The (Limited) Rise of Labor in China

Lots of labor stories in the news these days, the two most popular being Foxconn’s wage hikes and reorganizations, and Honda’s repeated strike problems with its China labor force. It’s enough to make one think that collective bargaining is gaining the upper hand in China and that a golden age of workers’ rights is coming soon.

Think again. The reason why wages are going up and the demands of labor are being listened to is a congruence of labor market forces, legal reform and government policy. Whether labor becomes more organized in the future is another question entirely, the answer to which is quite elusive.

So why are we seeing more activity in recent months? First, the relatively new labor law is just now settling in, at least psychologically:

In mid-2008, China introduced a labor law that allows workers with grievances to file complaints and opens a new mechanism for mediation. Publication of the law probably made workers more aware of their rights, experts said. (Washington Post)

The law became effective in 2008, and we’ve seen an increase in labor disputes as a result. However, this kind of legal reform takes time to filter down to the rank and file and to influence workers when they renegotiate agreements.

Second, China’s demographics are finally starting to kick in, and the long-term trend is overwhelmingly in favor of labor:

“This is the thin end of a very long wedge,” said Arthur Kroeber, managing director of GaveKal-Dragonomics, a research firm. He said the number of 15- to 24-year-olds in China is set to fall by one-third over the next dozen years, from 225 million today to 150 million in 2022.

Kroeber noted that as the number of young workers declines, the number of factories needing laborers has increased rapidly. “This is the beginning of a long process in which bargaining power is going to shift from the company to the workers,” he said.

We’ve already started to see some labor shortages in certain areas, including Shenzhen. The trend is predicted to continue and become more common in other parts of the country.

"Steel" - Thomas Hart Benton - 1928

Third, unlike in past years when Beijing’s foremost concern was economic growth, the current policy favored by Hu Jintao and Wen Jiabao places a premium on addressing the income gap via several policy tools, including wage increases.

After years of focusing on luring foreign investment, Chinese government officials are now endorsing efforts to improve conditions for workers and raise salaries. The government hopes the changes will ease a widening income gap between the rich and the poor and prevent social unrest over soaring food and housing prices. (New York Times)

It certainly looks as though conditions have shifted in favor of labor, and yet I’m still sticking to my above statement that we are not about to witness a glorious new age of labor rights in China. The reason is that the gains we’ve seen this year have been limited to things supported by the government, like higher wages, while the individuals responsible for obtaining these concessions have not exactly been hailed as working class heroes.

The Honda strike is illustrative:

The leaders of the strikers at the Honda parts factory were allowed by local government agencies and other authorities to stage a fairly aggressive strike for higher wages, which they did receive from Honda management.

But their movement appears to have been put down quickly: Some of the strike organizers, including Tan Guocheng, a 24-year-old worker from Hunan, were fired for causing the unrest at the factory, according to Tan, who spoke on the phone with The Wall Street Journal.

A Honda spokesman confirms that Tan and another strike leader were fired on May 22 but says the reasons were unrelated to the strike.

While things are looking up for labor, therefore, gains will be limited. This will not provide any solace for industry, of course, which is looking at rising costs. For enterprises in labor-intensive sectors, some hard choices will have to be made.

Moves on wages made by Foxconn, KFC, and Honda are already reverberating through the country, emboldening labor negotiators and causing some firms to consider quitting the Mainland altogether.

Companies who refused to raise salaries have started looking at alternative business operations, with some planning to move manufacturing to inland cities where cheap-labor is available.

A recent survey conducted by the Federation of Hong Kong Industries (FHKI) showed that among 80,000 Hong Kong-invested companies, 37.3 percent of them plan to move from the Pearl River Delta, and 63 percent are thinking of moving away from Guangdong province.

A significant rise in wage demands might also lead to new business models for foreign enterprises, or rather a return to corporate structures that were once thought inferior. For example, after China’s foreign investment laws were liberalized after WTO entry, many investors eschewed the use of joint ventures, preferring the control of wholly foreign-owned enterprises.

