Of Strikes and Suicides

BY LANG YAN
Jul 25, 2010

Recent events at Foxconn and Honda have turned the spotlight on China’s workers. Is the era of cheap Chinese labour coming to an end?

China’s economic stimulus has given large subsidies for car sales, and car manufactures are attempting to rapidly increase production in China. Honda plans to add a third to its Chinese production by 2012. But its integrated production process is vulnerable to strike activity. This is particularly true of transmission plants, which are highly automated and expensive to construct. Thus they are usually put in the most stable regions, notes the New York Times. But the stability of the Chinese working class is now in doubt. According to the Wall Street Journal:

“The strike has exposed unexpected vulnerabilities in Honda’s China supply chain. Because of the relative absence of labor unrest in China, Honda makes do with only one source of transmissions there, the Foshan factory that supplies roughly 80% of demand, according to Mr. Fujii. The rest are brought in from Japan. Typically, Honda insists on at least two suppliers of parts, partly to protect against any industrial action that might cripple production.”

 

The broader picture

Meanwhile the China Daily (in an article now taken off their website) used the strike to editorialize that the Chinese state needs to do more to raise the wages of workers. Since the end of the strike, Chinese media coverage has continued while broadening its analysis. At the same time, the government seems to be increasing its efforts at raising wages and internal consumption. This follows several years of increased investment for rural China, which means there is less pressure for peasants to migrate out for work.

The government seems to be increasing its efforts at raising wages and internal consumption.

What does this mean in terms of the changing Chinese political economy? A few points: Increasing wages in China could help rebalance the global economy. As their wages increase, Chinese workers will be able to spend more (the wage share of GDP fell from 56.5% in 1983 to 36.7% in 2005). A rise in internal demand will mean a drop in the savings rate, in turn forcing a rise in the savings rate in the US. This will likely also mean inflation, which is already a problem with the huge Chinese stimulus.

Yet inflation is also another way – other than a direct change in the exchange rate – for the Chinese state to rebalance its trade relationship with the US. The power of the export manufacturers in China seems to have been able to keep the state from changing the exchange rate to any great extent, but inflation might help take care of this for the state. Of course inflation will eat into wage increases and possibly lead to more social unrest. Meanwhile, the Beijing government announced on June 3rd that it was raising the minimum wage by 20% in response to inflation – the past few years it was raised about 10% per year. Other regions are following suit.

Arthur Kroeber argued in the March issue of China Economic Quarterly that China’s cheap labour regime was coming to an end and that wage inflation will drive up the consumption share of GDP. In the planning for the 12th Five Year Plan, the CCP itself emphasizes this rebalancing and the important role that raising the wage share of GDP should plays in the process.

At the same time, some commentators seem to be taking this argument a bit too far. Andrew Peaple states that “the dynamics of China’s economic development are moving inexorably in favour of the country’s workers.” While this will change the shape of the Chinese economy, its effect on capital will be mixed. Higher wages will mean more consumption, helping many companies as much as it hurts. But the assembly and clothing industry in the Southeast will be hit hard, as those plants are both more easily moved to other, cheaper-wage countries and have thinner profit margins. It is too early to say what this transition (of the Chinese economy and of the Chinese labour process) might mean more globally.

 

The post was originally published on China Study Group in June 2010.

 

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