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The End of Cheap Labour in China?

By Andreas Bieler

China’s developmental strategy has been based on cheap labour, foreign direct investment (FDI) and the assembling of pre-fabricated parts for export to North American and European markets. This export-oriented growth strategy in low value added production sectors has, however, come under pressure as a result of the global economic crisis and a decline in global demand. In his presentation at Nottingham University on 17 February, jointly hosted by theSchool of Contemporary Chinese Studies and the Centre for the Study of Social and Global Justice, Florian Butollo from Jena University in Germany investigated whether China’s attempts at industrial upgrading in response to the crisis have also resulted in ‘social upgrading’ for its workforce.

The cheap labour, export-oriented strategy under pressure

China’s developmental strategy since 1979 has predominantly been based on attracting FDI through its asset of a vast army of cheap labour. Over the years, China has been transformed into an assembly platform for pre-fabricated goods, being put together in China and then exported to markets in North America and Europe. Apple products and their assembly in Foxconn production plants are just one of the most prominent examples of this strategy. As Florian Butollo made clear, however, this strategy, which had yielded export growth rates of 20 per cent per year at times, has increasingly come under pressure as a result of the global economic crisis since 2008.

First, the crisis limited the demand in China’s most important export markets in North America and Europe. Second, even China has increasingly run up against the limits of its resources as far as land, material resources and cheap labour are concerned. In fact, labour shortages have resulted in a slight increase in wages. Finally, as this growth strategy is based on cheap labour, wages have been suppressed for many years and domestic demand levels played a subordinate role in development.

In order to respond to the crisis, China has embarked upon a strategy of industrial upgrading, moving from low-value added to higher-value added production. In line with the dominant thinking within the so-called Global Value Chain literature, industrial upgrading is expected to result in social upgrading. Thus, the Chinese leadership is hoping to re-balance the economy towards higher domestic demand levels through this strategy. While industrial upgrading did occur, however, the question is whether this has been accompanied by social upgrading?

The continuity of low-skilled, cheap labour

Drawing on empirical examples from his recent book The End of Cheap Labour?Industrial Transformation and “Social Upgrading” in China (Campus Verlag, 2014), Florian Butollo provided ample evidence that social upgrading has only taken place on a small scale. Industrial upgrading did occur in the textile industry, for example, ensuring China’s continuing competitiveness in the global textile trade. Nevertheless, the introduction of new, modern machinery and the rationalisation of the production process have resulted in fewer workers and no improvement in wages or skills. While a small proportion of workers became highly skilled to maintain the new machinery, the larger part of the workforce has actually become de-skilled.

The human fashion industry experienced higher demand for design and marketing functions with some Chinese companies successfully establishing their own brand in China itself. Nonetheless, there was less scope for process upgrading and the skills and wages of the workforce remained largely unchanged. In fact, lean production methods resulted in de-skilling.

Finally, Chinese companies have increasingly become successful in the LED lighting industry, in which success depends on innovative capacity. However, here too, although the share of the skilled workforce tends to be larger with up to 30 per cent, the vast majority of workers remains low-skilled and cheap labour. Consequently, the workforce has become polarised, but the wage levels in the industry are not higher than in the textile sector.

Overall, Florian Butollo concluded that industrial upgrading has only resulted in social upgrading for a small minority of the workforce. Low-skilled migrant workers with little training and a high turn-over rate remain the standard worker in the Chinese production system. Hence, it is questionable whether this strategy of re-balancing the economy will be successful. If there have been gains in the form of higher wages, then because of labour shortages, not because of industrial upgrading.

Collective labour agency as the dynamic underlying social upgrading

Reflecting on the dynamics of ‘social upgrading’ in Europe especially after World War 2, when welfare states were established in industrialised countries, it is understandable why industrial upgrading would not automatically result in social upgrading. Ultimately, it was the collective organisation of workers in trade unions as well as workers’ parties, wrought in often bitter but successful struggles of industrial action, which forced employers into making concessions.

Considering that there have been numerous cases of large-scale strikes in China recently, the Chinese working class seems to pursue exactly this strategy. If the global labour movement wants to assist Chinese workers, it should support their demands for the rights to form independent trade unions and collective bargaining with employers.

Image credit: Wikipedia Commons

Andreas Bieler is Professor of Political Economy and Fellow of the Centre for the Study of Social and Global Justice. This blog post was first published on Andrea’s blog, located here.

Published inAsia and PacificChinaInternational Political EconomyInternational Relations

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