JVs have made somewhat of a comeback in the past few years, due in part to China’s aggressive industrial policy, and the trend may continue and deepen with pressure from labor.

[A]t the engine-gear factory in Foshan, near Guangzhou, whose workers went on strike in mid-May and agreed to resume work last week, initial settlement efforts by Honda weren’t effective because the company could not identify the leaders of the walkout. And the leaders they eventually did identify did not necessarily represent the whole group of strikers.

The senior Honda executive said he is not necessarily advocating that every foreign company doing business in China find a local partner, but there are clear benefits in having local help in “connecting with young workers,” he said.

Power is shifting from management to labor, but not in the traditional sense as experienced in the West. This leaves two open questions:

1. Will a more powerful work force also lead to a push for real collective bargaining, and if so, will the government relent at some point and allow real organized labor?

2. If rising costs drive some companies out of China, will this negative outweigh the positive aspects of rebalancing the economy and narrowing the income gap?



16 Comments

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  1. I’m not that worried about Western business being driven out of China. Some may indeed choose to find alternatives in cheaper countries but they may find cities in inner China offer better quality workforce at not much more expensive prices, which would be a perfect development opportunty for Western China areas.

    Despite the fact the rising in wages was triggered by sad incidences of suicides, this is great news for China, as this will start a chain of positive reactions:

    1. Coastal city can lead the way in China’s moving up the value chain into higher tech operations
    2. Inner Cities get the chance to start on the development trail
    3. The increased wages help to sustain China’s domestic demand and continuing ecomonic growth

    Who is going to pick up the tag on all this? The OEMs in China? Highly unlikely. They are already on water-thin profit – the standard factory profit margin is $1 per iPod/laptop. The Western consumers? The price constaints are high in the recession. It is the Western brand name holding corporations that are most likely to have their net profits sqeezed. I’m afraid my heart is not bleeding for them the slightest.

  2. CAN YOU DIG IT!!!!

    -Cyrus

  3. King Tubby

    Hats off to you guys. Again great visuals. If a bridge blog award for non-textual eye-candy is created, this site wins hands down.

    Not an expert, but am posing this question.

    Are threats by foreign companies to relocate to other Asian or South American countries because of cheaper labour costs so much hot air/risible blackmail. According to my newspaper readings, labour inputs are a pretty insignificant imput compared to other factors of production.

    Move to interior Chinese provinces, and hey, transport costs and logistical problems increase.

    There is such a critical mass of production for the export market in China, that a relocation to Vietnam (for instance) is just not on. (The Phillipines …what a joke as an alternative.)

    About the only thing liable to trigger a major exodus is serious PRC political instability.

    • From what I have been seeing state side the last couple of years – the trend is real. In what used to be the nearly exclusive domain of “Made in China”, clothing – there is a large mixture of Jordan, ‘Stans, Vietnam, and other places. Starting to see that in simple made goods as well.

      {snort} Should have listened the foreign factory owners that used to log into the China Daily BBS in late 2007/early 2008 – they were screaming holy hell then what is being discussed on a larger basis now – P.R. China has neared the “Mexican” threshold and only those foreign companies that have a toehole or better in the domestic market are going to stick around. For all those in that nasty paper thin margins of the “Walmarts”, its on to the next land with cheap labor and local muscle to keep it that way.

    • bai ren

      King Tubby. do you seriously think that the costs of transportation will crease so dramatically due to further inland costs than what where initailly incured because of transnational firms locating production of North American and European Goods half a world away???
      Think about the context of your argument
      Lots of love, the white man

      • King Tubby

        bai ren. My post was a bit imprecise. I was not thinking of cheap clothing products moving inland or to places like Guatamala for example.

        More of the really big companies in China turning out digital and other higher value products. Just can see them all moving to another Asian country or even to South America to save on wages imputs.

        Think of all those massive industrial estates in the Pearl River Delta and elsewhere, and the fact that all big companies have got their logistical connections well and truly sorted.

