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China has developed economically well throughout the post- Mao Era and even became a country that other developing world looked up upon. China has emerged from Mao's disastrous planning for China's economy through a great reformation in 1978. Changes in China in the last three decades have been remarkable and deep for a country that has a large population on Earth, and these changes are tied to foreign investment, economic reform and the complex process of globalization that extend beyond the economy into the realm of labor relations and society in general.
China's large population made employment a key issue, thus manufacturing industries became the essential providers for jobs in many coastal cities in China. This essay discusses how China's economy gradually grows from a planned economy into a Market economy through foreign investment, economic reform policies and discover why manufacturing industries became a main supplier for employment in China especially in coastal areas.
The Economy Under Mao
China's economy remained stagnant for a period of time and therefore during Mao's era, he introduces collectivization, Great Leap Forward and Cultural Revolution which plans to use China's large population in transforming China into a modern industrialize communist society. Mao's planning causes the country's stagnant economy wealth to decline instead of increasing it.
Under Mao's control, it was largely a rural movement through the introduction of mass campaigns in which communist ideology would drive the Chinese who are influenced by the ideology and loyalty towards the party and thus emerge as urban cadres. In 1950, two campaigns called the Resist America and Aid Korean Campaign were introduced, foreigners are considered spies and Chinese business associates who had contact with foreigners were caught. Foreign business assets were frozen, they were charged high amount of taxes for businesses set up in China and loyal Chinese workers we encouraged to go against their foreign employers. In worst case scenario, foreign businesses were driven out of the country without any valid reasons. [Guthrie, 1969]
The communist government continued to introduce campaigns that allowed them to take over all labor union and industrial organizations such campaigns are "Three Anti" and "Five Anti". Government takes up a number of measures that enables them to control production in both agricultural and industrial areas. Example is the state-controlled industrial production plan which runs for five years. It was successful initially as industrial production increases dramatically but by removing private sector, government gained control over the economy but eliminated market competition. [Guthrie, 1969]
The Economy in Post-Mao Era
In 1978 after the death of Mao Zedong, it also marks the end of Cultural Revolution. During this period, a large number of urban residents who just returned from the countryside remain unsure of how they are going to survive in the new planned economy and thus lead to high amount of unemployment in the country.
Deng Xiaoping leader of Communist Party of China (CPC) took power and transform China's economy from impecunious economy into a market economy which allows China's economy to grow successfully, solve the problem of unemployment and inflation and in addition providing a better standard of living for the Chinese citizens.
Economic growth and increment of wealth has been the most pronounced in coastal areas and the number of Chinese living in absolute poverty nationwide has been reduced by more than 200 million during the reform era. [Moore, Thomas Gale, 2002]. These growths are possible due to the state's creation of organized establishment that has integrated China into the Global market both externally and internally.
3. External Integration
3.1. Coastal Development Strategy
When Deng Xiaoping took control of China, he abolished the "Third Line" as this strategy was foolish and a waste of regional investment which can be of better use for more viable coastal regions that can promote economic growth and thus Deng opened up those coastal regions for economic growth.
China's economic decentralization has help tremendously in China's reform project. Individual provinces and municipalities have had the independence to make economic decisions and innovations in developmental strategies to gain advantages over neighboring regions and provinces. They were also given the opportunity to create small-scale special economic zones for the localities within their control. [Guthrie, 1969]
China enforced the "Open Door Policy" in small part of coastal regions where special economic zones (SEZs) were also established such as Xiamen, Shantou, Shenzhen and Zhuhai.
In mid 1980s, after the successful growth of this SEZs, Deng Xiaoping's successor Zhao Ziyang, implemented the coastal development strategy to accelerate the flow of FDI (Foreign Direct Investment) to a wider region including the eastern and southern provinces in coastal areas.
Export-oriented coastal development strategy helps China in emerging as one of the largest supplier of manufacturing goods and the third largest trading economy in the world in 2004 as China is now able to export goods without restrictions.
4. Internal integration
4.1. China's "Open Door Policy"
Deng Xiaoping's plan was to lead China into a gradual and incremental economic reform, leaving the state apparatus intact and slowly set free market forces. Previously, China only opened up to technical assistance and funding but to no success until mid 1980s where Joint Venture Law was the first of a series of regulations that facilitate the flow of foreign investment into China.
Deng Xiaoping adopted the "Open Door Policy" and introduces various policies that encourage foreign trades and economic investment in China. This enables foreign investors to set up businesses in China and in addition provide China with foreign technology, capital and employment. Deng Xiaoping ended Mao's idea of collectivization and communes and lead China into becoming the rapidly industrializing country.
Foreign investment impacted China's economy in terms of its differences in productivity. Comparing a firm that does not receive any foreign direct investment (FDI) to a firm that received such investment, firm that receive investment has higher labor productivity. This is because foreign corporations came to China in search of cheap labor and in order to cut down labor cost to increase production it resulted in higher productivity of labor. Example of such firm is the textile sector which accounted for half of China's manufacturing exports. [Moore, Thomas Gale, 2002].
