EconoChina

A blog on Chinese economy & society

Posts Tagged ‘strike

Chinese labor saga continues

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Local HK media is reporting that 300 workers at the Beijing factory of Korea’s Lotte Group have been striking for 3 days over wages, shutting down production completely.

The workers allege that Lotte, while officially pays them Rmb1,700 a month, deducts many “fees” from their paycheck, resulting in real monthly pay of only Rmb900, which is lower than Beijing’s minimum wage.

The strikes at Honda etc.had received wide publicity and tacit governmental support. Although this newest episode of labor dispute is different in that it happens in the nerve center of China, I expect it to be resolved in favor of the workers, as their quest is inline with the government’s goal of rebalancing the Chinese economy.

Written by Cindy Luk

August 19, 2010 at 2:41 am

Posted in China, Industries & Companies

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When labor is not labor

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Naked Capitalism has highlighted a piece on the NYT  about protesting ex-bank workers. The article itself wasn’t too bad by NYT standard despite snides about poor divorced protester moving to Beijing to be “closer to the country’s leaders” and other useless commentaries. The interpretation by Yves Smith, though, is completely off by suggesting “the futility of labor action against entities near and dear to the officialdom”.

Yes, Honda and Foxconn are foreign-owned (btw, the Chinese do not see Taiwanese as foreign), and strikes against them had subtle governmental support. But could there be other reasons behind this difference in tolerance? Things like:

  1. The southern manufacturers with “approved” strikes are mainly exporters, while the banks focus on domestic market.
  2. Workers at the southern manufacturers are mostly young, unskilled country migrants while the ex-bank employees are middle-aged, effectively unskilled, officially city dwellers.
  3. Raising the wages of the unskilled migrants force the exporters to be more competitive while the banks need to reduce their bloated headcounts to be efficient.
  4. Raising wages for migrants helps rebalancing the Chinese economy and builds a middle class, while rehiring the ex-bank employees will…hmm…make their lives better.

Whatever you think of firing these middle-aged people with no real marketable skills, the fact remains that there is economic rationale behind stonewalling their efforts and supporting the cause of the migrant strikers. Whether national policy should be determined solely by economic considerations is another issue though.

Written by Cindy Luk

August 16, 2010 at 7:42 pm

Posted in China, Industries & Companies, Media

Tagged with ,

Chinese labor disputes and consumption

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The AP has a nice article on the recent labor disputes, in the context of the transition of Chinese economy.

Boosting wages fits in with Beijing’s strategy of closing the income gap and promoting more equal growth in coming years, said Liu Shanying, an analyst at the Chinese Academy of Social Sciences’ Institute of Political Science in Beijing.

“If incomes won’t go up, how can domestic demand be boosted? Strikes for better pay are very much in line with the big trend of Chinese economic development,” he said.

One reason behind the more assertive work force is a shifting job market since China pumped up its economy with massive stimulus spending to fend off the global recession. Manufacturing has begun to expand into the Chinese interior, leaving traditional industrial enclaves on the coast competing for labor and giving workers a stronger bargaining position.

Workers “have the upper hand, and also sense the government is trying to address inequalities, so the workers feel more comfortable in pushing for high wages,” said Lee. [Chang-Hee Lee, a specialist on industrial relations at the International Labour Organization’s Beijing office.]

As I said before, all these are part and parcel of China’s push to rebalance its economy geographically (away from the Eastern coast) and structurally (towards households and consumption). Therefore, China is going down the path of internal revaluation rather than external adjustment via the currency. As a result, we are going to see an explosion of Chinese consumption in the coming decade. But GDP is likely to be more moderated. There already have been discussions on the viability of the current 8% “minimum growth target”. Not that China needs that high a growth rate anymore, with less people entering the workforce due to changes in demographics.

Does this mean the recent change in currency regime is nothing but a hoax? Yes if you are an exporter competing against China. But for China, this is just a necessary step towards turning the RMB into a reserve currency in the future. With substantial internal revaluation and the elimination of many export subsidies, some punters are already calling the RMB overvalued. Li Dao-kui, a member of the Chinese Monetary Policy Committee, suggested that it would take the RMB 10-15 years to be fully convertible and competitive as a reserve currency.

Written by Cindy Luk

June 27, 2010 at 9:31 pm

The real Chinese revaluation story

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The media has been busy propagating and debunking the RMB revaluation story, but I think both narratives are off-target. Yes, China is having a significant revalution, just not with its currency.

Instead, China has chosen an aggressive program of internal revaluation, i.e. raising costs for the exporters internally, by inducing wage-led inflation, cutting export subsidies, and stiffening environmental regulations etc.

