China’s Disposable Labor

Au Loong-yu

THE GLOBAL FINANCIAL crisis has begun to take its toll in China, with a rapid decline in China’s exports. In Guangdong province where the export processing zones house 20 million workers, tens of thousands of migrant workers have been sacked. By comparing various estimates one can conclude that nationally by the beginning of 2009 between four and nine million migrant workers have returned home. Millions more will stay home after the Chinese New Year holiday.

Along with their jobs, thousands of migrant workers have seen their wages disappear, and they have to fight to get at least a portion of their back pay. Road blockages and demonstrations are not rare scenes. When these actions are big enough, workers are often able to force local authorities to pay them for their return to their home villages. In doing so, the local authorities are not only meeting the workers’ demand; sending workers back home is much safer than keeping a large reserve army of jobless poor in the cities.

After the economic downturn set in, both the central and provincial governments hastily announced economic incentives encouraging the dismissed workers to return home to farm their small plots of land or set up small businesses.

Although there is an official rhetoric about protecting jobs for migrant workers, this is merely advice to companies to be “prudent” in sacking their workforce. A second government strategy is to provide credit to the companies. Easy credit may soften the impact of plant closures, but has no direct bearing on employment levels.

While widespread closures necessarily create mass unemployment, cutting back on production rather than closure does not necessarily mean proportionally less unemployment. The U.S. government’s bailout of the banks has not made the latter more willing to lend, nor has it made employers less inclined to sack their employees. We can expect a similar scenario in China. In a nutshell, the substance of the present rescue plan is for the employers, not for the employees.

On top of this, both central and local governments are helping the employers shift the burden of the economic crisis onto the workers. The Ministry of Human Resources and Social Security declared a wage freeze on minimum wages last 17 November “in order to help the firms to stand against the economic downturn.”(1)

Soon the Guangdong Provincial All China Federation of Trade Unions (ACFTU) advised workers that they must unite with their bosses to overcome the crisis. Consequently collective consultation over wages in enterprises that face economic difficulties has been suspended. The Guangzhou Daily told workers that “all parties involved are required to contribute to overcome the difficulties together.”(2)

The government declared a stimulus package of four trillion yuan in order to maintain an 8% growth rate. The officially controlled media reassured the common people (using a very colloquial term) that achieving the target is paramount because it would help to keep jobs.

The 15 November 2008 Economist predicted that without government help China’s growth would probably drop to less than 6%. With a stimulus package, business confidence may be boosted but the question is how effective will it be in keeping growth at 8%.

Optimists may point to the fact that China does not have the problems of subprime mortgages and shadow banking. Since the government cleared billions of yuan in bad debt from the banks at the turn of the century, with non-performing loans dropping from 40-50% of their assets to the present 6%, China’s banks have become healthier. On top of that, both household and public debt are small in proportion to GDP, and much smaller than most countries.(3)

Pessimists, on the other hand, keep reminding their readers that since China’s foreign trade is 70% of GDP, an unusually high figure for a large country, and since so much investment is export-oriented, China’s economy cannot maintain 8% growth even with the government stimulus package.

Yet even if the stimulus package keeps an 8% growth rate this year, this has little bearing on job creation. The 2005 International Labor Organization study on the relationship between economic growth and job creation found that for the period 1990-2002, an average 9.3% growth only increased employment by about 0.8%. For manufacturing jobs the growth was negative. For a long time, then, China’s growth has not produced job growth.

Jobless Growth for the People

The current official 4% unemployment rate is generally considered unreliable. According to the Chinese Academy of Social Science it may be as high as 9.4%.4 This is also an underestimation, as it does not count migrant workers who have returned to their home villages. Under the hukou (household registration) system, no matter how long rural migrants work in cities they are still considered aliens. As such they are denied basic social rights urban dwellers are entitled to, including formal work with full social security, education for their children, and subsidized medical care.

What is more outrageous is that while the unemployment benefit fund has accumulated a vast sum of money, amounting to 120 billion yuan, local governments have little incentive to assist the unemployed. No full figure is given, but in the case of Guangzhou alone it is estimated that by September 2008 there was an 8.5 billion yuan fund yet only 0.3-0.5 billion distributed.

