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Workable Solution: China Wants Better, Cleaner Industry For Tomorrow, But Needs Jobs And Stability Today

Joseph Cheng, SCMP – Updated on Jan 08, 2009

The Guangdong leadership has been promoting industrial upgrading in the Pearl River Delta for many years, and this is perceived as the inevitable path of economic development. The processing factories in the delta are mainly labour-intensive manufacturing; their products are low value-added with minimum technological content. They are also responsible for the region’s environmental pollution. Hence, their demise is considered progress.

In the last two or three years, labour shortages in the delta have been pushing up wages, and industrial land is in short supply. The Guangdong authorities are also eager to tackle the issue of environmental protection, as pollution has had an adverse impact on the quality of life. These are obvious intermediate and long-term trends, and are not unexpected.

In early 2007, the Guangdong leadership began to take active steps not only to promote industrial upgrading, but to exert pressure on the processing factories in the delta as well. Hong Kong businessmen in the region felt the pressure.

Their plight was exacerbated by other developments. China’s export boom and huge trade surpluses pushed the yuan higher, and the Bush administration in the US, as well as other western governments, exerted pressure on Beijing to further appreciate its currency.

The Labour Contract Law was scheduled to be fully implemented at the start of 2008, which added a range of pension and insurance expenditure to the wages bill. Most processing factories operate at very low profit margins, sometimes only 3 per cent to 5 per cent, and it was natural that some had to cut back, relocate or even close down.

The Guangdong policy was in line with the central government’s broad economic development strategy. The Chinese leadership endorsed the approach. The new Guangdong Communist Party secretary, Wang Yang , appealed to local cadres to “adopt new thinking and to further liberate their thoughts”. However, when the impact of the global financial crisis began to be felt in late summer last year, the situation became different.

The crisis has certainly worsened the situation. Many processing factories have stopped operating, and millions of migrant workers have lost their jobs. Some have begun to return to their villages.

There are over 200 million migrant workers in China, according to Ministry of Agriculture assessments; 10 per cent of them losing their jobs means more than 20 million unemployed. The fact that factories are closing down has also generated a lot of labour disputes; migrant workers who have not received all their wages and benefits have joined street protests. This has affected social stability.

From the Guangdong leadership’s point of view, an economic downturn may be a good opportunity to accelerate industrial upgrading, as demonstrated by past experience in Japan. Developing more advanced, innovative industries and weeding out backward processing factories would raise Guangdong’s international competitiveness.

The Guangdong authorities are, therefore, inclined to keep with the existing policy, and are reluctant to help the labour-intensive small and medium-sized industrial enterprises.

The return of migrant workers to their villages, again, will not cause serious social and economic problems for Guangdong as most of these low-wage, unskilled workers come from less-developed neighbouring provinces. In fact, their departure will reduce pressure on Guangdong’s social services.

The central government, on the other hand, has a national, macro view. The current leadership accords the highest priority to stability. For many years, it has been trying hard to maintain an annual growth rate of 8 per cent or more.

The objective is to offer employment to new entrants in the labour market, as well as underemployed rural workers. Keeping a low unemployment rate is essential to maintaining social stability.

The promotion of industrial upgrading and reducing pollution in the coastal provinces have been supported by Beijing.

In the past decade, some labour-intensive industrial enterprises in the Yangtze River Delta have moved to central provinces. Less-prosperous Jiangxi province, for example, has been actively attracting factories to relocate there to boost its own industrialisation.

At this stage, however, the central government is more concerned with containing unemployment and ensuring social stability. Premier Wen Jiabao now advocates state support for small and medium-sized enterprises, for fear that their failure would cause only more unemployment.

Hence, this has become an issue to be negotiated between Guangdong and Beijing – but whose outcome will affect Hong Kong businessmen in the Pearl River Delta.

Joseph Cheng Yu-shek is a professor of political science at City University of Hong Kong

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