need 10 years to see if it worked? I agree with that. We won’t for sure know until then, but there is no doubt that China has worked out some very lucrative deals and is exercising considerable soft power in Africa. Proclaim it a massive failure at your own risk.

About continuity, I stand by my belief. Look at China’s language and culture and style of government. Can anyone deny extraordinary continuity? Sure, there are changes along the road, and these things all adapt to their times. But the underlying structures remain remarkably constant, for better or worse. There are monumental problems we all know about, like the class divide and the environment. Impossible problems. And yet China deals with them; I’m not saying it solves them, but more like it simply absorbs them and moves on.

Again, you have to see Gady Epsteins post about this. Going head to head and arguing these points is a staggering waste of time, as we simply cant say what’s going to happen. Seven years ago I knew – knew – China was on the verge of overheating and a complete financial collapse. Now I think they’ll just keep plodding ahead, and maybe keep going just as they are now until many of us are in their graves. They’ve done it before.

Slim, good link, thanks. I’m of the school that “the China model” has been way over-hyped. You get just as much bullshit and waste with the China model as you do under most democratic models, even if it means sometimes you can build stuff faster and throw people out of their homes at a moment’s notice. And then, of course, there’s the corruption. I’d rather look toward the Singapore model, though you need a lot of special factors to be in place for that, like a small country and an incredibly visionary, results-oriented benevolent (relatively) dictator.

June 12, 2010 @ 8:29 am | Comment

This little exchange really impressed upon me how different Chinese workers and especially migrant workers think about employment. In the US, a guy in the position above would probably be thinking about a lifetime in that industry after such success, but in China he is perfectly willing to “give up” 10 years of ladder climbing to go grow apples in Jiangsu in his mid-thirties.

Big difference from the Taiwanese too… they studied managing factories and running machines so they could all open their own factories. Is this attitude common in China? Because it would explain a lot….

June 12, 2010 @ 5:53 pm | Comment

I’m no economist, have a rudimentory knowledge of Chinese politics but can’t help noticing a lack of comment about Hong Kong. In my younger days (late 60s) we bought cheap junk from Hong Kong, is that still the case? I think not. ‘One country, two systems’. Will the Chinese adopt the Hong Kong ‘Model’? I don’t see any reason why not, prosperity coupled with a relatively content population. It took some time to get there, is there any reason why mainland China can’t mirror this in 30/40 years from now?

June 12, 2010 @ 7:06 pm | Comment

Could be, but Hong Kong certainly had some advantages, such as widespread English which was important in their becoming a global financial hub and a better public education system that encouraged critical thinking. (There’s a reason why so many of the middle managers in China are brought in from Hong Kong and Taiwan.) There are other reasons that make this unlikely for at least a few generations, namely widespread life-threatening pollution, hundreds of millions living in dire poverty, systematic corruption and no rule of law. Hong Kong, like Singapore, had the structures in place for continuous growth and an ever-advancing middle class. With no need to divert vast chunks of its GDP toward keeping hundreds of millions of hungry peasants afloat and seeking to stem the tide of unimaginable pollution. And of course, Hong Kong became a business hub because there are enforceable laws and relative transparency and an outstandingly pro-business government mindset. Setting up shop in HK is easy; doing so in the mainland is hell. Hong Kong’s taxes are reasonable and businesses are given every incentive to set up headquarters there. That’s why Hong Kong is what is is today, with Singapore not too far behind. Their economies are now driven more by services than manufacturing. What kinds of international services would China offer? And how long would it take for them to make that shift? I’d say China has a ways to go if it wants to be another Hong Kong. It would require a considerable makeover.

June 13, 2010 @ 9:32 am | Comment

I’ve always wondered how there can be labour shortages in Chinese factories that provide upward pressure on wages. For every unskilled worker in a factory there must be at least 10 others in China’s interior that would jump at the opportunity to work in such a factory. The issue that prevents these workers from leaving their villages is the uncertainty of life away from home. As migrant workers they have no legal protection whatsoever and are regularly cheated, beaten up or worse. If factory owners would open satellite factories outside of Guangdong they would be able to pull from a vast resource of cheap labour. There is more to China than the coastal areas. Factory owners need not leave China to find cheap replacement workers, only to move more inland.

