RedStarOverChina
30th November 2007, 22:17
OK, this is a hastily written critique for my university assignment.
This might help some of you who are interested in the Chinese economy. Took me 5 hours to research and write, so I hope it's worth a read. ;)
Nowadays, few people doubt the prominence of the Chinese economy in the international economy. Still, the consequences of China’s rise to economic prominence are still in debate. Most economists argue that in purely economic terms, China’s role in the world is overall positive—some leading economists even claim that China prevented a global recession in 2001. But the human cost of China’s economic rise not only in China, but around the world, has been largely ignored by economists overjoyed to see the enormous profit and economic stability created as a result of China’s rise. In this essay I will assess the structure of the Chinese economy and argue that the rapid development in China’s overall economy, much like any other Asian economic success, is built almost entirely upon the sufferings of the working class. More so than other Asian economies, Chinese capitalism has profound negative consequences on the welfare of the working class across the globe. In fact, I will argue that Chinese capitalism and the economy that sprouted as an result, functions to provide cheap goods for consumers and profit for foreign-based multinationals—but not necessarily for the wellbeing of the Chinese working class.
In the late 1970s, China’s leader Deng Xiaoping introduces economic reforms aimed at achieving a market economy—which was dubbed “Socialist market economy with Chinese characteristics”. It did not turn out very “socialist” but it did seem to have some “Chinese characteristics” in it. For example, as the Chinese are traditionally weary of foreign dominance, foreign investors are forced by the government to co-operate with or invest in Chinese companies if they wish to enter the Chinese market—Which to a limited extent, restricts them from taking all the profit in China’s domestic market, at the same time giving a boost to local industries.
But far more importantly in terms of development, Chinese capitalism took the statist, export-based approach as successfully implemented in other Asian countries such as South Korea. As was the case in Korea, the government retained much control over the economy while opening up to foreign investment. The result was a massive concentration of foreign capital in the years that followed. Foreign investment fueled economic development, which is evident in the fact that today 45% of China’s exports are produced by firms with foreign investment. Dramatic economic development has largely been a stabilizing factor in China’s overall society. National pride in China has been strong due to the rapid development. More importantly, people are hopeful regarding their future; as they see changes happening around them every day.
However, economic growth ever since the 80s has been “largely driven by external demand and external supply of finances and resources aimed at meeting that eternal demand.” (Breslin, Shaun, 2007: 191) In other words, the interests of the Chinese workers are not prioritized in this relationship, to say the least. Furthermore, China’s economic boom is largely fueled by export to the developed world (namely Japan, EU and the US). Therefore, if favorable trade terms with these actors are no longer in place, Chinese economy will suffer severely, as did the Japanese economy is late 1980s when the US sought to narrow its trade deficit with Japan. Increasingly, US and the EU are pressuring China to increase the value of its currency, in order to reduce the trade surplus it has with them. Failure to revalue its currency would risk China’s trade relations with the West—which is by no means desirable from China’s point-of-view. However, raising the value of renminbi (China’s currency) might result in as much disturbance to the Chinese economy, and I will explore that possibility later on.
Today, China’s overall economy remains heavily dominated by foreign capital—both financial and intellectual capital. Despite the powerful image the robust Chinese economy projects, it is much more volatile than the economies of developed countries, due to its heavy reliance on export to foreign countries. At the same time, it is foreign capital that makes much of the export industry possible: Foreign-based transnational corporations “control virtually all the intellectual property in China and account for 85% of its technology exports” (Economist, 2005, 61).
Therefore, it is not surprising that foreign companies take the greater part of the profit of goods manufactured in China. Take Apple’s mostly Chinese-manufactured iPod, for example. Even though Chinese workers are forced to work an extra 80 hours per month to produce the gadget, Apple and the retail stores are entitled to most of the profit, leaving little for Chinese factories and their workers; according to a recent study (Linden, Greg, Kenneth L. Kraemer and Jason Dedrick, 2007). The retail price of a 30GB iPod in the US is $299. Out of the $299, $155 is profit made by Apple and the retailers. $93 dollars are used to purchase the hard drive and the display from Japan. Take away other costs such as material and transportation; Chinese factories only get a few dollars out of it, at most.
