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Unrest in China Worse Than Widely Reported

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When we have featured articles that mention growing unrest in China, we’ve been told that it’s overblown. The usual arguments: most of the people losing their jobs in Guangdong were young women who could go back to the provinces; that the violence wasn’t organized and hence posed not real threat to the authorities; that the people who had lost their jobs could go back to doing what they did before, namely, subsistence farming.

I’ve had trouble with these arguments because they run afoul of history. Large scale internal migrations when driven by worsening economic conditions tend to be disruptive, as this Times Online article suggests (hat tip reader Paul):

Bankruptcies, unemployment and social unrest are spreading more widely in China than officially reported, according to independent research that paints an ominous picture for the world economy.

The research was conducted for The Sunday Times over the last two months in three provinces vital to Chinese trade – Guangdong, Zhejiang and Jiangsu. It found that the global economic crisis has scythed through exports and set off dozens of protests that are never mentioned by the state media.

While troubling for the Chinese government, this should strengthen the argument of Premier Wen Jiabao, who will say on a visit to London this week that his country faces enormous problems and cannot let its currency rise in response to American demands…..

Yves here, Note that Wen had taken the reverse line at Davos, that growth in China would remain “fast and steady“. That had struck me as amazingly bad poker. Japan has played up its basket case status, when it has in fact (until recently) had a robust export sector. Why? If the rest of the world thinks Japan is in terrible shape, no one will bust their chops for keeping the yen weak, which worked until carry trade unwinding drove it from the 115-125 level versus the greenback to its recent high of 86 and change. Wen should instead be stressing how bad things are. Back to the article:

However, a growing number of economists say the unrest proves that it is not the exchange rate but years of sweatshop wages and income inequality in China that have distorted global competition and stifled domestic demand. The influential Far Eastern Economic Review headlined its latest issue “The coming crack-up of the China Model”.

Yasheng Huang, a professor at the Massachusetts Institute of Technology, said corruption and a deeply flawed model of economic reform had led to a collapse in personal income growth and a wealth gap that could leave China looking like a Latin American economy.

Richard Duncan, a partner at Blackhorse Asset Management in Singapore, has argued that the only way to create consumers is to raise wages to a legal minimum of $5 (£3.50) a day across Asia – a “trickle up” theory.

Yves again. Why does no one invoke Henry Ford? He recognized that paying workers well would create a middle class that could buy more goods. Back to the piece:

The instability may peak when millions of migrant workers flood back from celebrating the Chinese new year to find they no longer have jobs. That spells political trouble and there are already signs that the government’s $585 billion stimulus package will not be enough to achieve its goal of 8% growth this year…..

Yves here. I had read the hope was the newly unemployed would visit their families in the hinterlands during the New Year festivities and stay, Guess not. So much for the “of course they’ll go home and take up subsistence farming again” theory. Back to the story:

Even security guards and teachers have staged protests as disorder sweeps through the industrial zones that were built on cheap manufacturing for multinational companies. Worker dormitory suburbs already resemble ghost towns…

The Communist party is so concerned to buy off trouble that in one case, confirmed by a local government official in Foshan, armed police forced a factory owner to withdraw cash from the bank to pay his workers.

“Hundreds of workers protested outside the city government so we ordered the boss to settle the back pay and sent police armed with machine-guns to take him to the bank and deliver the money to his workforce that very night,” the official said.

On January 15 there were pitched battles at a textile factory in the nearby city of Dongguan between striking workers and security guards.

On January 16, about 100 auxiliary security officers, known in Chinese as Bao An, staged a street protest after they were sacked by a state-owned firm in Shenzhen, a boom town adjoining Hong Kong.

About 1,000 teachers confronted police on the streets of Yangjiang on January 5, demanding their wages from the local authorities.

In one sample week in late December, 2,000 workers at a Singapore-owned firm in Shanghai held a wage protest and thousands of farmers staged 12 days of mass demonstrations over economic problems outside the city.

All along the coast, angry workers besieged labour offices and government buildings after dozens of factories closed their doors without paying wages and their owners went back to Hong Kong, Taiwan or South Korea.

In southern China, hundreds of workers blocked a highway to protest against pay cuts imposed by managers. At several factories, there were scenes of chaos as police were called to stop creditors breaking in to seize equipment in lieu of debts.

In northern China, television journalists were punished after they prepared a story on the occupation of a textile mill by 6,000 workers. Furious local leaders in the city of Linfen said the news item would “destroy social stability” and banned it.

At textile companies in Suzhou, historic centre of the silk trade, sales managers told of a collapse in export orders. “This time last year our monthly output to Britain and other markets was 60,000 metres of cloth. This month it’s 3,000 metres,” said one.

She said companies dared not accept orders in pounds or euros for fear of wild currency fluctuations. Trade finance has all but ceased. Some 40% of the workforce had been laid off, she added.

Nearby, in the industrial hub of Changshu, all the talk was of Singapore-listed Ferro China, which exported steel products to customers in Britain, Germany, Korea and Japan. Last October its shares were suspended.

The company is reported to have been weighed down by $800m in debts and, according to the specialist business magazine Caijing, has started a court-or-dered restructuring.

