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Issue 24, July 2010
Welcome!

This newsletter is a monthly supplement to ChinaAnalysis.Com, a new website that aims to promote knowledge sharing in China-related analysis. This newsletter contains original content and may not be reproduced without exclusive written permission. If you have any questions, comments and suggestions, please email support@chinaanalysis.com.

ChinaViews - Managing Labor Relations for Innovative China

Over the past month, labor unrest has beset China, now the world’s factory. The problem has flared up particularly in South China, where a large proportion of the nation’s manufacturing is concentrated. Strikes against Honda and then Toyota closed the car makers’ assembly lines as workers demanded wage increases. Foxconn, the world’s largest contract manufacturer, has been haunted by a spate of much-publicized suicides by factory workers, apparently in protest against excessive workloads and limited pay. As strikes have spread across the country, China seems to be entering a turning point of its labor-capital relations.

Have these strikes and suicides marked the end of the cheap labor era? Probably not. China has a considerable way to go to reach the so-called “Lewis turning point”, a term that economists use to refer to the exhaustion of surplus agricultural labor in the process of industrialization. Last year China’s urban population was less than 55% of the total; there are still huge numbers of Chinese workers in the countryside who can be attracted to urban manufacturing centers, thus placing downward pressure on wages. Meanwhile, for decades productivity has been growing much faster than wages, so that Chinese workers will still be considered cheap labor even after years of wage increases.

The labor unrest will not diminish the attractiveness of China to foreign investors. Other than cheap labor, the accumulated investment in productivity, infrastructure, and industrial clusters will still make China a critical link in the global supply chain. The vast and growing domestic market, pumped up further by the higher incomes of the working class, will continue to lure multinational companies to China. Multinationals that have already invested heavily in China will not be chased away by labor unrest, the purpose of which is to secure a larger slice of the growing economic pie.

The real challenge for Chinese industry is whether, before its competitive advantage in cheap labor is gone, it can develop “high-road” labor practices that stress both rising productivity and rising real wages. To obtain higher living standards for its citizens, Chinese industry must generate higher quality, lower cost products even as it pays its workers higher real wages. Put differently, Chinese industry must engage in innovation that supports economic development. China will be doing nothing new. Ever since the Industrial Revolution, in nations such as Great Britain, Germany, United States, and Japan, the foundations of economic development have been the same: innovative business enterprises have accumulated the productive capabilities that have made higher wages consistent with sustained competitive advantage.

China is on its way to becoming an innovative economy; an obvious sign is its innovative enterprises, such as the global telecommunication leader Huawei, fast learning car manufacturer Chery, the leading solar energy provider in the world market Yingli, state-owned but very innovative steel producer Baosteel, and many more. But the innovative transformation is not inevitable, particularly when a business model stresses cheap labor practices instead of an equitable distribution of the gains from productivity growth. For example, a leading company like Foxconn maintains an outdated Taylorist management style on the shop floor, where strict managerial rule forces workers to maintain high levels of throughput but segments them from the learning processes through which they could contribute to real productivity growth. The recent suicide scandal demonstrates the limits of such practices. The danger is that a company such as Foxconn will choose to shift production to global locations with lower wages and a more malleable labor force instead of investing in a more innovative organization of production in China.

Top News of Last Month
June 01 China launches index for Nasdaq-style board
June 04 China spends $34.6 billion on renewables, Ernst & Young says
June 06 China plans to transform from labor-rich to talent-intensive
June 18 China bids on U.S. magazine
June 19 China becomes world's third largest stock market
June 19 China makes long-awaited currency move
June 23 China to overtake US as largest manufacturer
June 23 China to eliminate tax rebates on certain export goods
June 27 China's "floating population" exceeds 210 million
June 29 China, Taiwan sign landmark trade pact
 
New Books
The Party: The Secret World of China's Communist Rulers

By Richard Mcgregor

"'This is a marvellous and finely written study of how China is really run, and how its strange but successful system of Leninist capitalism really works. It should be read by anyone doing business with or just trying to understand China.' (Bill Emmott, former editor of The Economist )" - from Amazon.com

 
Red_Engineers

By Handel Jones

"'A must-read for anyone seeking to understand the emergence of China as a major industrial power and how profoundly it is changing the world economy.' (Dr. Henry Kressel, author of Competing for the Future: How Digital Innovations Are Changing the World)" - from Amazon.com

   
Narratives of Chinese Economic Reforms: How Does China Cross the River?

By Xiaobo Zhang (Editor), Shenggen Fan (Editor), Arjan De Haan (Editor)

"Rapid growth in the Chinese economy over the past three decades poses puzzles and challenges to neo-classical economic theory, as policies implemented during the reform process were often unorthodox. Although the Chinese experience has been widely studied, myths and questions about these reforms remain. To fill in the knowledge gap, and to inform a process of learning from China's development successes, this book features a series of case studies on the policy process of different initiatives, including rural industrialization, dual-track price reform, migration policy, village elections and fiscal reform. Uniquely, many of the authors of the case studies were deeply involved in these reforms, either through direct policymaking or through providing analytical and technical support that led to these policy changes. " - from Amazon.com

 
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Jul 09 - Jul 11 The 2nd International Conference on Advanced Management Science
Jul 20 - Jul 20 China Product Certification
Jul 25 - Jul 27 International Conference on Asia Pacific Business Innovation and Technology Management
Aug 8 - Aug 10 The Second International Conference on Service Science and Innovation
 
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