China’s Strikes: A Foreign Affair

This Bystander will be convinced that the supposed groundswell of factory workers’ discontent with their pay and conditions is a significant force once the strikes we have seen in recent weeks that have hit car production at Honda and now Toyota plants spread beyond foreign-owned factories to domestically-owned ones. One of the purposes of the news blackout on these strikes is to forestall that happening through copycatting. There is no sign that the authorities will tolerate widespread illegal industrial action or the circumvention of government-sanctioned unions at Chinese-owned factories.

China’s Welcome Rising Wages

Much of the commentary about China written by non-Chinese, scholarly, commercial, journalistic, is written by Americans, as weight of numbers suggests it would. That may be, though, why historical perspective is often missing. America is a country where history is regarded as the refuse of the present rather than prologue to the future. As we read coverage of the strikes and pay rises at the likes of the Foxconn and Honda factories and of Uncle Wen Jiabao’s tribute to the migrant workers filling all the other workshops and assembly plants of China’s industrial heartland, this strikes us as being particularly the case when it comes to China’s economic development.

There is an arc to industrial revolutions. Economies transverse it in their own ways and at their own speeds, but they don’t avoid it. That is as true for China as it was for England, Germany, the U.S., Japan, South Korea and many others before it.  One characteristic of China’s industrial revolution is that it is being carried out under the umbrella of state-owned capitalism. Another is that, unlike, say, Japan, which became the low-cost export manufacturer to the world by taking labour out of manufacturing, China did so by putting low-cost labour in.

That was always going to be unsustainable as China’s industries started moving up the development ladder as they are now doing. One measure of that is the rising level of capital per employee. Another is the rising skill levels being required from workers. The inevitable consequence is a rise in productivity. The International Labor Organization’s most recent biennial international productivity study shows China’s productivity increasing by an annual average of 5.7% since 1980 (the figures run to 2006 but the trend is clear). Wages should be rising to reflect that, just as wages in England and America did at comparative stages of development. (Not that those pay rises didn’t come without their share of labor struggles.)

Even the scale of pay rises being seen at Foxconn, a special situation anyway, and Honda would not materially change retail prices for China’s exports. Labour accounts for about 5% of the price of consumer electronic goods like an iPhone. There a plenty of points along global supply chains where some if not all of any wage cost increases can be absorbed. If wage inflation is to push manufacturing out of the present industrial heartlands it is more likely to go to inland than to Vietnam or other lower-cost countries. True, some Western multinationals are looking at shortening their international supply chains, but that is more because of factors such as event risk (think volcanic dust disrupting transport) and carbon footprint concerns than labour costs.

There is one more reason to cheer rising wages in China. More money in the pockets of Chinese workers and thus more purchasing power. That is a prerequisite for domestic-demand driven growth.

Honda Strike Presages Higher Wage Costs

Industrial strikes beyond token protests are uncommon in China but growing in number by all accounts. The one at a Honda parts factory in Foshan that has shut down all four of the Japanese car makers assembly lines in the country is notable. It is being talked of as the largest industrial action since China started opening up its economy to foreign investment.

Workers at Honda’s Foshan plant are demanding that their monthly salaries be raised from 1,000-1,5000 yuan ($146-220) to 2,000-2,500 yuan. Minimum wage in the city is 920 yuan. The plant employs some 1,850 workers making transmissions and engine parts for Honda’s three joint venture factories building cars for the domestic market and its one that makes the export-only Jazz compacts. They say they want more money to offset rising consumer prices.

Negotiations between the company and the workers broke down, prompting local officials to step in. With labor shortages being reported in the Pearl River Delta, workers have a stronger bargaining hand than before. So manufacturing wage costs seem likely to rise across the board.