A researcher found the gates closed and under tight guard, 2,000 employees out of work and witnesses who told of company vehicles being seized by impatient creditors. Holders of Ferro China debt include Credit Suisse and Citi-group.

Even in the city regarded as the most entrepreneurial in China, Wenzhou, the business community is reeling. “We estimate that foreign companies have defaulted on payments for 20 billion yuan (£20 billion) owed to Wenzhou firms,” said Zhou Dewen, chairman of the city’s association for small and medium-sized businesses.

Yves here. Now these are all separate incidents, none mass scale, but consider: this report was prepared by a Western paper in a country with a controlled media and state apparatus that does not want news of unrest leaking out. For every incident they heard about, there are anywhere from two to ten more that they didn’t.

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46 comments

  1. Glen

    “Why does no one invoke Henry Ford? He recognized that paying workers well would create a middle class that could buy more goods.” Because Yves, paying those wretched labourers a real wage will decrease our profits and we just can’t have that. I need my office re-fitted every 6 months and a new jet every year. Plus my wife and kids costs a bomb to maintain along with 7 houses. I mean, that’s what debt is for right? Those poor buggers can borrow themselves to the hilt to buy all the crap we make. Have I got a cheap loan for YOU!

    And there in lies the problem – too few visionaries and too many short sighted vultures.

  2. Mo

    Sorry, this sounds like more of the same-old same-old in China, especially with Chinese New Year Approaching.

    Western Media has been sounding the alarm for years about the vast extent of protests and unrest in China that goes unreported. It is, and has been, happening all across China unreported for a long time.

    Every once in a while a Western Paper decides to report on this and people are shocked, but if you are keeping tabs on the Chinese papers and websites, it is nothing new.

    These incidents happen all the time. There were former PLA soldiers in the countryside organizing farmers into farmers associations to fight against corrupt local officials more than 7 years ago in China's heartland (Henan, Hunan & Jiangxi). Sounds politically disruptive, doesn't it? Until you read the founding charter of these organizations and you realize that article one states their loyalty to the Communist Party of China and that they consider themselves to be the ally of the Central Government. Tricky.

    My prediction? Nothing will come of this "uptick" in disturbances. The PLA and the People's Armed Police(PAP) are enormous military and paramilitary forces whose primary mission is really more focused on maintaining internal security than on defending the country against external threats. When/ if things get ugly, the PLA and PAP will be there, and that will be the end of it.

    And if there is political trouble, the people will direct their rage against local, not central level officials, and the central government will have to continue to perform its delicate balancing act between retaining the loyalty of the population and the support of the minions they rely on to control the country.

  3. k

    One of my favorite China observer-cum-blogger, Chinese Matters, had just posted a thoughtful piece on Premier Wen’s remark in Davos, with a general assessment on Chinese economy in conclusion, which I wholeheartedly agree with.

    http://chinamatters.blogspot.com/2009/01/china-to-obama-nice-t-bill-auction-ya.html

    With regard to the Times report, well, “dodgy” is the best way I can think of to describe this article; and “the influential Far Eastern Economic Review”, now that’s a pure propoganda machine.

    I said this as a long-time (online) reader of both publications. Incidentally, both are owned by none other than Murdoch Rupert.

    And if I had to be fed Rupert sausage on China, I would choose WSJ, at least it still possess a sense of proportion.

  4. k

    Also, I would dispute Yves’s last paragraph, “this report was prepared by a Western paper in a country with a controlled media and state apparatus that does not want news of unrest leaking out. For every incident they heard about, there are anywhere from two to ten more that they didn’t. “

    With current widespread cellphone and internet user in China, major social unrest, even in the remote area in China, do get picked up fairly quickly in domestic Chinese internet forum, often in the form as an anonymous post. And there are a fair number of overseas dissident groups which would happily report any rumor on domestic incidents they are tipped of. So you may not get an accurate reading on Chinese FX reserves, but you do have a fairly decent picture on social unrest scene in China. And no, unrest in China is NOT “Worse Than Widely Reported.”

  5. Boomka

    China is murky. Of course there is more unrest than is reported, that has always been the case.

    What would be interesting to know is this: if there are mass protests that are caused purely by the economic crisis, who is the outrage directed against, the chinese government, or american one? So far it looks like Chinese officials are having an easy time laying all the blame on USA.

  6. Anonymous

    periodically the western media publish some stories worring about uptick of unrests in China. They clain that there is no democracy and no free-press so what they see must be just the tip of an iceberg.

    anybody who has actually lived in China for some extended period will laugh at these analysis.

    If you are looking for Major social unrests, you probably shift your eyes toward places like France, Greek, and even LA. China should come much down the list if not the end of the list.

  7. Richard Kline

    I am very much in the same mind as k and Mo on this, Yves. I see little or nothing new. The reports we see are two tentatcles of Murdoch citing each other: I not only trust _nothing_ manipulated by Murdoch but take it as _counterindicative of its point_. Murdoch is a propagandiast, with an extreme right-wing position, and THAT factor has to be worked into this, to be kind, reportage. “Mercantalist China” is a meme I expect him to be working hard and harder; I would like to see a media fairness account on the positions of Murdoch-owned properties on that issue.

