Here's a couple of articles about China's wage rises.
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email [email protected] to buy additional rights.
Why Americans should learn to love the renminbi
By David Pilling
Until recently, few workers in America, Europe or Japan spent much time worrying about why they earned 10, 20 or even 30 times what a Chinese worker did. What was it that allowed, say, someone stacking boxes in a US factory to earn multiples of the wage earned by a Vietnamese or Mexican worker?
Some may have fondly imagined that they worked harder or, put another way, that Mexican or Chinese workers were lazy or incompetent. Others, much closer to the mark, may have put their higher wages and productivity down to their country’s institutional advantages: its legal and education system, and its infrastructure and technology. Some, perhaps subconsciously, may simply have considered their superior living standards a god-given right.
Not any more. As hundreds of millions of workers in the emerging economies, especially within Asia, have entered the global workforce, they have begun the slow process of levelling the playing field. Developing countries are improving their standards of education, infrastructure and technology, even if their legal and political institutions still lag behind. Incomes are narrowing. In 1990, at purchasing power parity, gross domestic product per capita in China was $800 against $23,000 in the US, a differential of 29. By last year that had shrunk to 6.2, according to figures from Royal Bank of Scotland. By 2015 it is expected to narrow to 4.3.
This convergence should not surprise us. Poorer countries are correcting the huge divergence in incomes that occurred at the start of the industrial revolution when western economies made unprecedented strides in productivity. That was an aberration, albeit one that lasted nearly 200 years. For a neutral observer who wishes the greatest well-being for the greatest number of people, the reversal of that trend is good news. After all, hundreds of millions of people have crawled from under the rock of poverty.
Back on planet earth, the view looks very different. This week the US Senate passed a bill that seeks to punish China for holding down its currency. In Tuesday’s Republican debate, Mitt Romney, frontrunner as the party’s nominee, accused former US leaders of having “been played like a fiddle by the Chinese”.
That rhetoric echoes real anger about the “disappearing” US middle class. Unemployment is stuck at 9.1 per cent. The US Census Bureau says median wages are lower in real terms than they were in 1999. The presumed natural order, in which American children would automatically be richer than their parents, has been overturned. The plight of the middle class is made all the more bitter by the concentration of wealth among the super-rich. The globalisation that has uncorked opportunity for millions in the developing world has also served the interests of a global elite.
There are things America and other advanced countries can do to raise productivity and to address inequality. But tinkering with China’s currency is not one of them. The arguments, pretty well rehearsed, include:
* Many items supposedly made in China are just assembled in China. A report by the Asian Development Bank Institute in 2010 found that, of the estimated $178.96 wholesale cost of an iPhone, the value of assembly work in China accounted for only $6.50. Most of the manufacturing cost comprises high-precision components made not in low-wage economies, but in high-wage ones such as Japan and South Korea.
* Since June 2005, when the renminbi was first unpegged, the Chinese currency has appreciated 30 per cent against the dollar. The real rate of appreciation is greater given higher Chinese inflation. We should not be surprised that this has failed to do the trick. The yen virtually doubled in value within two years of the 1985 Plaza Accord, with little impact on Japanese exports.
* Even if Chinese exports do become less competitive, jobs are unlikely to flock to high-wage economies such as the US. Rather they will tend to go to other low-wage ones such as Bangladesh, Vietnam, Indonesia and Mexico.
To confuse the issue further, a minority of the vitriol against China and other low-wage countries is spiced by racism. A not-untypical post on the FT’s website recently asked how American workers could be expected to compete against Chinese “coolies and slave labour”? Use of the first term speaks for itself. The second suggests a (probably insincere) concern for the lot of the exploited Chinese worker.
That view does not stack up. Migrant workers have left the countryside in their millions, not because they crave exploitation but rather because city life offers greater opportunity. According to RBS, the average manufacturing wage of Chinese workers has increased tenfold in the past two decades. The differential with western wages is narrowing. Whether it ever closes entirely is quite another matter. But demanding China revalue its currency a little faster won’t make a blind bit of difference either way.
The watershed moment for China’s beleaguered migrant workers came on a hot day in May last year.
Striking workers at the Nanhai Honda components factory in the southern manufacturing hub of Guangdong province found themselves facing off against 200 enforcers in yellow baseball caps, sent in by their own trade union’s bosses to put them back to work.
MORE RELATED TO THIS STORY
China feeling the squeeze from higher prices
Labour unrest swells in China
China’s changing labour landscape
A fight broke out and several were injured -- but the workers made their point, winning an apology from their official union, a 33 per cent pay increase from their employer (amounting to an average of 611 yuan, or $95, per month), and setting an example for many more walkouts that followed at automotive manufacturers that summer.
The case, cited in a new study of China’s labour force, suggests the new generation of migrant workers is very different than their predecessors, who are building China’s roads, railways and cities and running its factories. They are more educated, with some 67.2 per cent having a high school education or more, change jobs more often and are less likely to come straight from the farm. And they are far less willing to put up with the long hours, poor working conditions and low pay that their parents settled for.
“The movement was propelled by regular rises in the cost of living, and a growing sense that workers were being denied a fair share not only of their own company’s profits but of the benefits accruing to society as a whole,” read the report, produced by the Hong Kong-based nonprofit China Labour Bulletin, based on events from 2009 to summer 2011. “The government and employers have been put on notice that the standard business model of the last two decades, of management dictating pay and working conditions to their employees, is no longer sustainable, and that workers need and deserve a greater say in their own affairs.”
Local governments began raising their minimum wage on urging from China’s central government, after the global financial crisis of late 2008 and the massive Chinese government stimulus package that followed. Boosting domestic consumption was key to keeping the Chinese economy afloat, and maintaining public order key to keeping political power.
But unrest grew as exports fell -- China had an estimated 30,000 labour related strike or protest actions in summer 2009 -- and did not let up even as exports recovered. Also grabbing headlines have been a rash of suicides at Foxconn, the electronics manufacturing giant producing Apple’s iPads and iPhones, which forced wage increases and changes in management policy.
Those changing working conditions, while good news for the workers, will eventually have implications for China’s status as a leading producer of cheap goods for the world. The head of Beijing Hyundai Motor Corporation, Jae-Man Noh, told a recent briefing of journalists that increased costs of doing business in China are now “inevitable,” and that protests have shown the need for auto manufacturers to be more aware of the mood among employees.
“We need to let go our perception that the Chinese market is a low price production base,” Mr. Noh said.