Naturally, some would consider Chinese capitalism a form of ruthless exploitation—or an onslaught, of the Chinese workers by both Chinese and foreign capitalists, especially considering the tremendous suffering currently endured by the Chinese working class. Each year, hundreds die in China’s private-owned or illegal coal mines. In factories, working conditions are horrendous and wages are kept low, as the employers—both native and foreign, seek to minimize cost and maximize profit. In fact, in the province of Guangdong—the most productive province in China, the wage of assembly line workers in real terms has actually decreased as much as 30% in the past decade. (Gough, 2005) According to Business Week, the US Bureau of Labor Statistics concluded that 30 out of the 38 million urban manufacturing workers earn an average of $1.06 an hour. About 71 million suburban and rural manufacturing workers earn merely 45 cents per hour on average; whereas in Mexico, the number is at least $2.84 an hour. (Coy, 2004) Furthermore, “72.5 percent of China’s 100 million migrant workers were owed wages”, according to government survey. (Lee, 2004, 2) Consequently, the wealth gap between the rich and the poor continue to escalate; unrests across the China flare up.
Obviously, the wealth created by China’s economic boom has not been fairly distributed to the Chinese working class. But attempts to narrow the financial gap between the classes by increase the minimum wage is also not without consequences. In the case of wages increase for workers, capitalists, especially foreign-based multinationals would pull out immediately and move to elsewhere such as India, where the average wage is already lower than that of China. A radical increase in the value of Chinese currency would do the same. A higher wage or higher exchange rate would increase the cost for foreign companies, and they would not hesitate to pull out as fast as they came in, in favor of a more underdeveloped country to exploit; and there sure are many of those. As I have mentioned before, a pull-out of foreign investment due to any of the reasons mentioned above, would have great negative effects on the Chinese economy and bring the economic boom to a halt. In other words, a hike in worker’s wages would risk slowing down economic development. That, in turn, might destabilize China as it leaves masses of the already discontent poor with no other option than to demonstrate for their rights. We therefore come to the conclusion that the current form of Chinese capitalist system is both incapable and unwilling to increase the wages of its workers—the best thing decision makers in Beijing could wish for is to maintain the status quo and keep wages low.
That, from a Chinese working class perspective, is of course not very desirable. They are already expressing that feeling through the increasingly violent protests, strikes and demonstrations. Furthermore, these expressions of anger seem to be part of a growing trend. According to one Washington Post article, the Chinese working class is getting increasingly militant as workers shed their traditional fear of authority. The article cites a violent strike in a Taiwanese-owned shoe factory, Stella International Ltd., in which workers “sacked company facilities and severely injured a Stella executive”. (Cody, 2004) These are clear challenges to Chinese capitalism that it has not been able to resolve despite prevailing nationalist sentiments.
The threat Chinese capitalism poses not only to Chinese workers, but to the workers around the world—especially other Asian workers, are also evident. As factories one by one move to China, workers in countries such as South Korea, Philippines and Malaysia are feeling the pressure. Employers in those countries can black mail the workers, threatening to ship their jobs to China unless they show more enthusiasm in being exploited. Asian workers are being “pitted against each other in a contest to match the level of labor exploitation achieved in China, with disastrous consequences for all”. (Hart-Lansberg, Martin, Paul Burkett 2007: 128)
In conclusion, the Chinese model of economic development, i.e., statist, export orientated capitalism, is by no means desirable from a working class perspective. Globalization means that multinationals can and will easily slip away at the slightest sign of improvement of worker’s rights and wages. This effectively means that the workers’ conditions simply will not improve by much in the foreseeable future, since the increasing multinational corporations will adventure to every corner of the world to fulfill their homeland consumer demand and of course, their own pockets. The global economic order is one designed to achieve exactly that with utter disregard for those who produce. For most workers, the only way out of this nightmare in epic proportions is to organize themselves into an effective resistance movement and force the government to change its entire economic platform into a more humane, and lasting method of development.
Bibliography
Breslin, Shaun, China and the Global Political Economy. Paulgrave Macmillan, 2007.
Cody, Edward. (2004) “Workers in China Shed Passivity: Spate of Walkouts Shakes Factories”, Washington Post, 27, November.
Economist. (2005), “The Struggle of the Champions”, 6 January.
Gough, Neil. (2005), “Trouble on the Line”, Time Asia, 31 January.
Hart-Lansberg, Martin and Paul Burkett, “China and the Dynamics of Transnational Capital Accumulation,” in Marxist Perspectives on South Korea in the Global Economy. Ashgate Publishing, 2007.