    —But let’s forget the source problems with this, and take a look at the actual reportage, and why this does _not_ support an ‘unstable China’ reading. ‘Dozens of protests’ goes the line. And, true, for everyone we here there are doubtless more we do not, though k’s point that there is more flow of information than credited is valid. . . . This is a country of, what, 1.3B? Even just the three provinces cited, to which those ‘dozens’ of protests are not necessarily confined, although I haven’t read the original article, have on the order of 200M inhabitants. Dozens, in that context; not so much, methinks. More than in the recent past; certainly, yes. Meaningfully more, more indicative of a change; that isn’t proven by anything there.

    But let’s go on. ‘Disturbances _may_ spike after workers return from New Year’s holidays . . .’ How does a phrase like that get past a competent editor [unless there is an underlying lying agenda as per above]? That both wording, however, speaks to something _which has not yet happened_, i.e. that the contention that instability is rising isn’t really in hand, only hoped for [by some Western media reporters and publishers]. Nor given the language used, is that unrest evern ‘probable,’ only potential. And regarding those workers returning, well it would _seem_ that many are going to go back to the coasts; on the other hand the article does *oops* mention many shuttered and locked workers’ dormitories, which is counterindicative of that potential.

    But the real point which undermines the unrest meme is in what is stated of _actual protests_ in the article. These in almost all cases mentioned involve the failure of factories to pay out wages already earned. Some strikes were mentioned as opposing wage reductions. Ham handed local governments in bed with mill owners have gotten themselves some protest blowback too. There appears to be little protesting aimed at the central authorities, or ‘government policy’ genreally: the grievances are local, and specifically with the factory bosses. And when it is involved at all, central government agents intervene FOR THE WORKERS, it gives examples in the article. The authorities know how and when to appear on the scene here, and are careful to see that blame lands elsewhere. So long as they remain ‘active on the macro scale,’ and intervene for workers on the local scale, you could increase these demonstrations ten-fold without impacting anything in China’s fundamentals in the slightest. Yes, if _foreign_ factory owners become a specific focus of popular ire, that could be dicey, since offshore money has been integral to the export economy. That is a fine line, and one which it would seem away from which the the central government means to shift the debate.

    When we have anti-central government protests, or anti-Taiwanese protests, in numbers, and widely known within China itself, there is no significant result of ‘unrest’ in China. And I doubt that we will see either one. Aske me in a year, and maybe I, too, will think otherwise. Now, no.

    Why did Wen talk about strong growth at Davos? Well I can posit one reason: the domestic impact of his statements if far more important than the international impact, and what needs to be announced domestically is that growth will return; that is exactly what most concerns the central government. I just do not get the feeling, now or in recent years, that China is prepared to negotiate or signal positions on its currency in international events, specifically media ones: these are to be negotiated quietly in private, exactly where the US is loathe to go because there we are much weaker than in international forums stocked with our cronies and partners. So I do not look at what Wen would say in Davos as something fundamentally directed at an international audience, despite the forum. The CCP is media shy, and just does not operate in that fashion. The Emperor’s Advisors need to make auspicious pronouncements, that is part of their public role in China. That is the context in which I see his remarks, and indeed most other recent _public_ remarks from the top policy makers in China: these are domestically targeted. When Geithner blabs provocative verbiage on China in open Congressional testimony, we know that this is principally for domestic consumption. Whey then do we now credit Wen with the same needs and goals?

    Unrest has increased in China; I do believe that. I do not believe that this in any meaningful way changes anything in China’s political economy, at least insofar as it is occurring now.

  8. Steve Diamond

    Ha! Looks like the china lobby has it out for you, yves…btw my theory is that the story is backwards. Chinese workers caused the credit bubble to burst this leading to the economic collapse and renewed social unrest. How? The global race to the bottom hit bottom in the last few years as Chinese workers began to demand higher wages in those sweat shops. There was even a renewed effort by the regime to make its state run labor organization pretend to be a union which some in the American labor movement bought into.

    But as a real workers movement emerged to push for higher wages it meant an end to the accumulation of massive dollar surpluses that were invested in t-bills and which had helped feed the Greenspan era.

    The credit collapse has followed and the circus tent is collapsing sending a billion Chinese fleeing for the exits.

  9. Anonymous

    Well – there’s definitely change in the air in Southern China. Live in Hong Kong and travel to Guangzhou and Shenzhen couple of times a month, done so for the last two years. People wouldn’t never even bother with this “gweiloo”, all too busy with going their way and dealings. Guess what, these days I get stared at by lots of people with no apparent thing to down, hanging around in front of the stations, looking for easy opportunities. Menacing is a bit too strong, but the air has definitely changed. According to a “friend of a friend who has a friend at the PSB” crime is up enormously in Southern China, too.

    Looks to me like a lot of the people who got laid off aren’t going back to the farms after all, and sticking around trying to make a living somehow.

    Southern China is/was the engine of the cheap export business, and it is shaking in every corner. Clothing and shoes manufacturing has since a few years migrated to cheaper Vietnam and Indonesia. The Taiwanese who ran the business just jumpe the country and left everything behind except for the money- cheaper than paying the last wages etc. The local paper is full of such stories. They made their money long since, anyway.

    The 4m of the 6m employees in the toys industry in Donguang province have been laid off in the last months (!).

