“The China model” 2010


An outbreak of strikes in China’s hi-tech industries may not constitute the Marxist “ revolutionary situation”. But they must alarm Beijing leadership, gripped in an unresolved transfer to so-called fourth generation leadership.

Strikes are technically illegal in China. But the most publicized, a series of “walk abouts” at Honda, continues despite repeated settlement announcements.  The strikes have been spreading — so far largely to foreign owned companies. They come after government actions – including the conviction for bribery of four top executives of the mining giant, Anglo-Australian Rio Tinto– have alarmed foreign investors fearing a wave of xenophobia.

That they are taking place in China’s critical high technology sector is another blow. For while economists debate how much Beijing’s economic miracle is export-led, there can be no doubt it depends heavily on markets in the U.S., the EU, Japan and Australasia. Those markets are already jeopardized by the attenuated worldwide recovery, now threatening to go into double-dip recession.

The combined effects could test the very essence of “the China model” – recently highly touted by Beijing and some Third Worlders, and even some admirers in the West. Until the real estate bubble and all that hung on it burst in the U.S., there was a growing worldwide acceptance of “the Washington consensus” — “neo-liberal” policies including market economics, private ownership and representative government. Beijing has tried to shortchange it with partial economic liberalization but effectively limiting civil liberties beyond repeated feeble efforts to “democratize” the local workings of the Communist Party monopoly. The absolute sine qua non of the strategy was encouragement of massive foreign investment with its transfer of technology and boosting exports through an undervalued exchange and subsidies.

Furthermore, the strikes seemingly have been carried out by leaderless workers using tools of the digital revolution which Beijing welcomed for economic development but which threaten its political control. Not even a reputed quarter of a million government agents monitoring the internet blocked the strikers.

The implications are enormous for a leadership still trying to hang on to tattered Soviet planning. Most high value Chinese exports – the generally accepted estimate in Beijing’s artful rendering of statistics is 65 percent – originate in the Mainland branches of foreign multinationals. That a very large proportion of these is Taiwanese-owned – there may be as many as a half a million Republic of China [Taipei] managers working on the Mainland – is again political dynamite. [Beijing and the current Taiwan Administration – against bitter opposition – is trying to work out a free trade pact to further economic integration to preserve Taiwan’s own exports.]

A major strike has occurred at Foxconn International, a subsidiary of Hon Hai Precision Industry Co Ltd., now Taiwan’s largest company presided over by the Island’s richest man, Terry Gou. The company which makes electronic components was never noted for its largesse. [Among it products is Apple Inc’s  iPhone.] Management also has been struggling with a spate of suicides which focused attention on poor working conditions. It has now announced a 20 percent raise and an eventual doubling of wages on the assembly line, a part of which it is negotiating to pass on to its customers.

The People’s Daily, the Communist Party spokesman, in unusual self-criticism, called on the All-China Federation of Trade Unions to act as mediator — in fact, a different role for what has been a government control bureaucracy. As a response to the unrest [and to a spurt in consumer prices], from July 1, the minimum wage in Beijing will rise by 20 percent from 800 yuan [$117] a month, while the minimum wage in Shanghai has recently risen to 1,120 yuan per month [$164.20]. Guangdong province, including the center of China’s exports, the Pearl River Delta, currently has the highest hourly minimum wage, 9.9 yuan [$1.44), according to official media. Of course, in the welter of corruption surrounding all Chinese economic activity, it’s doubtful this writ extends to thousands of subcontractors, especially in low-priced garment and other labor-intensive manufacturing.

It has been argued that “the China price” is unassailable given the vast differences between labor costs in China and Western, Japanese and South Korean manufacturing. But that claim could now be jeopardized with some Japanese companies already looking to Vietnam and other South Asian alternative assembly sites.

Above and beyond the immediate issues, however, this new phenomenon questions whether Beijing can continue its half-pregnant love affair with capitalism. It is probably true, as some Chinese sources maintain that working conditions in Taiwanese and Japanese-owned industry were merciless. That would be a function of their more efficient management and worker discipline imported from their home-based manufacturing combined with abysmally low Chinese wages. But a social revolution has been taking place wherein migrant workers from the countryside are striving to become legal, permanent urban dwellers with equal rights and access to the limited benefits of the coastal economic boom.

Even some Chinese economists quietly have argued against the export-led strategy as discouraging the growth of domestic markets and indigenous research and development. They now may get more of a hearing. But any reorganization of the economy faces enormous difficulties and would threaten the regime’s political control.

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