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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“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.