4.2. Worker's Wages
Enterprises were given fourteen rights and one of it the distribution of wages and bonuses [Guthrie, 1969]. Firms that have joint venture relationship also pay significantly higher wages compared to firm that have no such relationships. During pre-reform era, difference in educational qualification does not have any impact in terms of wealth, material comfort, social status and opportunity because large state-owned firm are heavily subsidized and protected by the government.
In reform era, there are no such subsidies from the government and thus workers struggle to survive, as wages are based on qualification and the company's productivity, example joint venture relationship pays higher as the productivity is better. Therefore, workers prefer to move to urban areas to work in private sector or non-state firm to earn better wages even though they are not eligible for any government benefits.
4.3. Employment Opportunities
Initially, men contributed to a higher ratio in the industrial sector in cities whereas women accounted for 80 percent of unemployment in rural areas [Guthrie, 1986]. Manufacturing industries in coastal areas such as textile, shoes and garment industry offered a number of opportunities for off-farm employment for women from the rural areas and thus increasing the number of migration from inland to coastal areas in the reform era. Inequality in the workplace has reduced tremendously due to the sizable export economy and the creation of more off-farm employment opportunities especially in coastal region resulting in more women contributing to the working population in urban areas.
4.4. State-owned Enterprises (SOEs)
Gradual receding of the state from control is a process that brought about a shift in economic control without privatization. During the pre-reform era, China still maintains some element of a planned economy where the government has control over its financial and investment in order to provide stability during the transition. Unfortunately, through the reform era, non-state firms grows at a faster rate compared to state-owned firms but SOEs still remains as one of a massive force in China's economy as they provide basic employment of about million employment in one firm and social welfare for the majority of urban worker and the fiscal revenues for most levels of government. Growing privatization of firm creates a competitive marketplace where state sector must now compete [Guthrie, 1986].
SOEs still have control over half of China's industrial assets and vital industries such as power, telecommunication, financial services, steel and petrochemicals. In addition, China cannot accomplish market reform without changing the state firms first.
4.5. Migration from Rural to Urban Area
In the pre-reform era, there were strict controls of migration as the benefits are distinctly different between rural and urban areas. Chinese citizens were forced to work in the area that they are born in to easily determine the state-subsidized and social benefits that they will gained from the government. Chinese citizens are allowed to legally migrate with proper paperwork but it not easy to survive outside their place of birth as job recruitment and job transfers are all controlled by the government.
Beginning of the reform era, the control of migration started to loosen out for three reasons:
Declined in the communist control over urban and rural areas as the party withdraw from their state's role
China's constantly growing economy increases the need for low-wage, temporary labor and permanent labor in developing urban areas and export-led economy respectively.
Increasing number of unemployment in the rural areas
These economic factors became the driving force that pushes Chinese citizens to migrate from the rural areas to urban areas and inland provinces to coastal provinces in search for temporary jobs and money. The surplus rural population is due to the introduction of new technology into industries and thus reduces the need for labor in rural areas. In addition, since agricultural sectors are unable to provide more employment and the industrial growths are incapable of absorbing the rural surplus population, these populations are increasingly moving to urban areas for better job opportunities. [Cheng Li, 1996]
4.6. Social Security Benefits
A controlled economy has smaller variation in wages but offers a wide range of life benefits which are tied to the workplace. In pre-reform China, lifetime employment was the very essence of the labor relationship that existed between enterprises and workers. [Guthrie, 1969] In 1980s, state sector jobs are more competitive compared to state enterprises or collectively owned enterprises. One thing for sure, after the jobs are assigned to them, the job is for life but for the reform economy they are given the choice to stay in that organization or not.
Even in this reform era, it is common to see more than needed employees in a workplace because workers are assigned to work within various work units which supply social security benefits to them and to cut cost, employer avoid firing or retrenching workers.
Deng Xiaoping's capability in leading China into gradual reformation helps to reduce unemployment issues. Government decision to open up China's market to welcome foreign capitals allows foreign ventures to invest in businesses, more firms being set up equals to more job opportunities. Most of the firms are manufacturing industries such as textile and shipbuilding [Moore, Thomas Gale, 2002]. These manufacturing industries are labor-intensive and require cheap labor. Due to China's large population, it became an ideal location for foreign investors to invest in. These investors not only provide capitals to China's economy but also technologies and more importantly the transfer of management knowledge across organizations.
Over the course of China's economic reform, wages are no longer tightly controlled by the government, more educational opportunities, and higher mobility within the society. This leads to growing inequality, example in western rural areas, they gain relatively lesser than those in the eastern urban areas but with the control over migration gets loosen up, Chinese citizen are given that opportunity to migrate to urban areas or coastal areas in search for better wages and standard of living.
Pull factors that attracts people to coastal areas are its government policies example in state-owned firms whereby they are no longer tied to lifetime employment and higher wages in joint-venture firms. Push factors include the lack of unemployment in the agricultural sector which forces the surplus rural population to migrate from farms and pulling them into non-farm economy [Zhu Liang, 1991]. Since temporary residence certificate are given with ease to those immigrants, some are still considered "floating people" as they are unable to secure a permanent job but nonetheless, unemployment has greatly reduced during the reform era with credit to manufacturing industries built in today's China.