Linden, Greg, Kenneth L. Kraemer and Jason Dedrick. “Who Captures Value in a Global Innovation System? The case of Apple's iPod” The Paul Merage School of
Business, June 2007
This might help some of you who are interested in the Chinese economy. Took me 5 hours to research and write, so I hope it's worth a read. ;)
Nowadays, few people doubt the prominence of the Chinese economy in the international economy. Still, the consequences of China’s rise to economic prominence are still in debate. Most economists argue that in purely economic terms, China’s role in the world is overall positive—some leading economists even claim that China prevented a global recession in 2001. But the human cost of China’s economic rise not only in China, but around the world, has been largely ignored by economists overjoyed to see the enormous profit and economic stability created as a result of China’s rise. In this essay I will assess the structure of the Chinese economy and argue that the rapid development in China’s overall economy, much like any other Asian economic success, is built almost entirely upon the sufferings of the working class. More so than other Asian economies, Chinese capitalism has profound negative consequences on the welfare of the working class across the globe. In fact, I will argue that Chinese capitalism and the economy that sprouted as an result, functions to provide cheap goods for consumers and profit for foreign-based multinationals—but not necessarily for the wellbeing of the Chinese working class.
In the late 1970s, China’s leader Deng Xiaoping introduces economic reforms aimed at achieving a market economy—which was dubbed “Socialist market economy with Chinese characteristics”. It did not turn out very “socialist” but it did seem to have some “Chinese characteristics” in it. For example, as the Chinese are traditionally weary of foreign dominance, foreign investors are forced by the government to co-operate with or invest in Chinese companies if they wish to enter the Chinese market—Which to a limited extent, restricts them from taking all the profit in China’s domestic market, at the same time giving a boost to local industries.
But far more importantly in terms of development, Chinese capitalism took the statist, export-based approach as successfully implemented in other Asian countries such as South Korea. As was the case in Korea, the government retained much control over the economy while opening up to foreign investment. The result was a massive concentration of foreign capital in the years that followed. Foreign investment fueled economic development, which is evident in the fact that today 45% of China’s exports are produced by firms with foreign investment. Dramatic economic development has largely been a stabilizing factor in China’s overall society. National pride in China has been strong due to the rapid development. More importantly, people are hopeful regarding their future; as they see changes happening around them every day.
However, economic growth ever since the 80s has been “largely driven by external demand and external supply of finances and resources aimed at meeting that eternal demand.” (Breslin, Shaun, 2007: 191) In other words, the interests of the Chinese workers are not prioritized in this relationship, to say the least. Furthermore, China’s economic boom is largely fueled by export to the developed world (namely Japan, EU and the US). Therefore, if favorable trade terms with these actors are no longer in place, Chinese economy will suffer severely, as did the Japanese economy is late 1980s when the US sought to narrow its trade deficit with Japan. Increasingly, US and the EU are pressuring China to increase the value of its currency, in order to reduce the trade surplus it has with them. Failure to revalue its currency would risk China’s trade relations with the West—which is by no means desirable from China’s point-of-view. However, raising the value of renminbi (China’s currency) might result in as much disturbance to the Chinese economy, and I will explore that possibility later on.
Today, China’s overall economy remains heavily dominated by foreign capital—both financial and intellectual capital. Despite the powerful image the robust Chinese economy projects, it is much more volatile than the economies of developed countries, due to its heavy reliance on export to foreign countries. At the same time, it is foreign capital that makes much of the export industry possible: Foreign-based transnational corporations “control virtually all the intellectual property in China and account for 85% of its technology exports” (Economist, 2005, 61).
Therefore, it is not surprising that foreign companies take the greater part of the profit of goods manufactured in China. Take Apple’s mostly Chinese-manufactured iPod, for example. Even though Chinese workers are forced to work an extra 80 hours per month to produce the gadget, Apple and the retail stores are entitled to most of the profit, leaving little for Chinese factories and their workers; according to a recent study (Linden, Greg, Kenneth L. Kraemer and Jason Dedrick, 2007). The retail price of a 30GB iPod in the US is $299. Out of the $299, $155 is profit made by Apple and the retailers. $93 dollars are used to purchase the hard drive and the display from Japan. Take away other costs such as material and transportation; Chinese factories only get a few dollars out of it, at most.