    The Party is pushing for a change to high tec industries…..but there’s less people you need to run high tec business and, in this economy, less of it to sell, too. Just look at the reports from the worlds’ largest electronics contract manufacturer (Honhai, Taiwanese, employs 500,000 people in its “village” near Shenzhen), its horror for 2009.

    The more I read and learn and see with my own eyes, the more I think Southern China has a very, very tough time ahead. There’s no way that domestic consumption can compensate for the fall in demand from the West. The average Chinese production worker brings back home USD 90 a month, their priorities are food and shelter, not refigerators and micro waves. The Party is just keep up appearances, and probably prepping the tanks. Tianamen II is not long off.

  10. Anonymous

    To Anonymous
    Are you sure you are in Shenzhen, because if you are, you should know that average low wage worker in Shenzhen makes about 2000 to 3000 RMB a month, that is around 350 to 450USD a month at current exchange rate. Plus, all the food and housing are paid for by the factory. So that 350 to 450 USD is essentially net income. Of course, the housing and food are nothing to write home about, but they are OK. The condition in Shenzhen is getting worse and better at the same time because all the OEMs are leaving, but a lot of ODM works are coming into Shenzhen at the expense of Japan and Taiwan. I am in cell phone software business, so far this year, Chinese companies are the only ones INCREASING orders

  11. Anonymous

    I think the key thing to watch is college unemployment. It started rising sharply one or two years ago before the slowdown and is now so much worse that the government is trying hard to encourage graduates to join the army or teach in the countryside so as to reduce their numbers.

  12. Anonymous

    The key snippet in the Times article is that many foreign firms have defaulted on their payments / orders.

    The other is that orders in pounds and euros are whipsawed by currency swings is a key point.

    The Chinese government basically have few choices but to do one or all of the following:

    - sharply devalue the RMB (30% or more) to mask the volatility of the USD if the RMB remains linked.

    - delink and devalue at least 20% to restore some semblance of competitiveness to its export industries

    - enter into the market to provide trade financing via State firms

    D

  13. mw

    I think that the Communist government in China would hve collapsed long ago. Their leaders were bound not to financially collapse like the old Soviet Union. Their Leaders could see that the “masses” would become “unstable” and possibly “uncontrollable”. With the hybrid system they have now, they can keep communist control, take our jobs, ( that corporations say no one here wants or will do, thus keeping us bathed in “CHEAP” goods) They realised that our strength was in our industrial might. They have sapped that, and built up their military greatly. (Many factories are rumored to be owned by the military or government) we thought that by giving them a taste of good old capitalism they would “renounce their old communist ways”. We have gave them the rope to hang us with. Just an independent opinion.

  14. Anonymous

    Yves,

    i wouldn’t trust western media when it comes to china, russia, venezuela, iran or cuba at all. The UK press is especially notorious for propaganda. All the articles about those countries are always about how their governments are tyrannical, how the people don’t like them, how they’re about to fall and what not.

    it’s just politics.

    Europe is burning with riots, but those shmucks at times are talking about china’s potential unrest.

  15. Anonymous

    >>>While troubling for the Chinese government, this should strengthen the argument of Premier Wen Jiabao, who will say on a visit to London this week that his country faces enormous problems and cannot let its currency rise in response to American demands…..<<<

    There was a time when the West would have liked to see the communists in China fail. And maybe would have taken actions to force that change. Now that the West is in bed with the CCP, the West would do anything to keep the communists afloat. This is the West's China policy notwithstanding that all across China there are a hundred gulags, human rights and dissent are crushed, and organs are harvested from prisoners and dissidents.

    Seems like there is a morality tale in this somewhere. Make a deal with the devil and sooner or later there is a price to pay.

  16. whitetower

    Odd how some posters here believe that Western news accounts of repression or social unrest in China, Russia, Venezuela, and/or Iran amount to “propaganda” — meanwhile, when the same Western news sources report (overblown) accounts of US indiscretions in, say, Iraq are eagerly lapped up.

    Social unrest in the aforementioned countries is significant because they represent unrest in the “middle” and “upper” classes. So long as the central government doesn’t attempt to disrupt primitive rural religious and cultural systems, there is never, never, unrest in rural areas. Rural areas in less developed countries are strikingly stable.

    (Note that in the Tiananmen uprising in ’89 the Chinese central government specifically called in army units from these rural areas because the government could count on them.)

    City protests are specific threats to the regime and should be taken with some level of seriousness.

  17. Anonymous

    Is this 1965? No, it’s 2009!

    Yves, I think you must be over-stating this. We have digital cameras and the internet. If what you are saying is new and disturbing, we should have THOUSANDS of pictures and video of the unrest.

    Painting China as a ‘dark continent’, where spooky undocumented things transpire is fun, but the harsh light of technology refutes your assertions.
    This is on par with prehistoric animals roaming the African interior.

    The media would love to play the unrest up.

    Unless you are suggesting China owns our media (which is a different matter all together).

  18. Lune

    I have to agree with Richard and some of the other posters as well. While protests are probably rising, they look destabilizing only through American eyes where getting 10 people on the street is considered a major grassroots demonstration.

