Chinese Box

The Chinese John Henry

"Before I let that steam drill beat me down, I'll die with a hammer in my hand"

From CNN:

BYD's breakthrough came when Wang decided to substitute migrant workers for machines. In place of the robotic arms used on Japanese assembly lines, which cost $100,000 or more apiece, BYD actually cut costs by hiring hundreds, then thousands, of people.

Not the end of cheap labor: This is why it helps to get specifics

So if you've been following the Chinese news at all for the past month, you've probably heard that its the end of cheap labor in China. Though I fairly heartily disagree.

The article in the Economist on the subject adds to my distrust of this overall narrative. I suggest reading the whole thing, which goes into the math of China's demographic change, but I wanted to draw attention to one line that I found pretty shocking.

ON JUNE 7th strikers at a rubber factory near Shanghai clashed with Chinese police. “The smell from the rubber is unbearable,” a migrant worker told the South China Morning Post, “but we don’t even get a toxic fumes subsidy.” On the same day Honda suffered a strike in a factory that makes its mufflers and exhaust parts, less than a week after it settled an earlier dispute by offering a 24% pay rise. On June 6th the owner of Foxconn, an electronics-maker, said that workers at its Shenzhen complex could earn 2,000 yuan ($293) a month from October if their work was up to scratch, about double the basic pay it previously offered, following a string of widely publicised suicides. (my bold)

I just want to get this straight. We're worked up because a bunch of workers jumped form 150$ a month to 300$ a month? I'm well aware that these people were doing low-end factory work (though not all of them were, some of the suicides were engineers), but this is an astoundingly low wage, particularly for Shenzhen. When I was in Wenzhou garment factory workers had just had their wages raised from RMB 3000 a month to RMB 5000 a month, and I find it hard to believe that someone working in a garment plant really deserves three times the wages as someone at Foxconn, particularly because Wenzhou is cheaper than Shenzhen.

People I've talked to about the situation have told me that they had it on pretty high authority that Foxconn management is fairly incompetent. I find no other explanation for this little tidbit.

China's labor non-shortage

I wanted to recommend a recent op-ed in the Guardian by Kevin Gallagher of Boston University, largely for a single quote:

 It might seem inconceivable that a country with more than 1 billion people would have a labour shortage, but it's true. According to reports in the New York Times, the shortage is due to two factors: the increase in the levels of Chinese people going through higher education and getting absorbed into the emerging high technology, high value-added sectors of the economy; and the decrease in China's birth rate since its "one child" policy that began in 1977.

At the forum, Min Hua, director of the Institute of World Economy at Fudan University unveiled China's solution to the problem: the industrialisation of Chinese agriculture and the creation of scores of new cities to absorb the 800 million farmers who will migrate to those cities. That's right, China plans to move 800 million farmers to existing and newly created cities. If they mechanise the countryside and achieve similar productivity levels to the US, they say, China will only need 100 million people in the rural sector. (my italics)

So despite the catastrophic intro, he seems in the end to be making largely the same point that I was regarding the sustainability of China's labor surplus - you can't have 800 million farmers on land that requires only 100 million farmers and say that you're lacking for labor. 

He goes on to describe how the fact that China is NOT facing a labor shortage is a catastrophe for other developing markets who are trying to break into labor-intensive sectors, which seems rather accurate to me. Chinese college students complain constantly that they are competing with too many people, and it only makes sense that in a globalized world we all have the same complaints.