Naturally, some would consider Chinese capitalism a form of ruthless exploitation—or an onslaught, of the Chinese workers by both Chinese and foreign capitalists, especially considering the tremendous suffering currently endured by the Chinese working class. Each year, hundreds die in China’s private-owned or illegal coal mines. In factories, working conditions are horrendous and wages are kept low, as the employers—both native and foreign, seek to minimize cost and maximize profit. In fact, in the province of Guangdong—the most productive province in China, the wage of assembly line workers in real terms has actually decreased as much as 30% in the past decade. (Gough, 2005) According to Business Week, the US Bureau of Labor Statistics concluded that 30 out of the 38 million urban manufacturing workers earn an average of $1.06 an hour. About 71 million suburban and rural manufacturing workers earn merely 45 cents per hour on average; whereas in Mexico, the number is at least $2.84 an hour. (Coy, 2004) Furthermore, “72.5 percent of China’s 100 million migrant workers were owed wages”, according to government survey. (Lee, 2004, 2) Consequently, the wealth gap between the rich and the poor continue to escalate; unrests across the China flare up.
Obviously, the wealth created by China’s economic boom has not been fairly distributed to the Chinese working class. But attempts to narrow the financial gap between the classes by increase the minimum wage is also not without consequences. In the case of wages increase for workers, capitalists, especially foreign-based multinationals would pull out immediately and move to elsewhere such as India, where the average wage is already lower than that of China. A radical increase in the value of Chinese currency would do the same. A higher wage or higher exchange rate would increase the cost for foreign companies, and they would not hesitate to pull out as fast as they came in, in favor of a more underdeveloped country to exploit; and there sure are many of those. As I have mentioned before, a pull-out of foreign investment due to any of the reasons mentioned above, would have great negative effects on the Chinese economy and bring the economic boom to a halt. In other words, a hike in worker’s wages would risk slowing down economic development. That, in turn, might destabilize China as it leaves masses of the already discontent poor with no other option than to demonstrate for their rights. We therefore come to the conclusion that the current form of Chinese capitalist system is both incapable and unwilling to increase the wages of its workers—the best thing decision makers in Beijing could wish for is to maintain the status quo and keep wages low.
That, from a Chinese working class perspective, is of course not very desirable. They are already expressing that feeling through the increasingly violent protests, strikes and demonstrations. Furthermore, these expressions of anger seem to be part of a growing trend. According to one Washington Post article, the Chinese working class is getting increasingly militant as workers shed their traditional fear of authority. The article cites a violent strike in a Taiwanese-owned shoe factory, Stella International Ltd., in which workers “sacked company facilities and severely injured a Stella executive”. (Cody, 2004) These are clear challenges to Chinese capitalism that it has not been able to resolve despite prevailing nationalist sentiments.
The threat Chinese capitalism poses not only to Chinese workers, but to the workers around the world—especially other Asian workers, are also evident. As factories one by one move to China, workers in countries such as South Korea, Philippines and Malaysia are feeling the pressure. Employers in those countries can black mail the workers, threatening to ship their jobs to China unless they show more enthusiasm in being exploited. Asian workers are being “pitted against each other in a contest to match the level of labor exploitation achieved in China, with disastrous consequences for all”. (Hart-Lansberg, Martin, Paul Burkett 2007: 128)
In conclusion, the Chinese model of economic development, i.e., statist, export orientated capitalism, is by no means desirable from a working class perspective. Globalization means that multinationals can and will easily slip away at the slightest sign of improvement of worker’s rights and wages. This effectively means that the workers’ conditions simply will not improve by much in the foreseeable future, since the increasing multinational corporations will adventure to every corner of the world to fulfill their homeland consumer demand and of course, their own pockets. The global economic order is one designed to achieve exactly that with utter disregard for those who produce. For most workers, the only way out of this nightmare in epic proportions is to organize themselves into an effective resistance movement and force the government to change its entire economic platform into a more humane, and lasting method of development.
Bibliography
Breslin, Shaun, China and the Global Political Economy. Paulgrave Macmillan, 2007.
Cody, Edward. (2004) “Workers in China Shed Passivity: Spate of Walkouts Shakes Factories”, Washington Post, 27, November.
Economist. (2005), “The Struggle of the Champions”, 6 January.
Gough, Neil. (2005), “Trouble on the Line”, Time Asia, 31 January.
Hart-Lansberg, Martin and Paul Burkett, “China and the Dynamics of Transnational Capital Accumulation,” in Marxist Perspectives on South Korea in the Global Economy. Ashgate Publishing, 2007.
Linden, Greg, Kenneth L. Kraemer and Jason Dedrick. “Who Captures Value in a Global Innovation System? The case of Apple's iPod” The Paul Merage School of
Business, June 2007