LyrArc Article Gist
There appears to be a conscious deliberate decision by the Chinese government and policymakers to shift the economy from low-end technologically unsophisticated and polluting industry, that pays low wages with little worker protections, towards technologically sophisticated, environment respecting, and higher wage industry. This does not mean textiles are out, but textile companies that are larger better managed, able to introduce newer technologies and produce higher quality product- that command higher prices in the world market and therefore also able to sustain decent wages and worker protection- are in. Phasing out the smaller shops and the poorly run or deliberately polluting and labor exploiting companies run from Hong Kong or elsewhere. The general shift is to be a leader in products which are value added either by technology or human capital, such as better trained more knowledgeable workers. This is similiar to the shift Japan made after the sixties, as it moved from a rural to a urbanized society and textile companies like Kanebo became technologically sophisticated, while small shops withered out, and Japan gradually shifted into automobiles, electronics and chip making. The noticeable difference is that Japan with a prewar industrial base and a smaller market protected its home market for Japanese companies, whereas China lacking this prewar industrial base let foreign investment and companies overseas bring in equipment and use low cost Chinese labor to supply western markets. And it turned a blind eye to labor protections, at least till it had built up its own industrial base and knowhow with policy requiring Chinese partners in industry and technology transfer.
Economic winds are also doing the job. Inflation, Chinese goods prices increased by 4.6% in May according to the U.S. Commerce Department. This is a result of the Chinese government requiring worker protections and decent wages and stricter pollution enforcement resulting in increased energy costs. For years the U.S. and other countries depended on China for low cost goods and the demand for low cost goods depressed margins which resulted in legitmate costs such as pollution control technology, worker protection and decent wages, being ignored. China is now left with heavy environmental cleanup costs, and a bad image internationally as a heavy polluter. The huge external trade surpluses China has built up exceeding a trillion dollars have pushed up the value of the yuan making Chinese goods costlier in world markets, and apparel and shoe makers in developed countries seeing Vietnam as a better lowcost alternative.
The story of this phase of Chinese industrial development can be seen in a town like Honghe, a 90 minute drive from Shanghai, which has half of its 100,000 residents working in 100 factories and 8000 shops that knit, dye, package and ship some 200 million sweaters a year,
bringing in according to local government estimates $650 million a year. Now many of these shops are idle and mirant workers are returning home.
To see the subtler signs of the Chinese policymakers hand note that even visa policies have been tightened to make it harder for foreign buyers to visit Chineses factories and trade shows. Also the Chinese government has raised the minimum age for workers in these factories from 16 to age 18 and so on. And the impact is being felt in places like Honghe near Shanghai, Shengzhou another city near Shanghai which makes one third of the world's neckties, and in Dongguan in Guangdong where its toy, shoes shops close.
The change also shows how quickly things can change in the world economy. Only 3 years earlier in 2005, Jiaxing Yishangmei Fashion Company, a family owned company was booming and had just landed Walmart Stores as a customer. Now Walmart no longer sources from this company. Analysts say that the Chinese sweater industry was probably overbuilt, with about 6 cities in China claiming to produce more than 100 million sweaters annually. A wave of consolidation could boost efficiency, and bring pressures to innovate rater than compete only on price. And many Chinese economists, and policymakers think China has relied too much on cost-cutting and simple production models to increase exports. A researcher at the Chinese Academy of Social Sciences thinks such a high dependence on foreign trade is not good for China. For the US and Japan this researcher says that trade is equivalent to 20% of gross national product and by contrast for China trade is equivalent to an extreme of 75% of GNP.
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