Monday, July 04, 2005

China's Economic Slow-down?

Is it the natural maturation of an industrial region, or signs of trouble ahead for China's economic miracle? The Los Angeles Times reports today on the slow-down of growth in Dongguan, where thousands of foreign businessmen, mostly Taiwanese, had helped to create a Pearl River manufacturing export powerhouse:
This year Dongguan's minimum wage jumped more than 27%. Even with the increase, employers are struggling with worker shortages. Government inspectors are making the rounds at factories, enforcing work-hour rules and pension contributions that officials paid little attention to in the past. Electricity is in short supply, as is fuel.
These conditions, along with rising tensions with the West and Japan, have led many Taiwanese businessmen to invest instead in places like Vietnam.Moreover:
After four years of booming growth, foreign direct investments into China have flattened this year. That signals the waning of massive capital inflows, particularly in the electronics sector, that followed China's ascension to the World Trade Organization in 2001.

Yuan Gangmin, a senior economist with the Chinese Academy of Social Sciences in Beijing, says an investment slowdown was bound to hit places such as Dongguan even harder. Government policies overly emphasized the development of export industries in coastal regions — and now that's coming home to roost.

"Such kinds of shortsighted policy discrimination led to the high cost of immobile resources like energy, land and environment," Yuan said.
Labor shortage s have been the biggest headache for the Taiwanese factory owners, who have been forced to raise wages and improve working conditions in order to retain the workers they need to pump out their products. Which of course, is one of the upsides of Dongguan's maturation as a manufacturing center. Economist Yuan also hopes that the overdevelopment of the coast and the Pearl River Delta will now lead to increased development in China's wester regions, which have greater resources but lag far behind China's more developed east.

Meanwhile, Dongguan struggles to adapt. And again, there may be a silver lining here:
"Government officials have made it clear that Dongguan should no longer sacrifice environment to achieve speedy development," said Chen Xihui, director of Dongguan's Taiwan Affairs Bureau. "Instead, we should work on scientific and sustainable development."

Chen cited the Shanhu technology industrial zone as an example of this new attitude. The 28-square-mile park stands out among a sprawl of factories and dusty roads, with its lake and flower gardens. Universities and service firms already have moved in there. Traditional manufacturers are conspicuously absent.

Said Chen, "Companies that cannot meet our environmental standard will not be able to enter the zone."
Given China's staggering environmental problems, I can only cheer this shift in thinking.


It is the logic of global "turbo-capitalism," this seemingly unstoppable race to find the cheapest labor, a competition which at times threatens to drag down working conditions for nearly everyone, including most of us here in the "developed" West. The answer to this dilemma, supposedly, is that more developed nations and regions will specialize in high tech, high wage, creative sorts of industries - knowledge work. But I've often wondered how it is possible for this paradigm to actually work - when information operators and computer programmers and MRI technicians and paralegals and customer services centers of all sorts are no longer tied to the country for which the work is being done...well, we can't all be "knowledge workers," can we? With American manufacturing increasingly hollowed out, what's left? A nation of millionaires and service workers? Another Brazil?

And now even China, our supposed big, scary competition, is facing some of these same contraditions.

I wonder how all of us will manage.

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