Slow but sure withering away of the 'China price'
By William Daniel Garst (China Daily)
Updated: 2009-08-13 07:45

Western critics of China have long argued that its success in exporting manufactured goods has come at the expense of its workers and the environment. These people thus see Alexandra Harney's 2008 book, The China Price, as confirming their dark view on the Middle Kingdom's transformation into the "factory of the world".

For example, Clyde Prestowitz, one of China's fiercest detractors, is quoted on the book's back cover as saying: "With unusual insight and reportorial perseverance Alexandra Harney presents the inconvenient truths about China and globalization that flat worlders (referring to authors like Thomas Friedman) have overlooked."

Harney's book certainly has plenty of grim material providing grist for the China-critic mills. But Harney has too much integrity and objectivity as a reporter to altogether ignore the positive side of China's export economy.

In fact, many of the stories in her book cast a favorable light on China's economic rise.

One of these stories is told in my favorite chapter, The Girls of Room 817. The chapter focuses on a poor young farm girl named Li Luyuan, who migrated from Jiangxi province to work in the Shenzhen Rishen Cashmere Textile Factory.

Harney notes that even while working in the factory, Li was able to send $120 back home every few months, an amount her family used to buy seeds and other essential things.

Moreover, she got the chance to rise up the economic and social ladder, largely lacking in rural China, because her job made her live in Shenzhen.

After a year of stitching sweaters, Li found a new job, to sell real estate property. While Li had a rough start in her new career - at one point she had just $25 to her name - she was soon earning as much as $790 a month in the high-pressure world of Shenzhen's real estate. That's a huge sum for a rural woman from a poor family with just a middle-school education.

Li may have more drive and ambition than her colleagues, but Harney's narrative shows her story is not all that uncommon. One of Li's former colleagues found work in a South Korean-funded factory with higher pay and better working conditions, while another started a business card company.

It's true that before making it to a better life, all these women worked long hours, often under abusive bosses, and lived in dingy dormitory rooms to earn even a small amount. It's also true that labor shortage forced factories to boost wages and offer better working conditions, such as improved housing, food and air-conditioning of workplaces.

The reason for that can be found in another chapter, The Stirring Masses. In it, Harney notes that China's one-child policy, the growth of export-oriented manufacturing industries in the Yangtze River Delta area and Fujian province, and some other factors had by 2005 created an acute labor shortage in Guangdong province.

Though Harney often criticizes the Chinese government for lax enforcement of labor standards, she concedes that the authorities and media both were making concerted efforts to educate workers about their rights under the new labor laws.

David Dollar, World Bank's China country director, estimates that wages in China are growing two to three times faster than in other low-wage Asian economies. This development is exactly what economic theory and the existing empirical evidence would predict.

Standard factor endowment models of trade argue that any advantage a country derives from low wages is inevitably transitory. This is because exports boost the demand for abundant labor - in China's case, rural surplus labor shifted to urban manufacturing centers - thereby driving up wages. Thus South Korea, which initially competed on the basis of low wages, now has close to first world income and living conditions.

Harney quotes Arthur Kroeber, head of the respected Dragonomics research group, as saying that China's low wages are "an advantage that expires". If China's success as a textiles exporter is based solely on low wages, then Vietnam ought to have eclipsed it in recent years because it is an even lower-wage country.

Teaching a mid-career MBA class at Peking University, I asked several students involved in the clothing and apparel business if they feared Vietnamese competition. All of them responded with a flat "no". They said that though wages were much lower in Vietnam, Vietnamese workers were less productive and disciplined than their Chinese counterparts.

They emphasized that the infrastructure, distribution system and other factors unrelated to low labor costs in Guangdong and other manufacturing "clusters" in China underpinned their export competitiveness.

Harney's book, then, provides ammunition for both China's detractors and defenders. But given what it says about the long-term trends in Chinese labor costs, one message is quite clear: Western consumers will sooner, rather than later, cease paying a "China price", when they buy China-made products.

The author teaches at Jintai Academy and Peking University

(China Daily 08/13/2009 page9)