China

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The End of China’s Labour Regime?

Published by Anonymous (not verified) on Wed, 09/03/2016 - 4:00pm in

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Blog, China

A key ingredient of China’s Post-Mao economic “miracle” is a labour regime entrenched in the export-oriented consumer manufacturing sector and premised on despotic exploitation, institutional discrimination and political exclusion of labour. It is built on the back of massive rural-to-urban migration in the context of a stagnant agricultural sector and rising disparity in rural-urban incomes from the 1990s. The rural migrants are not only placed under exploitative labour relations under the Party-state’s market liberalisation, but also institutionally discriminated against by the urban household registration system that denies them of permanent urban residency and entrenches the transient nature of their labour migration, and politically excludes  them from organising autonomous labour unions and asserting as an organised social force. This combination, by no means unique in the history of capitalist development, produces an abundant and seemingly endless supply of not only cheap and disposable but disciplined, fragmented and atomised labour. However, having help propel China into a global economic power, the reproduction of this labour regime is becoming increasingly unsustainable.

One challenge springs from the changing nature of rural migration in China. At the core of the labour regime is the transient nature of rural migration in the 1980s and 1990s. In this early stage of migration, rural migrants and their families mostly retained land and agricultural production, and maintained social and familial ties to the countryside. They were not dependent entirely on wages and could draw on their rural resources when needed; and, as a result, they were able to live on meager wages in the city. But more recent migration has become less transient as millions found roots in the cities; many have simply lost agricultural skills and arable land to urban redevelopment. A growing proportion are therefore only notionally “migrants” due to the segregated residential system that keeps them from settling permanently; but they are for all intents and purposes urban dwellers. This severely criticised institutional discrimination against rural migrants is only sustained by the government’s concerns over costs of providing social services and welfare to the migrants and the possible formation of an urban underclass and slum. Efforts to ease and eradicate the institutional discrimination, already happening in some regions, are likely to erode the basis of the labour regime.

One consequence flowing from the changing nature of migration is workers’ challenge to wage repression built into the labour regime. Whereas the reproduction of migrant labour is partially subsided by their rural families, they are almost entirely dependent on wage labour today, and are thus compelled by higher urban living costs to demand higher salaries. The accumulated organising and mobilising skills over the last two decades have led to increasing numbers of autonomously organised strikes by migrant workers aimed at addressing wages and conditions. Coupled with a demographic transition that favours workers, it is posing a no small challenge to the sustainability of the low-wage regime. There is also wide recognition that wage repression militates against the stated goal of the government to raise people’s incomes in order to boast domestic consumption.

While economic strikes confined within factories are largely tolerated by the local authorities, any attempt to build lasting organisations has to confront the Party-state’s crushing repression. Against such odds, the nascent workers’ movement – yet a labour movement strictly speaking – is already giving headaches to China’s quasi-corporatist structure of industrial relations in which the state-controlled All-China Federation of Trade Unions (ACFTU) monopolises labour representation. Indistinguishable from other branches of state bureaucracy, the ACFTU has proved itself to be incapable of serious structural reforms necessary for it to stay relevant to workers’ concerns and grievances. Instead, migrant workers who go on wildcat strikes have sometimes turned to community-based workers’ centres that have emerged to fill the organisational void for legal and organising assistance. The upsurge of labour strikes and protest in recent years has alarmed the authorities. Particularly, concerned about the role of workers’ centres to aid workers’ mobilisation, the authorities have stepped up efforts to target these workers’ centres and criminalise labour organising. Ironically, the political exclusion of labour has likely sharpened strikes which for many workers are the only means to successfully address their concerns. How long can such political exclusion – “corporatism without labour” – continue?

A further challenge has arisen from persistent slow growth in the global economy. Having replaced East Asian manufacturing and become integrated into the Asian-centered global production chain, it is highly dependent on debt-fueled consumption in advanced capitalist economies. In the aftermath of the Global Financial Crisis, the export market contractions in North America and Western Europe have resulted in the faltering of China’s manufacturing sector. The initial shock in 2007 and 2008 created systemic factory closures in the export sector, only rescued by the massive injection of state bank credits into the economy since. But in the last two years, there remains continuing worries about the export sector. In 2015, China’s economy as a whole recorded its slowest growth rate of 6.9% since its takeoff in the early years of 1990s. The slowing manufacturing sector, with factory closures but also relocations both within and between regions often accompanied by layoffs, has fermented more protests and strikes.

The last several years have seen some of the most significant strikes in the country’s recent history: the Honda autoworkers’ strike in 2010 and the Yue Yuen footwear strike in 2014. Interestingly, these two strikes also mark a shift: whereas the Honda strike centers its core demands on wage rise and democratic union election, the Yue Yuen strike is instead focused on social insurance and severance payment following management’s plan to relocate its facilities.  At the same time as recent strikes widen the scope of demands, the economic space for workers’ wage demand is shrinking. In desperation, workers’ discontent can take a violent turn, as when a worker facing unpaid wages torched a bus full of passengers in January this year. The factory closures and layoffs further depresses domestic consumption of a large segment of the population.