When asked why, the official responded that “the Central government had not sent us directives on how to deal with this.”(5) Most rural migrant workers are excluded in any case since they are not considered urban dwellers but only nongmingong, literally “peasant workers.”

Not only does economic growth have little to do with job creation, it has little to do with wage growth either. According to a World Bank report, wages in China as a share of GDP declined from 53% in 1998 to 41.4% in 2005. By contrast, in the United States wages are 57% of GDP.(6)

The law on minimum wages has done little to stop the decline. While in Thailand and the United States the minimum wage is about 50% of the average wage, in China it is little more than 30%.

Even with the stimulus package keeping the growth rate at 8%, generating jobs is difficult. But if the growth rate drops, it will immediately mean more serious joblessness and declining wages.

No Safety Net

Despite the rhetoric of creating jobs and promoting people’s livelihood, the stimulus package delivers few resources to raise the share of wages (including social wages) to a reasonable level. It continues to ignore calls for reform on social security, free medical care and education from high school upward, or a more effective unemployment benefit system and pension fund with a greater government contribution.

It is argued that more comprehensive social security might provide a sense of security to people, this acting as an incentive for them to spend money rather than save it. According to Newsweek, only one percent of the total stimulus spending is pegged for health care, culture and education.

Huang Ming, a Cornell professor who teaches at Beijing’s Cheung Kong Graduate School of Business, says, “It’s in the interest of the government to develop the social safety net fast. It will stimulate consumption. [Chinese] save because they are frightened of getting sick.”(7) China’s saving rate is as high as 46% (as opposed to zero in the United States) and is counter-productive in an economic downturn where less money goes to consumption.

There is little indication, however, that the government is going to adhere to the welfare-state discourse. Much of the four trillion yuan is spent on infrastructure. Though this creates jobs, by its capital-intensive nature it is not going to create as many jobs as those lost in the export-oriented manufacturing industry.

   Moreover, building roads and railways does not necessarily kick-start a slowing economy if investors are not confident that their products will be sold. They cannot have much confidence when unemployment is rising.

It is obvious that with neither transparency nor democratic control, the government will not hand out the rescue money in an impartial way. Even the censored press finds it necessary to warn against corruption. The Legal Daily remarks that the package is going to “bring about a fierce competition between provincial governments for projects,” and “behind these big projects there are always big corruption.”(8)

Part of the stimulus package is for reconstruction in the Sichuan region where an earthquake devastated one of its counties, Wenchuan. Since May there have been 40 billion yuan of donations but there are still 100,000 victims, among them many children, who do not even have a pair of winter shoes.(9) This reminds us of one thing: the package will first and foremost benefit the power elite.

A Model for Whom?

Curiously, there are people who see China as a model for developing countries or even working people. They applaud the rise of China as an alternative model to neoliberalism. Due to limited space we will not explore this vast subject here. We only intend to point out that in nearly every sense China is simply following the course of Korea: an authoritarian regime which actively supports rapid accumulation and export at the expense of working people through denying them basic civil and labor rights.(10)

We have mentioned the steady decline of wages as a share of GDP. The other side of the same coin reveals profit as a share of GDP has risen dramatically. A Chinese scholar, Wang Lianli, wrote that in manufacturing the proportion of wages to profit rose from 1:3.1 in 1990 to 1:7.6 in 2005.(11)

Apart from spending extravagantly, the newly rich either invest or save their money, hence the exceedingly high saving and investment rates. For decades the share of investment in China’s GDP has exceeded 40%, which is twice as high as in the United States and the highest of the major Asian countries, including Korea when she was at the height of industrialization.(12)

The forces of capitalist development, however, cannot promote the polarization of rich and poor without, at the same time, creating obstacles for further development. High profit squeezes wages, further creating the longterm decline of private consumption. Between 1992 and 2006 private consumption as a percent of GDP has declined from 47% to 36%. The comparable figure in South Korea, India, Britain, Australia and Japan was over 50%.(13)

Thus China’s rapid accumulation, bought at the price of brutal exploitation of workers and farmers, creates severe imbalances in consumption and investment, or more precisely, under-consumption and over-investment. This leaves productive capacity idle, and in turn causes increasing reliance on exports to pay for the investment. With the United States plunged into recession, this also spells the end of the China model.

