China has long been the “World’s Factory,” and millions of migrant workers from the countryside are that factory’s engine. Now China is moving from an export-oriented economy to a one led by domestic consumption, and urbanization is key to its success. More than 350 million rural Chinese are expected to migrate into cities over the next 12 years. To understand what may be the largest urbanization movement in the world, contextChina has invited Kam Wing Chan 陈金永, professor of geography at the University of Washington and an expert on migration in China, to shed some light on these topics and their effect on the U.S., including the Pacific Northwest.
Q: Cheap labor in China has been a source of huge profit for companies and low cost goods for consumers. But you contend that is no longer a good strategy for China. In fact with rising labor costs, China has lost some of its factory work to other countries. Is our concept of China as the global producer of cheap goods already outdated?
A: It’s been eroded, but not totally. It’s still very hard for other countries to easily replace China because China has also other advantages. Logistically, China is so much better than a lot of other countries. Look at Foxconn, a typical example. Even though labor cost is rising, you still have the system, the production infrastructure. That is not going to go away quickly. Labor cost is actually only a relatively small part. With iPhones, the cost of Chinese labor is not really that high.
In the long term, China cannot always do this… While cheap labor gives you an advantage, at the same time, ironically, it gives you a bottleneck, because you trap these people in poverty. So how do you grow China’s middle class? The fertility rate of the urban population is very low, even not replacing the population. So where do you find the new blood of the middle class? Historically, as in other countries, [it] always comes from migrants, even in the U.S. Migrants are always the new source of the middle class.
With cheap labor, the wage is always depressed. You probably read the Ford story. They paid the workers well so they could buy the cars they produced. Today China is not like that. They make iPhones, but no workers can afford an iPhone. So this strategy is creating an underclass. I think everybody agrees now that China needs equality — the rich and poor gap is widening. So economically, you are strangling the growth of your middle class. Politically, that’s also dangerous, as there are lot of riots and protests of migrant workers.
Q: There has been talk that China is now experiencing a labor shortage. But a new study out asks “What shortage?” So what is the real picture of labor in China, especially regarding migrant workers who have manned the factories that export to the world?
A: The shortage of young labor is true, but the overall shortage is not true. On the one hand, you have a shortage of young labor; on the other you have a surplus of labor among people 35 and above. This is partly because of the “one child” policy impact. The supply side is dwindling. Factories like Foxconn, for instance, they tend to hire just young labor, never 35 and above. In that sense, it is a shortage. They need the young people to work long hours, live in dorms, with no family, etc. There is more supply of older workers. But factories don’t want them. They can’t work long hours, they have children to take care of, and they are probably not as healthy as young workers. It is like cherry picking. So yes there is a shortage of labor, but not all labor.
Q: In your article, “Path to Riches is Paved through Cities,” you said China must reform its hukou system, the rigid household registration that ties people to their place of birth and has made rural Chinese second class citizens. What kind of action is needed?
A: So far the hukou reforms are really small, here and there. For instance, they started to give hukou to the rich. If you buy an apartment of a certain value, they would give you hukou there. Or the well-educated. For instance, if you have a PhD, they possibly give you a hukou. They have done very little to give it to the lower class, the migrant workers. In Guangdong, they have a point system. You can count the number of points you have, your age, education, skills, social security tax, etc. Very stringent. But Guangdong has 20 million migrant workers. Each year, they give a few hundred. It’s really a drop in the ocean, a snail’s pace. It will take 50 or 100 years.
This is not good enough. It’s cosmetic most of the time. So I proposed, in my new article “China’s Hukou Stands in the Way of its Dream of Prosperity,” to set a time table to phase out the hukou system in 15 years. It would steadily transform a sizeable group of migrants every year into the next wave of urban consumers, boost domestic consumption, and alleviate social instability. Of the 700 million Chinese urban dwellers today, about 230 million peasants work in the city but are denied a local hukou. There are more and more people without hukou. This is moving in the wrong direction.
Q: Li Keqiang, the premier-to-be, has talked a lot about urbanization and about a new “peasant liberation.” He said that urbanization of the Chinese peasants would be a great contribution to the world. What do you think about his ideas?
A: I know he talked about urbanization quite a bit. I love that. This is great. People are paying attention to that. I hope he really takes the issue about urbanization of peasants seriously, along some of the things I have suggested. That would be wonderful. So far we haven’t really heard very much about specifics. He talked about a new type of urbanization, the urbanization of peasants. I don’t know what exactly. We need concrete and specific measures.
Q: With the rising cost of China’s labor, by one study as much as 50 percent since 2001, as well as energy and materials, does that mean more manufacturing jobs will return to the U.S. and to Washington state, as some already have?
A: They could be. In 2011, there were definitely indications of that. Like furniture, not necessarily returning to Washington, but the Midwest. The U.S. has also more active policies in terms of getting these jobs back. Obama talked with Steve Jobs before, when Steve Jobs was still around, asking if he could move some of the jobs back. Yes, the Chinese labor cost is rising, shipping and oil cost are also rising. Also Made in China quality is always a concern. U.S. made has a better quality assurance.
Q: With China’s continued urbanization, more hukou reforms, and more rural population moving into the cities and becoming urban consumers, does it mean that China would also buy more from the United States, including Washington state?
A: Yes, I think so. Actually I gave a talk in D.C. two years ago and made the point that when China has a middle class (if migrant workers become middle class), they love all the brand names and all the gadgets. The U.S. would be in a very good position. The U.S. has made tons of money making those gadgets in China. China only made a little bit of money, $5 or something out of an iPhone. So if China buys many iPhones, the U.S. will benefit a lot. You can see that. More middle class, more consumers.
We need to help China continue the hukou reform, because from an economic point of view, they can become very good consumers. They can buy more, travel more and fly Boeing more. To build a large middle class would benefit almost the whole world. Not only do we want a prosperous China, we also want a stable China. A stable China is one with a strong middle class.
Q: Xi Jinping talked about the “China Dream,” the revitalization of the Chinese nation. What do you think that dream is?
A: Well, this is a new leader coming in obviously. He has to have some vision. His vision is a stronger and greater China, reviving the glorious time the country once had in the world, which is of course wonderful. The question is how. I think his dream is very vague. Just like our dreams. Most dreams are vague. It’s a great dream that we will have a great China. There are of course different pieces of that great China, that wonderful civilization and the revival. I think materially, China for some people is doing fine. In terms of money and economic resources, China is No. 2 in the world. But you really need to think about all the other issues. It is not enough, obviously, just to have GDP. I hope they really make good on things they talked about, moving from quantity to quality. We’ll keep our fingers crossed.
Published January 23rd, 2013