Monday, June 28, 2010

China Changing

Strikes, labor shortages, high suicide rates among migrant factory workers are remolding China’s image of itself. Even the president is talking about respecting and improving the lot of the country’s 200 million (17% of China’s population) migrant workers. But it’s not that easy since China’s manufacturers are dependent on cheap migrant labor. Migrant workers are propelled into leaving their countryside homes by bleak living conditions there. There’re many more people in rural China than the land can support.

However, when they leave their homes they are also leaving behind all benefits of citizenship; their kids can’t even go to public schools where they work. They only have rights where their household is registered and it takes a substantial bribe to obtain residence elsewhere. So they drop the kids off at relatives and trudge off to the East Coast. Often they wind up in large dormitories, or ten to a small room, and sometimes under harsh conditions. They generally earn low pay and receive no benefits; simply put, they are second class citizens in their own country and are mercilessly exploited.

For the leadership and the middle class, this works out fine since low pay makes China’s goods cheaper and more competitive in the world market, and the more comfortable class of urban residents gets cheaper consumer goods and construction, thus cheaper dwellings. It’s also good for foreign companies who subcontract their manufacturing to Chinese ones; cheap, cheap, cheap for Western consumers.

Moreover, urbanites don’t have to share their city with rural riffraff. Well, at least not much; migrants are largely isolated from the city at large. Also the government is deathly afraid that loosening up residence requirements will result in large migrations to the big cities, so on all counts (except the humanitarian one, of course) the present system serves their purposes well.

However, the natives are getting restless and believe they have the right to a larger share of China’s new wealth. So workers (but so far only at foreign owned companies) are striking for higher pay and seeing their demands met almost immediately. The fact that strikes are tolerated at all by the Chinese leadership is a breakthrough which is certain to snowball into a much more forceful labor movement.

Migrant workers have social and demographic factors in their favor since China’s big eastern cities are facing labor shortages. The country’s one child policy is beginning to have an impact on available labor in prime working ages for factory work – 18 to 25. There are also more jobs opening up in interior cities closer to home where living costs are much lower so are much preferred by migrants.

This all portends the beginning of the end of China as a cheap place to manufacture. Labor costs are not that great a factor in the production of autos so Toyota and Honda will glad pay extra for labor peace. Cost is also no big deal for Foxconn, a Taiwanese company which manufactures iphones and such, but labor unrest will inevitably spread to other sectors of the economy and overall costs will rise. Minimum wage in eastern China - $130 per month - is already more than twice that in Cambodia, for instance, but China has far superior infrastructure and less corruption so it will still be competitive.

Meanwhile, China is under extreme pressure to free up its currency to more closely reflect its true value. Some say it’s undervalued by 20%. The country of late has been spending $1 billion per day to keep its currency cheap. Since its currency is pegged to the dollar and the dollar has gone down relative to the Euro and Yen, China’s Yuan has also gone down, thus making its goods cheaper on the world market. This not only impacts America’s ability to compete, but also other developing countries. China’s immense trade surplus, a reflection of its cheap currency, is a point of friction and anger among many other countries. A huge trade deficit like America’s essentially means the export of millions of jobs, but also cheap consumer goods for those who are still working. Cambodia is not much affected since it’s currency is also pegged to the dollar, but every other country trying to compete, which has a free currency is being hurt.

China has been making noises about conforming to the international community’s wishes and they will loosen up a bit but the reality will be far less than the rhetoric. In fact, the Chinese leadership has been stoking up nationalist fervor for so long, they can’t be seen bowing to outside pressure or else bring angry criticism upon themselves.

For China, letting its currency appreciate in value would make imported goods cheaper and lessen tension with the rest of the world. Providing full citizen rights to its migrant laborers and allowing wages to rise would also have many beneficial economic aspects. Putting income into the lowest rungs of society always boosts the economy. Letting people migrate with their families would tremendously ease social pressure and make for a healthier society.

Unfortunately, China’s leadership seems addicted to amassing trillions of dollars through huge trade surpluses. They’re having fun buying up natural resources around the world. They could be using some of that immense stash of cash to improve the lot of their peasantry but the country’s peons are just too easy to manipulate and exploit. They’ll make noises about countryside improvements but there too the reality will fall far short of the rhetoric. The only time they will make changes to benefit the poor is when they are cornered and have no choice, which more likely than not, will be coming soon.

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