From the standpoint of regional authorities in South China, the manufacturing decline – and the end of the labour regime – may in fact be welcome. Recognising the export model is not sustainable and desirable, the authorities have indicated their preference for high-tech and high value-added production instead of assemblage, emulating similar transitions in early East Asian industrialising states. The authorities allowed factories to close down or relocate. Migrant labour is disposable once again. The government’s hope is that the growing service industry will be able to absorb the surplus labour. While for now the unemployment rate remains low, it is questionable whether it is able to create sufficient employment; and it is hard to imagine this shift without massive social dislocation.

The labour regime is clearly in crisis. It is being challenged from multiple fronts. But this is not necessarily good news for workers: a rise in unemployment, and fragmented labour unrest without structural solutions is likely. We face two possible scenarios: 1) either workers’ conditions continue to degrade with more layoffs and unemployment, and the authorities brace for more labour unrest; or 2) workers will be able to organise unions and engage in collective bargaining.

The latter still fall short of getting to the root of the labour question, but it in the very least paves the way for better and fairer working conditions for China’s migrant workers.

Comparative Encounters between Artaud, Michaux and the Zhuangzi

Published by Anonymous (not verified) on Fri, 20/11/2015 - 10:42pm in

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Literature, China

Part of "Book at Lunchtime", a fortnightly series of bite size book discussions, with commentators from a range of disciplines. Xiaofan Amy Li discusses her new book "Comparative Encounters Between Artaud, Michaux and the Zhuangzi." Xiaofan Amy Li (Randall MacIver Junior Research Fellow in Comparative Literature and Translation, University of Oxford), with Marina Warner (Fellow, All Souls College, University of Oxford), Wang Xing (DPhil student in Oriental Studies, University of Oxford), read a review by Prof Lloyd and Matthew Reynolds (Times Lecturer in English, University of Oxford)

The encounter between different minds and perspectives across time and space has always haunted the literary and philosophical imagination. Just such an encounter is staged and played out in this comparative study, which connects the twentieth-century Francophone writers Antonin Artaud (1896-1948) and Henri Michaux (1899-1984) with the ancient Chinese text Zhuangzi (c. 4th-3rd century BCE). These disparate texts are bridged by questions that draw them into close dialogue: how can Artaud and Michaux, who read about and admired ancient Chinese literature and culture, be rethought through certain philosophical concerns that the Zhuangzi raises? If the points of conceptual intersection focus on rationality, cosmology and ethics, what can they tell us about these important issues? By imagining, constructing and developing this thought-encounter, Li re-envisages Artaud, Michaux and the Zhuangzi through the kaleidoscope of comparative interpretation, juxtaposing and recombining ideas and contexts to form new patterns and meanings.

China and the Solow Model

Published by Anonymous (not verified) on Sun, 06/09/2015 - 5:44am in

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China

Last month, just before China let its currency deprecate and its stock market crashed, the San Francisco Fed published a nice Economic Letter by Zheng Liu, "Is China's Growth Miracle Over?"

China's rapid, but decelerating, growth is broadly consistent with the implications of the classic Solow growth model we teach our intermediate macroeconomics students.  This model predicts that low-income countries should grow quickly, but growth will slow down as they approach the leading countries, whose per-capita growth is constrained by the rate of technological progress. That is, there should be "convergence" in per capita GDP.

As this chart from the letter shows, China is following a similar path to Korea and Japan.
The basic intuition from the model comes from the idea of diminishing marginal product of capital - i.e., where capital (machinery and equipment) is scarce, the increase in output from adding an additional unit is greater than where it is already abundant.  This diagram of output per capita (y) as a function of capital per capita (k) illustrates,
where the slope is the marginal product of capital (MPk).

The idea can be extended to include "human capital" (i.e., knowledge and skills), as Mankiw, Romer and Weil did in a 1992 paper.

While the Solow model gets the broad contours of the growth experiences of Korea, Japan and (it seems so far) China correct (and does pretty well for the US as well), it does miss a couple of big things:

(1) A diminishing marginal product of capital implies that the financial rewards to investing in a low income country should be vastly higher than in high-income countries.  In a world where people can invest across borders, this implies a huge incentives for financial flows from high-income to low-income countries, but we do not observe such large net flows.  This was the puzzle Robert Lucas noted in a 1990 paper.

(2) While the experiences of some low-income countries is consistent with the convergence hypothesis; in many cases, low-income countries have fallen further behind (or, as Lant Pritchett wrote, "Divergence, Big Time.").  From the standpoint of the Solow model, growth "miracles" like those of Korea are to be expected, and the real puzzle is the fact the failure of so many countries to converge.