    The level of public protests in almost any country outside the U.S. makes Americans seem comatose in comparison. Whether it’s French students or German factory workers, or Latin American farmers, non-Americans are far more involved in voicing their displeasure at govt proposals (for better or for worse).

    Combine that with China’s large population, and it’s understandable why Americans get alarmed when they hear reports of a few thousand Chinese protesting in the streets: such a protest would constitute a major movement in the U.S. while hardly meriting attention in China.

    Don’t get me wrong: I do think China has a large macro-economic problem of rapidly re-shifting a large segment of their economy away from exports and towards domestic consumption if they’re to survive the current downturn and set a path for sustained economic growth in the future. Furthermore, I don’t discount the ability of an economic downturn to bring about changes in governments. But I’m not sure the current protests being reported in these articles are the harbingers of doom just yet.

  19. fresno dan

    I recently watched an interesting “documnetary” from China “Up the Yantgze” (probably go tthe name of the river wrong)as I enjoy foreign movies. Anyway, the ostensible story of a young peasant daughter going to work on a “luxury” cruiseship was heartbreaking – as are many Chinese movies, even the fictional, which provides a good “between the lines” view of the country. How much unrest there will be is unknowable to me, but it is amazing the hardship the average Chinese endures.

  20. bg

    “Why does no one invoke Henry Ford? “

    oh come on. Henry Ford was a great engineer and a great entrepeneur. But has anyone really looked at his writings on social policy? His picture was on Hitlers desk, and he was openly antisemetic and violently anti-union. When he doubled wages he was trying to reduce the heavy turnover that had many departments hiring 300 men per year to fill 100 slots. He saved money doubling wages. His “build a middle class” statement was window dressing. You can’t pay people to become rich so they will become your customers.

    I am not arguing with the premise that the Chinese government is exploiting its populace (perhaps of necessity), but Henry Ford? Puhleeze.

  21. Anonymous

    Here’s what I am predicting, and I am pretty damn sure about it:

    China is currently the source of the world economy’s global imbalance due to the yuan’s value and its large workforce pool. Its export-driven economy allowed the world to be flooded with cheap goods, and hence raise world demand for products. But for goods to be cheap, jobs had to be lost where the demand originated from. Eventually we reached the crossing point where too many jobs had been lost to sustain a high demand which led to a reduction in purchasing power (and that meant less incentives to increase one’s indebtedness levels).

    And this, is what created the current crisis.

    Over the next few months, the value of the dollar and of the yuan will be the main focus of both the US and China. The Obama administration wants the Yuan to go up, they want to give companies less incentives to set up shop in China, and come back to the US. There is currently an increasingly large pool of jobless Americans ready to fill up factories to make cheap goods, and China has an unfair advantage because of its currency manipulation and workforce pool. With lowered expectations and no jobs to be found, lots of Americans could find a job if factories re-opened in the US (of course low oil prices isn’t going to make it easy for the Obama administration to achieve this end).

    But China, on the other hand, needs to keep its Yuan low because its whole export-oriented economy relies on it. Due to the incredible drop in demand from America for Chinese goods, more and more Chinese are losing their jobs. I wonder how many Chinese are fired for every American that loses his job, but one thing is certain; unrest is increasing in China with every passing day as a result.

    What the Chinese people need are higher standards of living and higher pay, not sweatshop working conditions with no safety nets. But for this to happen the Yuan must go up, which plays into the hands of the US and would make China less attractive to companies and bring jobs back home. At the same time, higher paid Chinese workers will mean more expensive goods, but no doubt more domestic consumption would make up for the drop in demand from the US. It’s unlikely that the Chinese government would be as carefree in letting their country turn from export-driven to import-driven, so there would definitly be some sort of protectionism to prevent their own businesses from importing cheap goods from abroad. In fact, a key aspect of China is its diverging living conditions and its large population; on one hand it makes any transformation of its own economy extremely painful and difficult to steer, but on the other hand it would allow China to avoid the pitfalls of consumption based on the importation of cheaper goods from abroad. China can have a part of its population producing cheap goods, and another part of it with a higher purchasing power to purchase said goods. China’s large educated workforce and relatively cheap yuan (even if it went up it would still remain relatively attractive) would prevent its economy from reaching autarkic levels, as there would still be a good interest in investing in China and opening companies there, but not solely based on the value of the Yuan. And of course and for China would still buy large amounts of resources from abroad.

    In those conditions, the US would manage to create jobs it has lost. But American purchasing power would never return to its past levels, not until it would start the cycle once more and ship countless jobs elsewhere to import cheaper goods again. China, by then, will not be an option anymore. Maybe in fact there will be no country to replace the cheap-labor China we once knew. But this would merely be the result of a natural balancing act between China and the US, which would result in a less polarized global economy.

  22. Anonymous

    EDIT: Oh and just to mention, like others are saying here, Chinese unrest is not at the government, it is directed at the corporations. Chinese people are very nationalists. I mentioned unrest because it fits in the “get the jobs back in the US”. Higher Yuan, unrest targeted at corporations/factories/etc.

  23. Anonymous

    Yves:
    Jack Paar, who after Steve Allen invented late nite TV, liked to tell of the US tourists in Europe. Who believed if they spoke English slowly enough and loud enough,locals would understand them.
    So I am afraid that most posters above want to extend what they know (western society) and extend it to China.
    Wrong wrong wrong (as Dennis Hopper says in some TV ad).
    I am no expert on Chinese social systems, but “blessed” with a Chinese wife have had to learn a little for self-preservation.