If China could solve the problems with migrant workers, to protect them and allow them to be more a part of their new locations, to allow them to raise their kids, have health and economic stability, have a future in their new location, then more people would be encouraged to move. After spending time significant in a village, all the farmers I’ve talked to say that farming sucks. They continue because they have no choice. The younger generation absolutely hate it and will do near anything to move away. Unfortunately they return broke and cheated. Still they look to move again because life on the farm is no picnic.

To the Chinese factory manager with 10 years experience, who says he’d rather return to the farm and grow apples, let him try it for a couple of months. Let him shovel human waste onto the fields and weed the land in the hot sun. I’m sure he’d change his tune. Life is always greener on the other side of the hill.

June 13, 2010 @ 10:09 am | Comment

@Don Tai
“To the Chinese factory manager with 10 years experience, who says he’d rather return to the farm and grow apples, let him try it for a couple of months. Let him shovel human waste onto the fields and weed the land in the hot sun. I’m sure he’d change his tune. Life is always greener on the other side of the hill.”
Call me old fashioned but I don’t think he’d be envisaging doing the actual hard yakka. I dare say he’d like to employ people to do the hard graft for him while he utilised what those 10 years have taught him….

June 14, 2010 @ 10:08 am | Comment

@Don Tai

I love your response to the guy as if he doesn’t know the kind of hard work farming entails. He grew up working on a farm, now he wants to go back. Perhaps 10 years of high pressure work surrounded by toxic chemicals in a print plant changed his mind as to how “hard” that farm labor was. Personally I would take 10 years in an orchard over 10 years in an under-ventilated fabric printed plant any day.

You are right that extending full rights to migrant workers in their adopted cities would go a LONG way to reducing malcontent.

@Micheal Turton
I have no idea whether this is a common attitude so maybe I’m jumping to conclusions, but I think that the fact that many factories in the the Dongguan area continue to have trouble finding the labor they need, lends itself to the idea that the Chinese worker is no longer as “hungry” or as “tolerant” as he used to be and is more than content to stay in the countryside. And I do think that there is in general a lack of ambition when it comes to long term employment at a single factory, but this is more because advancement opportunities are not necessarily readily available. The fact that this guy works at a TAIWANESE owned factory is telling, unlike many other places he was given the opportunity to move up the value chain as an employee. This is not a common situation for sure.

June 14, 2010 @ 11:34 am | Comment

Richard: “Nearly every Chinese person I know…all believe their country has made a miraculous recovery since Deng took over, and it’s very hard to argue otherwise.”

Sloan Business School (MIT) professor of Huang Yasheng: “The labor income share of Chinese G.D.P. declined from 57 percent in 1983 to only 37 percent in 2005. (The ratio has stayed at that level since then.) This is to say that hundreds of millions of Chinese workers have lost relative to government and corporations, which, in terms of head counts, represent a tiny fraction of China’s massive population…Many Western economists are cheerleaders of ‘the China miracle,’ but for the average Chinese the miracle is far less than what meets the eye. Now labor wants its legitimate due from economic growth and workers have every right and the moral high ground to demand it.”

http://roomfordebate.blogs.nytimes.com/2010/06/13/what-do-chinas-workers-want/?hp

I suppose that if by “miraculous recovery” you’re referring to the Chinese state, then who am I to argue? (The Chinese state has, after all, spent the last couple of decades empowering and enriching itself, generally at the expense of ordinary Chinese citizens.) If, however, you’re referring to the people (i.e., the masses, not simply the top 15 percent), the results of reform are much more mixed – and discouraging. “Miraculous” is simply not a word that I would use in the Chinese context.

By the way, I also recommend Huang Yasheng’s book “Capitalism with Chinese Characteristics.” Well worth the effort. Very contemporary. Generated quite a buzz.

