Tag Archives: labor

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.

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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.

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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.

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Labor Shortages Will Hasten China’s Inevitable Economic Change

For a long time there has been a striking difference between the way China and Japan expanded their economies through export-led growth. Japan made its goods cheaper by taking labour costs out through systems and automation. China did so by putting low-cost labour in. The low-cost labour model was always going to be unsustainable if China was to move up the development ladder towards higher-valued manufacturing. Labour shortages now showing up in the Pearl River delta and other coastal manufacturing heartlands — and noted by Prime Minister Wen Jiabao in his web chat on Saturday — may be the trigger for this and it could also be one of the unintended consequences of last year’s massive stimulus spending combining with Beijing’s moves to narrow the income gap between coast and country.

The money flowing to the inland has created jobs and opportunities closer to home for the 150 million migrant workers who before the global economic slowdown had flocked to the export factories of the coasts. They were dispatched home when exports slumped. Now exports are growing again, they have chosen not to come back, despite employers offering better pay and conditions and provinces raising minimum wages. We are now seeing signs of export manufacturers reorganizing to lower unit labour costs through more efficient production and to move up the value chain with their products as has been happening for a couple of years. The timing could not be better. A growing domestic market provides them with alternative customers. Rising wages will fuel that domestic consumption, so it is a virtuous circle as well as being part of the cycle of economic development that all economies follow.

Manufacturers would anyway have to do that because of underlying demographic changes. The population is aging in a way that will change the country from being inherently a surplus one into a deficit one. The fall in world trade, the slump in China’s exports and now the shortage of hands at the workbenches of the Pearl River delta is only hurrying forward the inevitable.

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Employers Paradise

There are 200 million migrant workers in China’s cities, with a potential backup pool of 100 million more waiting in the countryside. They see themselves treated as second class citizens at best, according to a survey by Shanghai’s Fudan University, working long hours that make them accident-prone from tiredness and too weary to study for the qualifications to get a better job. Compounding their misery, inflation is more than chewing up rising earnings.

Not that much of that is news. But this is one of the first surveys to be published since a new labor law came into effect at the beginning of this year, even though the survey’s field work was probably done last year.

The new law is meant to protect worker’s rights, simplifying a hodgepodge of laws, regulations and judicial decrees. One loophole closed is the one that let employers deny workers rights by the simple expedient of not issuing the employment contract in which the rights were enshrined; workers now get an employment contract by default.

Donald H. Straszheim, who runs the China practice of Roth Capital Partners, writes in Forbes:

What we are already seeing is the creativity of employers to find ways to circumvent the new rules to avoid being saddled with higher costs.

We are seeing new labor contracts, two half-time shifts, the use of outside “staffing companies,” the creation of “new companies” to do the same work, so-called voluntary resignations before year-end 2007 only to be rehired on Jan. 1, 2008, and the like. Talk about creativity. Not surprisingly, employers have more power than workers–even in China.

The old rules made China an employers paradise because they were laxly enforced in the extreme, especially in the private sector (state and foreign-owned enterprises largely played by the book). Will the new ones, drawn up partly in response to foreign criticism of China’s labor rights, and partly in response to growing labor unrest, fare any better? It will all come down to enforcement.

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