    Let me here completely recommend the work of Yasheng Huang at MIT. (his chapters are available on line at Sloan). Extending his ideas slightly, he sees China suffering the re-emegence of the traditional system. Which is now strangling Chinese growth)
    Earlier advances were both Western influenced. One is “Socialism with chinese characters”, Which is Marx via Mao and Deng. The second was the back migration of Western influenced Chinese from Hong Kong and Taiwan. (I would add an older core group of Western educated pre-war Shanghainese).

    For me the core concept to understand the traditional chinese view is the concept of “guanxi”.
    Unusually Wikipedia is only partially useful in describing the power aspect of Chinese interactions. It misses the way around it. The article does suggest “In Middle Eastern culture, wasta is a similar concept; in Italy, raccomandato and raccomandazione are similar concepts”
    Wikipedia for “raccomandazione” translates nicely and puts the concept into a more available culture.
    e.g. Mailing a package in Italy was (is?) a formidable task.The rules are minute and unwavering. The postal clerk is completely indifferent to you and your problem. You had nothing to do with him getting or keeping his job. So there is no personal or family gain in helping you. But if you ask him deferentially for help, his ego might be greased enough to help. Or certainly if he can steer you to a specialist in package wrapping who just happens to be a cousin he will graciously give you directions. Or of course making worth his while will grab his attention.
    But the Italian system is just the beginning of the Chinese system.

    Now in China you can assume that everyone will try to take advantage of you. Everyone that is except your family. In some ways it is more useful to think of the Chinese family rather then an individual member as the basic unit (think Buber’s “I-thou” and “I-it”) Within the family is absolute trust. Exile is complete suffering. (I only scratch the surface here)
    Confucius sums this up: you owe this kind of loyalty to “Family Village and Nation” Nothing else (I don’t understand village loyalty-perhaps it is clan)
    The Chinese genius is to connect social network links (Wikipedia again excellent in “six degrees of separation”) If you marry into a family suddenly your two families are networked through this bond into a larger trusted group. And can use their in-law connections for continued trusted links. Within which you are safe.
    This is part of “guanxi”
    My mother-in-law (born upper class)was a genius at finding links. She carried endless genealogies in her head. What seemed like idle gossip was instead stored into her social networking database.
    Once visiting NYC from HK she was taken by her daughter to Chinatown to get her hair done at a small shop. She talked to the (working class) hair-dresser and within minutes had found a connective route to her. The MIL then relaxed and had her hair done. That is guanxi in everyday use.
    But you do not do anything for a person not related. They do not count. Thus you can put plastic in their milk. So what???

    plschwartz

  24. Anonymous

    “bg” is right about Henry Ford. Another tipoff is his reliance on violent thugs to manage his labor relations. He made a great Model T, but then mismanaged the company into grave difficulties. I would not use Henry Ford as a role model for anything.

  25. Cool Head

    To Anonymous at 4:51,
    Do low level workers get 2000 to 3000 RMB in Shenzhen? Really? I worked in China for about three years since 2005 and I saw drivers of MNC bosses in Shanghai getting 2000 RMB WITHOUT any food or accomodation. We had a plant in Hefei where skilled workers and supervisors made 3000 RMB a month WITHOUT housing or food (only one meal served in the factory). Are you sure of your figures?

  26. freude bud

    I can’t remember which history, but I think McNeill talks about the record of peasant rebellions in China which are apparently quite thorough, and during the course of its several thousand year history it turns out that they were quite frequent.

    However, 99.99% of them, though serious disturbances of the state-breaking mold, were simply put down. (Thus they are “rebellions” and not “revolutions” in the poli sci speak of a certain school.)

    Certainly a serious rebellion could seriously disrupt domestic and global economic growth, but the reportage so far suggests something much less consequential than that. And of course the media always highlights the sensational to sell papers–which is fine, if somewhat misleading.

    The real concern, though, is a breakup into warring states–as has periodically happened–but nothing so far seems to suggest anything close to that level of unrest/social break down.

  27. Anonymous

    The salary range is current as of 2007. Driver salary is
    very different in China because they get to keep the car over weekend when it is not in use. It is acceptable that they use the car for personal purpose during the weekend and make some side money. If they are truck driver, they will rent the truck out over the weekend and keep the money themselves. For personal driver, they can do wedding, etc. If you want to hire a driver without the above mentioned perk or you want the driver to show up on weekends, the salary will climb very fast.

  28. Yves Smith

    For all his (considerable) faults, Henry Ford, uber capitalist, nevertheless saw it to his business advantage to pay his workers good wages. It’s the reverse of our current model, where employees are touted as “assets” but treated as costs to be minimized.

    And the good wages paid to the auto industry (and later more blue collar workers) are considered to be instrumental in the growth of the US middle class and the prosperity American enjoyed in the latter half of the 20th century.

    I find it interesting that some readers find it necessary to reject everything Ford did because some of his actions were questionable. This is a well documented cognitive bias called the halo effect (Phil Rosenzweig has written a great book about it as it applies to how we view corporate performance).

