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Will China Be the leader of the Global Race?

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Published: Mon, 09 Oct 2017

  • YANG XIN HAO

China joined WTO in 2001,there were expectations in Peking, once the country to became integrated into the global economy(Chan 2003), which would be on the right track to achieve economic prosperity. There would be some bumps along the way: much agriculture and industries would be affected, impact on employment, and it was predicted that China would benefit. Employment has been a major problem in China, and the best selling of the government was that more foreign direct investment(Chan 2003) (FDI) would come and the labor-intensive manufacturing sector would gain, in other words, the Chinese huge labor force will come into global market.

New entrant to the global economy may bring the capital of economic value(Chan 2003). Therefore, with twice as many workers and small change in the global capital stock, the ratio of global capital(Bardhan 2006) to labor has declined by nearly half in several years: this is probably the biggest change in history. Moreover since the ratio determines the relative returns to labor and capital, it will influence the global wages quickly.

The entry of China’s huge army of cheap labor into the global market of production and trade has reduced the bargaining power of workers(Bardhan 2006) in Asian developed economies like Japan, Korea, Singapore. The absolute number of work outsourced from these countries to China is very large.

It is predicted that foreign investment has been flowing into China in the past years at the expense of its Southeast Asian neighbors and the tiger economies of Taiwan, Hong Kong, Korea and Japan(Chan 2003). Hong Kong and Taiwan have been the nurturers of China’s export industry for more than two decades(Ravallion 2008), but now it was found that some of their own industries were “hollowed out”(Chan 2003).

As an observer, William Greider, describes China is “sucking away” work. “Globalization”, he writes, “is entering a deadly new phase, in which the competitive perils intensify for the low-wage developing countries. … In the ‘race to the bottom’, China is the definition as bottom”(Chan 2003).

In other words, though employment of low-wage industries in China may expand, wages are not rising in these industries , and for many people have been declining. Within the Chinese system is what makes it possible to lead in the race to the bottom in labor standards?

Firstly, let us examine the empirical evidence that showing, when compared to the other developing export-oriented countries, Chinese wages are very low relative to the cost of living(Chan 2003).

China has established its minimum wage standards very low, to the point that it is even competitive with Cambodia and Vietnam, two countries where the cost of living is even lower than China(Chan 2003). In Nicaragua and El Salvador, the wage levels are slightly higher than it in Asia , but this competitive disadvantage is largely offset by the proximity to the American market through Central America.

Or the world will be flat like Friedman say?

When the topic changed into “race to the top” , first mind is offshore outsoucing. Offshore outsourcing is when a company transfers its production from the home country to another country(Friedman, 2006), where it can be used to “lower taxes, cheaper labor, subsidized energy, or lower health-care costs” (Friedman, 2006). This is different from outsourcing, in which the company takes one of its peripheral tasks and has another company handle it(Friedman, 2006). Offshore outsourcing is what people in the America complain that when they complain of manufacturing works moving to China. However India has become a center of knowledge-industry outsourcing (Bardhan,2006), and China has become the center of manufacturing outsourcing. The cost savings of moving manufacturing to China are so big that if one company starts to move its manufacturing to China, it can only be survived by shifting their manufacturing to China.

Friedman cites an expert who advises American companies, “If you still make any labor intensive, get out of it, rather than bleed to death” (Friedman, 2006). Offshore outsourcing to China’s relatively recent takeoff, on December 11, 2001(Friedman, 2006), when China joined the WTO and international companies felt safer to operate in China. It seem that the major reason why China is so attractive is that Chinese labor market is very cheap. This has led to companies in other developing countries , trying to cut their wages to remain competitive, driving down wages for all non-skilled workers in the developing countries to maintain a competitive with “the Chinese price.” Needless to say, the human cost of the process can be disastrous. The fact that wages in China have a very big impact on the wages of labor around the world can be considered as another example to describe how the world has become “flatter.”

In Friedman’s opinion, he warns that too much focus on the “race to the bottom”of wages will blind us to a more disturbing development: China’s “race to the top” – their intrusion in the high-skill manufacturing of items(Friedman, 2006) like computer processors that were at one time only able to be manufactured in the First World countries(Friedman, 2006) because of workers’ education and training requirements. This is one point that Friedman stresses in his book: The real money is in the new design rather than manufacturing(Friedman, 2006). China sees its low-wage manufacturing work(Friedman, 2006) as a stepping stone to dominating various stages of production, particularly in the design. As soon as China’s education system will catches up with the America’s, expect to see wages of highly skilled workers fall as they begin to compete with international workers who do the same work for less money. To remain competitive in the knowledge industry, America needs to put more resources into research and education. Currently, American children are falling far behind Asia’s in their math and science areas. This must be a big trouble in the future.

Why China will influence global wages , not adjust it?

There are many reasons why Chinese wages can maintain its competitive to other countries. Firstly, it has a virtually inexhaustible supply of cheap labors from the countryside. Secondly, the deregulation in wage-setting under China’s economic reforms has made local governments to turn a blind eye to (Chan 2003) labor exploitation. Thirdly, there is no independent trade union movement in sight in the foreseeable future to struggle to preserve wage levels(Chan 2003), and the government is determined to ensure that none is allowed to appear. The last reason is China’s so-called hukou system (household registration system), which prevents an uncontrolled influx of population from rural-to-urban .

Finally, there have been some reforms of the Chinese household registration system, but only to allow successful people have considerable money or education to apply for a citizen hukou. The controls over the unskilled migrant workers(Chan 2003) , through the pass system, remain unchanged. And the police seem firmly opposed to any changes(Chan 2003). The hukou pass system may remain in place under the foreseeable future, and China will continue to dominate the world export market, to the point that the new initiatives taken by such as Thailand (Chan 2003) may possibly collapse under the weight of competition from China.

References

Bardhan, P. (2006), Awakening Giants, Feet of Clay : A Comparative Assessment of the Economic Rise of China and India, Working Paper, Berkeley

Chan, A. (2003), A “Race To the Bottom”. Globalisation and China’s labour standards, China Perspectives, April 2003

Ravallion, M. (2008) Are There Lessons for Africa from China’s Success against Poverty?, World Bank Policy Research Working Paper 4463

Thomas L. Friedman(2006) The World Is Flat ,Published by Farrar, Straus & Giroux Hardcover ,April 2006


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