As Moses Abramovitz pointed out in 1986, it is usually a subset of the low-income countries that are growing fastest.  This would suggest there are forces for convergence, but something is preventing them from applying everywhere.  Current thinking is that the answer lies in "institutions" - the set of legal rights, culture, and governance which shape the economic environment and incentives for people to take actions within it, including to accumulate capital.

This is where assuming that China will continue to follow in the convergence footsteps of Korea and Japan may be questionable.  While China's institutions have gotten it this far, there are reasons to doubt whether they are appropriate for achieving levels of GDP per capita comparable to Korea, Japan and Europe, as this column by Brad DeLong and this by Eduardo Porter discuss.  That said, the institutions in the US during its late 19th century industrialization were hardly what an economist would recommend (in particular, corruption was rampant), and yet it somehow managed to take over leadership in per capita GDP from Britain.

Opportunistic Flexibility

Published by Anonymous (not verified) on Wed, 19/08/2015 - 3:11pm in

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China

Last week, China moved to allow more flexibility in its exchange rate.  In this case, that meant a downward movement - headlines about a "devaluation" were rather overstated, though, as the depreciation from Monday to Thursday was about 3% (followed by a slight rise on Friday).  Last week's change is at the end of the graph:
Note, the graph is the yuan price of a dollar, so a downward movement is a yuan appreciation.

China has been criticized over the years for keeping its exchange rate undervalued to support its exports.  The graph shows that it has allowed the yuan to rise quite a bit since 2005, though it has done so in a controlled manner and took a pause for about two years starting in mid-2008.  Its appreciation has helped China make progress on one aspect of "rebalancing" - reducing its dependence on exports.  China's current account surplus is considerably smaller relative to GDP than it was in 2006-08:
So, does this move represent a return to China's old ways of undervaluing its currency to gain a competitive edge for its exports?

Well, yes and no...

As it has followed the dollar, and the dollar has risen, the yuan has appreciated in real terms.  This chart shows a trade-weighted average of the dollar:
During the last year the dollar has appreciated significantly and the yuan has been along for the ride.  Currency appreciation - which makes Chinese goods relatively more expensive on world markets - combined with a slowing economy led to political pressure for a change of course.  The Times' Keith Bradsher writes:

In a little-noted advisory to government agencies, the cabinet said it was essential to fix the export problem, and the currency had to be part of the solution.
With the government keeping a tight grip on the value of the renminbi, Chinese goods were more expensive than rivals’ products overseas. The currencies of other emerging markets had fallen, and China’s exporters could not easily compete.
Soon after, the Communist Party leaders issued a statement also urging action on exports.

However, China has also been moving in the direction of greater financial openness; this entails allowing freer exchange rate movements (as I discussed in this previous post), particularly if it wants the yuan to become an international reserve currency (a status Krugman rightly notes is highly overrated).  At Project Syndicate, Yu Yongding writes:

From now on, China’s government declared, the renminbi’s central parity rate will align more closely with the previous day’s closing spot rates. This suggests that the devaluation was aimed primarily at giving the markets a greater role in determining the renminbi exchange rate, with the goal of enabling deeper currency reform.

So, yes, China has other reasons for moving to a more flexible exchange rate, but it is convenient for them to take a step in that direction at a moment when doing so means a fall in the yuan that will boost demand for Chinese goods.See also: Ambrose-Evans Pritchard, Gavyn Davies, Michael Klein, David Beckworth, Michael Pettis.

The Future by Al Gore – review

Published by Anonymous (not verified) on Thu, 31/01/2013 - 11:00pm in

Al Gore's alarming new guide to what needs to change in world politics is essential reading

According to reliable reports, the new leadership in Beijing has been reading Alexis de Tocqueville. It's not hard to see why China's elite might look for guidance to the aristocratic French thinker. In his classic text The Ancien Regime and the Revolution (1856), de Tocqueville wrote that the danger of revolution is not greatest in the depths of poverty and despair but when conditions have been improving – especially if some are benefiting far more than others. The relevance of this for China is obvious. The implications for policy are rather less so, since de Tocqueville also warned that for a bad government, the moment of greatest danger comes when it starts to reform. In such circumstances, repression might be a more prudent course of action. This troubling ambiguity could explain why Chinese readers, struggling to decipher the intentions of their rulers, made de Tocqueville's book a national bestseller.

From a parochial British perspective, what might be most significant is the fact that China's rulers are reading de Tocqueville at all. It is difficult to imagine David Cameron devoting any time to a 19th-century thinker. Along with much of the political class, the prime minister seems resistant to the notion that history has anything to teach, and looks for guidance to writers who extol the wisdom of crowds, explain the momentous importance of tipping points or pass on the revelation that humans are social animals – the fleeting nostrums of the airport bookstore. But if our rulers will not read the classics then they must read Al Gore, who, after eight years of reading and thinking, has produced a guide for the politically perplexed that will surely endure.

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