    I also find it interesting that some readers appear to have read into the post that I am predicting a violent overthrow of the Chinese government. I said no such thing, nor have I said anything of that sort anywhere.

    The post says:

    1. The level of violent outbreaks appears to be greater than is reported in the Western media

    2. Wen may have made a tactical error in saying Chinese would continue to have strong growth (as far as being able to depreciate the yuan is concerned)

    3. No county has had a mass internal migration as a result of economic distress without experiencing disruption.

    The closest historical analogy to what is happening in China that I can think of is the displacement of textile workers in England in the early industrial revolution. There was a large scale cottage industry, rural, of lace makers and other skilled textile workers. They were displaced by industrial manufacture and imports from India. The textile workers (often women and children who had worked at home) saw a considerable fall in income or a complete loss in work.

    Even though the process of industrialization in England lead over a generation or two to higher average incomes, it was accompanied by considerable disruption and often downward mobility to rural families. And the new factory jobs were in sweatshop conditions.

    Even with generally improving economic conditions, there was considerable unrest and the growth of a labor movement.

    China is faced with the prospect of a reverse migration on a large scale as a result of widespread unemployment. I cannot think of a ready historical analogy here, but the fact set is worse than what England experienced in the early 1800s.

    Another complicating factor is the provincial governments, which are already unpopular due to the level of corruption, are (at least according to what I have read) the mechanism through which much of the stimulus will be deployed. This has the potential to blunt its effectiveness.

  29. Anonymous

    Something to consider is that as the cost of costal area goes up, factories are moving inland, essentially the job is moving to where the worker is located. For example, one of the company we work with just closed its door in Shenzhen, laying off 20000 people, BUT, it opened a new center near Chengdu which will employ 20000 people. Now if you consider majority of the people work in the original Shenzhen factory are from areas around Chengdu, things are not as bad as they sound. Of course, Chinese media, like Western media, like to focus on the fact the Shenzhen factory closed giving the impression that 20000 jobs have been lost, when in fact, they just moved from one part of the country to another, sort of like Nissan moving from CA to midwest.

  30. Anonymous

    Cool head

    Heife is in the middle of Anhui, which is one of the poorest province in China. No one, not even Chinese originally from Anhui wants to live there. According to wiki, heife has a GDP per capital of USD 1654 while Shenzhen has a GDP per capital of USD 10628, a difference of ten fold.

    As you can see, the GDP difference is huge, so applying Heife salary to Shenzhen is not logical. There are reasons for such difference, road, port facility, government, etc. Some say this crisis comes at a good time, it allows the inland area to develop since the cost is much lower

  31. Anonymous

    Thank you Yves for informative blog. I’ve been reading it since mid 2007. Links are good. Other very good currency related blog I read is Blackswan currency currents by Jack Crooks. I have nothing to gain here by promoting this site. But they are one of the best and I read a lot. If any is interested please check their Jan 29 entry- Sounding off on Wen at Davos!

  32. PB

    There is no doubt China is now experiencing serious economic challenges, in part because of the decline in export markets, but even more so because of the dramatic drop in the property sector which in turn negatively impacted the construction, steel, cement and related sectors, given property accounts for about 25% of investment. But it does not mean the country is about to fall apart from systemic social or political problems. Having lived in China for 6 years, it seems like someone outside China “predicts” the coming collapse of the government about once or twice a month. These predictions generally reflect a deep misunderstanding about China and/or a need to rationalise the apparent contradiction between the remarkable economic progress in China, as well as the advances in social and political reform, against the widely held view that such a system “simply cannot work”. There is no question that a lot more progress is needed to optimise the economic, social and political potential for the Chinese people, but we should also recognize the distance that has been travelled in the last 30 years of reform.

  33. Anonymous

    Yves,
    By
    ” And the good wages paid to the auto industry (and later more blue collar workers) are considered to be instrumental in the growth of the US middle class and the prosperity American enjoyed in the latter half of the 20th century.”
    I assume you’re referencing circa 1950-1970. Patently untrue mid 70s-2000. See Elizabeth Warren’s wonderful recent work or the EPI’s latest. (Civil enough?)
    Critically and respectfully yours…

  34. Yves Smith

    Fair point, and I’ve mentioned stagnant average worker wages from the mid-1970s onward with some frequency.

  35. Anonymous

    Hi Yves,

    Have enjoyed your blog, except for the stuff on China. I think other bloggers rightly challenged the basis of your conjecture, that a vast reverse migration will cause major disruptions, on the following grounds (1) demonstrations, while disturbing, is not as serious as you seem to have suggested (2) they are directed not at the national government i.e. there is no indication (yet) that these incidents will snowball into national level protests (like what we are seeing in Europe) (3) the CCP is ruthlessly efficient in handling these protests and various social upheavals (comparing China to England in the 18th century does not cut it). More than a year ahead of the Olympics the Chinese government has already started tightening its grip on internal security, and now there is reason or sign of relaxation any time soon.

  36. Yves Smith

    Anon of 12:46 AM,

    You have read something into the post which I never said. As I stated in comments above, at 3:39 PM:

    I also find it interesting that some readers appear to have read into the post that I am predicting a violent overthrow of the Chinese government. I said no such thing, nor have I said anything of that sort anywhere.