Most of the recent coverage of China’s labor disputes have focused on the workers’ being simply more demanding in sharing the spoils. But one should also note the subtle, and very important, support that the Chinese government is giving them. Besides rallying behind the workers in state media, labor activists have been allowed to organize freely (rare for China’s pro-capital government), so long that they train the target on wage demand only. Raising the minimum wage is also a cue for the workers that their action is being sanctioned by the state.

Why is China going this route instead of currency appreciation recommended by the developed economies? Well, this is simply a better way of adjustment for China. With currency appreciation, the losses to Chinese exporters become gains for exporters in other countries, i.e. a net loss of wealth for China. With internal revaluation, the benefits go towards Chinese workers, i.e. only a redistribution of wealth within China. This later approach also helps in building up a middle class and reorient the economy towards more consumption.

Another way to achieve internal revaluation is by cutting export subsidies. China has announced cutting export rebates on over 400 types of products deemed energy-intensive or polluting. This allows the government to target only industries deemed inefficient and force them to upgrade, and helps soothing trade relations with the West as a bonus.

The implementation of environmental regulations has also been tightened, to the benefits of future generations of Chinese. Again, this is an area that simple currency appreciation may not be as effective.

At the end of the day, although China has decided to bite the bullet and pony up for rebalancing its economy, it still seeks to minimize the costs and maximize the benefits. It’s just that their preferred method may not be the most desirable one from the POV of the developed economies.

Written by Cindy Luk

June 24, 2010 at 5:17 am

Foxconn to relocate to inland China

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Hong Kong media has reported that Foxconn is to close most of its Shenzhen (that’s the suicides factory located along the eastern coast) operations and relocate to factories more inland, like the one up north in Tianjin and to the southwest in Chongqing. There are also reports that it’s reviewing opportunities in India. So perhaps some operations will eventually move out of China all together.

Company spokesperson maintains that the relocation has been in planning for a long time, and is in accordance with Guangdong government’s plan to upgrade coastal industries. However, while the upgrade proposal has been out for two years, it’s only recently that Foxconn is seriously considering relocation. So this is clearly driven by increased costs along the coast. Wages at inland factories located in Tianjin and Wuhan, for example, are only half of that at Shenzhen.

This type of relocation will most likely be welcomed by the government (the central government anywayz. Not sure about that of Shenzhen) which is busy rebalancing the economy, both geographically and structurally. It also helps put a lid on coastal workers’ wage demand to less than explosive and hence more adaptable for the exporters.

Besides wage concern, China’s pending new trade agreement with Taiwan, which will eliminate most tariffs, prompt some Taiwanese companies ling Ting-Yi to consider relocating back to Taiwan to cut down on transportation costs to Southern China.

So all in, major shifts in economic make up is at hand right now.

Written by Cindy Luk

June 13, 2010 at 4:18 pm

Posted in China, Macro

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Impact of higher Chinese wages

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The successes of workers at Foxconn and Honda, coupled with tacit support from a Chinese government determined to build a domestic market, have predictably embolden workers elsewhere. What’s surprising is the speed and ferocity of the spread of the labor unrest.

Besides a second strike at Honda, there are many copycat strikes in Guangdong and in the Yangtze River Delta to the north. To the dismay of many foreign investors, the unrest has even touched provinces like Jiangxi and Shaanxi,  inland areas that previously were considered as possible sites for relocation in order to lower costs. Now they are investigating opportunities at other countries. Foxconn is looking at India, and Vietnam is already a hot destination for lower end manufacturers.

So, does this mean China’s days as world’s factory is numbered? Not likely, as labor make up only a small portion (7% by some estimate) of total costs. The lower end manufacturers are likely going to move elsewhere, and the rest simply are going to move up the value chain, following the same path of Asian tigers like Taiwan and South Korea.

Is iPod going up in price? I doubt it. Foxconn and other manufacturers are just going to eat up the wage hike. Low end manufacturers have slimmer profit margin for cost absorption. But I think they will eventually opt to move out of China to the next low cost mecca rather than raising prices collectively.

Is this going to be a boom to workers in the developed economies? Hello! What have you been drinking? The Chinese are moving UP the value chain, which means that they are going to compete head-to-head with the developed economies which have already reached peak productivity. Feel free to ask Siemens whether the rise of Chinese high-speed train manufacturers is good for their business or not, or quiz Japanese car manufacturers on the impact of Kia and Hyundai.

Hey, Chinese workers with higher income are going to consume more, benefiting some international suppliers eventually, right? Right. But they also consume more natural resources, driving up the costs of practically every commodity. Plus the Chinese market is very difficult to penetrate and China runs explicit industrial policies to promote domestic companies. Japan is exhibit A of how powerful these non-tariff trade barriers can be.

Bottom line is, I just don’t get the euphoria of many western commentators.

Written by Cindy Luk

June 11, 2010 at 5:55 am