Before the U.S. crisis, the Chinese government was already aware of the weakness in its growth model. In April, 2008 President Hu Jintao spoke of the need to expand domestic demand, moving the mode of development from export-led growth to more emphasis on domestic-led growth.

But no growth model can change without some restructuring, and that will not be painless. Who is going to bear the pain? As always, the question is to be resolved by contest between different social groups, either through institutional channels or through social actions.

In a country where basic civil and labor rights are absent, the relationship of forces necessarily favors the strong (the bureaucracy and the entrepreneurs). In this situation it is inevitable that working people, especially migrant workers, are going to bear the main burden.

The 150 million rural migrants are just so much disposable labor. When business is good they are called on to work in sweatshops 12 hours a day, and even denied the right to resign when they prefer to go back to their home villages rather than to endure slave-like working conditions.14 When business turns bad they are told to go home and till their miserable piece of land.

To some extent the migrant workers, as second-class citizens, are quite similar to women as a second sex under capitalism: the last hired and first fired. In the light of these fresh experiences it is doubly unconvincing to argue that China provides an alternative model for working people.

The Beginning of Fightback

What we are witnessing is not a regular business cycle as we have in the past 20 years, but a crisis at the core of China’s growth model. Thus it will be not only an economic crisis but a social one as well. Similar to the case of Korea, when U.S.-led globalization runs into trouble, China necessarily faces her own crisis as well.

This is not to suggest that China will necessarily go through as serious an economic crisis as that in the United States, or to predict whether it will be worse in China. What concerns us is that it looks likely that even a moderate downturn will have grave consequences for working people, especially for migrant workers.

However, there is a new element: Workers today are far more aware of their rights than they were even ten years back. The biggest fruit of their spontaneous strikes over the past decade is not just the economic benefits they were able to win, but a breakdown of the strike ban. Strikes have become so common that the ban was made ineffective. Local officials have to adapt themselves to this growing resistance.

Organizing is still exceptionally difficult, but in the coming economic downturn the ever greedier and more corrupted elite will have to face a working people, or at least some sections, those who have become more prepared to resist attacks.

Notes

1. This measure was presented in a more ambiguous way as “temporary suspension of readjustment of minimum wages,” and “suspending readjustment” can either mean suspending wages up or down, but judging from the content of the article it must have meant the former.
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2. Guangzhou Daily, 19 November 2008.
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3. The Economist, 15 November 2008.
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4. http://www.21cbh.com/Content.asp?NewsId=58091.
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5. http://www.21cbh.com/Content.asp?NewsId=57844.
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6. China Economy Quarterly Update, Feb 2007, World Bank Beijing Office, http://www.newsweek.com/id/174524.
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7. http://legaldaily.com.cn/2007shyf/2008-11/14/content_981205.htm.

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8. Ming Pao, 12 December 2008.
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9. In glaring contrast to China’s experience, Korea has been hostile to foreign capital investment throughout her industrialization period.
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10. Tigao laodong baochou, zheli yu chuci fenpei (Raise the compensation of labour, focus on initial distribution), by Wang Lianli, Xianggang Chuanzhen (Hong Kong Fax), published by research department of Citic Pacific, No. 2007-90, 8.
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11. “Rebalancing China’s Economy,” He and Kuijs, World Bank China Research paper, no. 7.
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12. The Economist, “A Workers’ Manifesto for China,” 11 October 2007.
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13. Those who are more outspoken and who can afford to consult “barefoot” lawyers, self-taught people with no legal right to practice, will ask the latter to write complaint letters to force the employers letting them go home to pay their wages beforehand. Those less outspoken will be forced to stay. The laws do not allow the employers to do this, but when workers do not enjoy basic civil liberties it is common that labor laws are not enforced. On the other hand, in the current economic downturn workers are simply dismissed before their contracts expire, again in violation of the labor laws.
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ATC 140, May/June 2009