    The post says:

    1. The level of violent outbreaks appears to be greater than is reported in the Western media

    2. Wen may have made a tactical error in saying Chinese would continue to have strong growth (as far as being able to depreciate the yuan is concerned)

    3. No county has had a mass internal migration as a result of economic distress without experiencing disruption.

    The closest historical analogy to what is happening in China that I can think of is the displacement of textile workers in England in the early industrial revolution. There was a large scale cottage industry, rural, of lace makers and other skilled textile workers. They were displaced by industrial manufacture and imports from India. The textile workers (often women and children who had worked at home) saw a considerable fall in income or a complete loss in work.

    Even though the process of industrialization in England lead over a generation or two to higher average incomes, it was accompanied by considerable disruption and often downward mobility to rural families. And the new factory jobs were in sweatshop conditions.

    Even with generally improving economic conditions, there was considerable unrest and the growth of a labor movement.

    China is faced with the prospect of a reverse migration on a large scale as a result of widespread unemployment. I cannot think of a ready historical analogy here, but the fact set is worse than what England experienced in the early 1800s.

    Another complicating factor is the provincial governments, which are already unpopular due to the level of corruption, are (at least according to what I have read) the mechanism through which much of the stimulus will be deployed. This has the potential to blunt its effectiveness.

    And may I add, which I did NOT say at 3:39 PM, that England did not suffer a violent ovethrow of its government during the Industrial Revolution, although it did see the rise of organized labor and larger-scale protests.

  37. Jon

    Oh cut out the “Murdoch! Murdoch!” bullshit!

    Nobody wants to hear that tired old meme that passes for “intellectual” thought in some parts.

  38. Anonymous

    Yves, reading your post on Yuan/Dollar exchange rate, you seem a little 2 faced on the matter.

    When US loses from the peg, it is a real lose of the American people.

    When China loses from the revaluation, it is just numbers.

    From this, I can conclude that either:

    A) You are racist, as in Chinese people are just number.

    B) You are closet mechanist, as in you just want a exchange regime that benefit US with disregard for the well being of others.

    Help me out here.

  39. Anonymous

    2:52 am, I’ll clear it up for you. China has been manipulating its currency for years, a clear violation of international trade rules. The US finally wakes up and toys with the idea of calling China out.

    You don’t like that line of thinking and call Yves racist.

    It’s pretty clear who is biased here.

  40. Red A

    Wages have gone up in China, but for most industries workers are not making 2,000 – 3,0000 RMB per month. IIRC, they make around RMB 1,200 at the Taiwanese plants I deal with. (not including free housing.)

    There are definitely more protests in China than before, because whenever factories close, there are issues of back wages, etc.

    Also, for all of the people who think that China could never have a political collapse, I lived in Suharto’s Indonesia and even “beloved” leaders who brought export-led growth can be gone faster than you think.

  41. Anonymous

    Red A
    We can argue about numbers, but I think it is fair to say that the number varies depends on the location. To conclude the wage of most workers based on just one plant is not very logical. Where is this plant located? In Hefei or Shenzhen, the location makes a huge difference. The protests are usually waged against the Taiwanese bosses since they are the ones running away without paying. Indonesia owned a lot of debt before they went under, sort of like, interestingly enough, the US. China has her problems, but short of world war 3, I don’t think the government will go under. At least, for the sake of the world, the first thing angry mob will demand is to bomb Taiwan from one side to another for not paying the wage. If necessary, Taiwanese can easily be made into what Jewish were in world war 2. Remember that China had to execute the bosses for the milk incident to appease the mob. I doubt anyone will get executed over the butter incident in the US.

  42. Anonymous

    “Remember that China had to execute the bosses for the milk incident to appease the mob. I doubt anyone will get executed over the butter incident in the US.”

    This is so typical of the Communist Party. How does executing 2 persons appease the people when:

    1. The victim families were not allowed to attend the trial?

    http://www.ntdtv.com/xtr/b5/2009/01/24/a250233.html

    2. When victim families were prevented from making tort claims?

    http://www.ntdtv.com/xtr/b5/2008/12/04/a229989.html

  43. Anonymous

    Wen Jiabao’s statements are for domestic consumption. If the portrayal of a strong Chinese economy brings pressure from the US Treasury in respect of the currency manipulation issue, he can use it to tell the Chinese people that the US is basically trying to harm China, and thus try to whip up anti-US sentiments.

    The key to reading CCP leaderships’ statements is this: What will allow the CCP to hold on to power?

  44. Anonymous

    It is not only Taiwanese bosses who don’t pay salaries. Chinese bosses do this too. Plus they don’t pay suppliers, either! (There is no “national” monopoly on these issues.)

  45. Anonymous

    Chill out Anon 3:06, for US to call out China on currency manipulation is like the Pot calling the kettle black. Toying with short term interest rates, allowing credit expansion, and backing shady financial firms with the government, these actions are exactly exchange rate neutral.

    So please take your half assed economics elsewhere..

  46. Anonymous

    China has been financing the binge we’ve been on for years. With their economy hitting the skids, they’ll need money to keep things glued together, meaning no more purchases of US treasury notes, cashing in of some they already own. Where does that leave the US?

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