        I just can’t see Beijing or provincial goverments allowing that to happen, especially since China has long passed the reingineering/copycat phase of industrialisation, and is rapidly moving into a creative/patent based phase.

        I have high regard for Chinese technical ingenuity and their ability to bring vastly improved products into the global market.

      • Bai Ren.

        Extra shipping costs from China’s hinterland can add 10,000 – 15,000RMB per container, which (for some products) is going to make the move to the hinterlands economically difficult without moving pricing.

        … if you are talking high tech then that goes by plane largely now anyway, and the increased transport cost as percentage of total product is low enough that it wouldn’t matter.

  4. B-real

    I forget where I read it but it looks like they will bring it back if it doesn’t work out in China. Allot of Chinese companies are moving their establishments to the USA because the cost of operations and overhead is getting way to high and liability is getting greater amongst the work force in China (the nerve). And it helps with their sales when there is a “Made in the US”
    sticker on a Chinese brand product.

  5. Oh boy… just when things looked like there were picking up – this happens (maybe)

    http://www.theregister.co.uk/2010/06/10/foxconn_restructuring/

    Quote: “Foxconn – the massive Taiwan-based contract manufacturer whose clients include Apple, Dell, HP, Intel, Sony, and others – will shutter its mainland China operations in a restructuring that could move as many as 800,000 workers into the ranks of the unemployed.”

    Can anyone get ahold of this article in Chinese and translate it to English (properly)?

    http://orientaldaily.on.cc/cnt/china_world/20100609/00178_001.html

  6. bai ren

    I am little suprised by these recent develoments.
    1. like wang xiao dong (who is maybe a half critical intelectual half organic intelectual wrote in his contributions to china can say no and china is unhapppy) wrote china has been made into the world factory and this must stop… YEAH china is adopting consumerism captialism. take that world!!! china can say yes, i can buy this consumer product!!!
    2. china works upon the principle of models… or at least a major segment of society does. punish the leaders, enourage the results, sometimes, knowingly or not, ppl must take a bronze bullet. if everyone thought they would face no concequences for speaking out who knows what kind of trouble (maybe the often toted and well feared CR results) would occure.
    I agree this will not benifite the workers in the end, consumerism is just a new (and better than free speech) way to subdure the masses. the perception of power is thus economicaly (in todays world non politicaly) transfered as the means of realization (the modernversion of the means of production) is re-envisioned.

    Ke Da Fu, whats the song for this article?

    Something by stompin Tom? or pink floyed’s Money? have you something better?

    I say two more articles like this and ppl will start listening to freedom of 76 by ween… “freedom of the mind”

    • 同志 King Tubby,
      instability and exodus ….. two words I like,
      this for the 工人’s China’s Workers
      song of the article,
      Devo, working in a coal mine,
      love you, one hundred “flowers” boy
      五毛党

      • King Tubby

        You always give the citizens of tubbyland a laugh. Exodus: yeah, I saw Tuff Gong in, I think 1980.

        We are leaving Babylon
        Set the baijiaxing (sic)free.

  7. King Tubby

    People. Do you realise that 99% of the global population don’t give a rats about China in any shape or form at the mo…..just a slave population producing TVs for the intelligent rest of the world to watch football.

    Then it is the Tour de France.

    China will never be a member of the global community, and lets forget about Liu Xiang crawling out of the Birds Nest on his knees like a dog supplicant before the Office of Petitions, Beijing.

    Playa. This sets the bar.

  8. WESTERNER

    The answer to this question is on whether a capitalist or socialist format is used. In Britain we use a mixed approach using certain aspects of socialism or capitalism regarding the power of labour forces. It all depends on if you a private film or a public (Govt controlled firm). The future i think will give the real answer. I will say i am willing to pay more for goods from China if it caused to average Chinese worker to earn more and live better. We all should have to right to at least earn a good wage for a good hard days work.

Continuing the Discussion