June 15, 2010 @ 7:57 am | Comment

Gan Lu, I’ll try to check out the book. Remember, everything is relative. The more people get the more they want, especially when they see how wealthy those around them are getting. But I really do know countless people who all say their lives are infinitely better than in the 1970s. I would honestly say every single one of them says that. Of course, I didn’t survey many migrant workers or people in the countryside (though most of the people I talked to were from the countryside originally), and my casual conversations are not useful for scientific polling. But I also saw the difference with my own eyes, even from 2001 to 2010, and not just in Beijing and Shanghai. And I don’t at all mean the party – I am talking about my friends’ parents, my Chinese teacher, virtually everyone I know and spoke to. Literally every one, from all walks of life, and I make it a business of mine to talk to most people I meet about this. There will always be a chunk of the population left behind, and we all know there are plenty of stories of CCP injustices and cruelties.

I think any debate would be fruitless. If you don’t see the progress – which may be disappointing in many respects but is definitely still progress – I guess we can agree to disagree. As Gady Epstein says in the aforementioned blog post, “It depends on who you ask.”

June 15, 2010 @ 9:33 am | Comment

Richard – did you get a peek into family albums? I did. Seems the miracle is a result of a severe depression – certainly my parents in law were as stylish and, dare I say it, contemporary as my parents were in the 50s. We’re not talking rich people – just what one could term middle classes.
Had Maoism not taken it’s course, would we be seeing a miracle or the same raise in living standards pretty much all the world has seen?
I’m not sure it’s a miracle we’re seeing, just a recovery from a period of terrible self destruction….

Mind you, who am I to have an opinion, being a Brit….Opium War and all that ;-)

June 15, 2010 @ 10:12 am | Comment

Mike, I am willing to agree and call it a recovery. The reason the “miracle” label has stuck is because that recovery took place in the shortest time, and affected larger numbers of people, than any other recovery in history. But this is a question of semantics. Recovery works for me. But it’s a unique recovery. The US recovered from the Great Depression over the course of just 10 years, but the US had already been one of the most developed countries on earth. China didn’t simply recover, but crossed a chasm from an impoverished agrarian society to the world’s biggest manufacturing hub (with a lot of poverty still, but nothing like under Mao except for those at the very bottom rungs). Miracle? Maybe not quite. But as I’ve said here before, when you go from famished to fed, it can seem pretty miraculous. And for years I argued it was NOT a miracle. Then I talked to people who told me what life for their parents was like.

A good reminder is John Pomfret’s book Chinese Lessons, where he describes his dorm mates at Nanjing University, and how they were all wafer-thin, with their belts tightened all the way to hold their pants up. For these people, what soon occurred was for them a miracle, from famine to feast. But again, I think we all know where the other stands on this issue, and there’s no way to prove that one POV is right or wrong. A miracle can mean very different things to different people.

June 15, 2010 @ 12:40 pm | Comment

Personally I’d call all of our recoveries from the Great War onwards a miracle too. Just think, segregation, wartime famine (happened in Europe too, after the Great War – as my grandmother could have attested), agrarian societies to industrial ones, universal heathcares, comfortable living, cars and other forms of personal transport, education, etc, etc. In my mother’s case, all this from 1945 ;-)

Yep – we don’t know how lucky we all are sometimes!

June 16, 2010 @ 6:14 am | Comment

For those with few scruples, a free pdf copy of Huang Yasheng’s book “Capitalism with Chinese Characteristics: Entrepreneurism and the State” (Cambridge U. Press, 2008) can be found at http://ishare.iask.sina.com.cn/f/6480483.html

Also, “On Point” (a popular Boston public radio show produced by WBUR) recently featured a show on the subject of state capitalism versus free market capitalism. One of the featured guests is Ian Bremmer, author of “The End of the Free Market.” It’s an interesting show in which China figures prominently.

http://www.onpointradio.org/2010/06/free-vs-state-capitalism

June 16, 2010 @ 10:05 am | Comment

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