As the supply of migrant labour dwindles, the workshop of the world is embarking on a migration of its own

This is a good article by the Economist. It does not have the usual patronizing and contemptuous tone, and does not take any cheap shots at the Chinese government. It's quite refreshing, and anyone who wants to learn a bit more about China: this article is recommended.

Just to clarify:

Chongqing is not ruled by the Central government. "Direct-controlled municipality" as they are called (Beijing, Tianjin, and Shanghai are the other three), have equal status to provinces.

Chongqing is actually led by a maverick capitalist by the name of Bo Xilai, who has not always had an easy relationship with Beijing. Bo can be initially quite confusing to outside observers, as he embodies a bizzare mix of populism, Maoist philosophy, and a no-nonsense kind of toughness when it comes to crime. At the same time, he has successfully transformed the Chongqing economy by attracting foreign investment and governing using the principles of shrewd and pragmatic 'planned' capitalism. He also speaks fluent English and is loved by female reporters.

(In fact, this spurs a thought. For all the portraits that the Economist does for various Western politicians, even minor ones like Australia's Tony Abbott, it's about time this newsmagazine did some thoughtful analysis on the personalities China's upcoming leaders, who will become important players on the global stage in the next decade).

It's a good thing that the Economist is talking about Chongqing now. Its importance to China's future development, and by extension, the world economy, cannot be stressed more. Sad that most people in the West have not even heard of this giant megalopolis.

A considerable improvement of the trail balloon article of July 29th indeed, yet the message is still the same: China as sweat shop is not as competitive as before.

But China is not seeking in the “next China” to be competitive as “sweat shop-cheap labor” madness goes, not any more. All these Economist stats and charts are "much ado about nothing" really.

Chinese government’s foremost responsibility to its people is to improve people’s living standard and livelihood across the board; after initial years of letting a portion of folks to get rich first. As such and at present, the income disparities among people now is such that measures must be taken to average out the stark disparities thru some kind of wealth redistribution.

Wealth redistribution via taxing is not the only way. Wage increase is another way (used effectively, almost overnight, in smaller regions like Singapore and Korea).

I think CCP government is deploying a hybrid of approaches, in addition to tax schemes, to bring about a better society in China:

(1). Raise the cost effectiveness of contract production (Match increase of productivity with that of wages),
(2). Increase the proprietary content of its products,
(3). Raise workers’ (and farmers’) income to enlarge domestic market,
(4). Leveraging geographical tier of asymmetric differential advantages between coastal, internal, the northwest and remote west regions development to make round robin advances in economic development.

So it’s not the wages or labor cost any more, these Economist stats and charts notwithstanding.

Above opportunities are uniquely of Chinese characteristics (huge in size and population, and all) and so it makes sense that foreign investors are bullish on “next China”.

And now things get interesting in China: will the Chinese people forego the luxuries that Westerners have lived with for so long: cars, homes, property, stocks, televisions, dvd players, the right to vote for the party of choice? I predict Chinese labor costs will now increase because Chinese want what others have. People are competitive - they will want to earn as much if not more than their neighbour.

Good article. It would be nice to see some of the hard earn money find its way into the pockets of the factory workers who earned it.

@justlistenall

"Singapore reformed its wages in 1968 and again in 1985, raising its living standard, essentially “overnight”, from of the third world to that of Western standard, successfully"

If you actual read the laws, they had very little to do with "increasing wages". The law of 1968 had the effect of reducing the power of unions and collective bargaining to make it more attractive for MNC. In fact they tried to restrain wages increases.

The labour laws in 1986 achieved the following

"Proposals for wage reform--a "flexi-wage policy"--were announced in mid-November 1986 and became effective with the enactment of the 1988 Employment (Amendment) Act. Under this plan, the basic wage remained relatively stable with adjustments for good or bad years made by increasing or reducing the annual bonus. Negotiating the size of the bonus--frozen to the equivalent of one month's salary since 1972--was left to employers and unions, who would be able to bargain for its retention, abolition, or modification. Profit-sharing, productivity incentive, and employee share plans were encouraged to ensure that high wage payments awarded in fat years were not perpetuated in lean years and that individual as well as company productivity, growth, profitability, competitiveness, and prospects for the industry were taken into account. The government was anxious that wages not increase precipitously."

http://countrystudies.us/singapore/34.htm

The government just recommends a wage level, but the private sector does not have to follow it. Secondly, alot of the increases in the 1970-80s was natural, due to market forces. The average increases in wages exceed the recommend wages.

Since the 1970s, Singapore has always had a labor shortage. They don't have to "control" wages artificially to increase the cost of labour relative to capital, like what China does with the minimum wages laws. It just goes up naturally. The worry for the Singaporean government has always been wages going up too fast, not too slow.

They control wage levels through immigration. If the Singaporeans want to develop an industry, they just import "foreign talent" like in Biotech. Over the past 5 years, Singapore has allowed 150,000 workers to come to Singapore every year. That is a massive amount. Its 3% of the population every year. They take in almost as many people as Australia.

To increase productivity in the long run, all they have to do is shut off immigration, which they never have.

Jeremy Wong Fischer: How do you rate Bo Xilai's chances of making an even bigger splash on the national political scene?

Has always harboured a dream of visiting Chongqing. Such a megapolis stuck right in the Chinese heartland piques my curiousity no end!

Wynand Meyering: You do grave injustice to Westerners by painting them or at least implying they are monolithic, carbon-emitting monsters. China, as it grows, will, I imagine, become more European than American, at least in lifestyle.

The stupendous efforts at interconnecting the entire country with networks of high-speed rail will obviously obviate the need for Chinese to depend on cars as Americans do.

@justlistenall

"Back then in 1968 and 1985, it was not the law per se, not the union nor MNCs that carried the way, it was the smart leadership (or subtle arm twisting) of strong man Lee K Y that carried the day."

The problem your statement are not backed by evidence or an understanding of labor dynamics in Singapore past or present. Basically its hearsay. Where's the proof? How can Singapore arm twist a Western MNC, I would to see Lee Kuan Yew try, particularly in 1968 when Singapore was still very dependent on Western security umbrella.

I worked in Singapore and I am familiar with the labor laws and employment situation. Singapore raises wages not by arm twisting or by Lee Kuan Yew's brilliance, but through controlling immigration.
When the Singaporean government feels the need to increase wages, it curtails labor supply, by restricting immigration. When it feels that Singapore is losing its competitiveness it opens the immigration flood gates, like it is doing now. It's just basic economics, not brilliance. Singapore has always had a labour shortage since 1970s. In the 1970s, they did this by allowing Malaysian Chinese to work in Singapore. For a long time the 7-8 Million Malaysian Chinese were like the migrant workers that do the factory work in China; however, unlike the migrants in China, the Singapore government can restrict them from working in Singapore.

What companies are paying for staff now is more or less the same now as it was in late 1990s. It cost the company I worked for S$ 2000 / month for a junior programmer in 1996. It cost S$2200 / month for a junior programmer in 2010, its below the rate of inflation. Why is that? Immigration. Back in 2001, my company hired a Indian programmer who flew to Singapore to look for work a week before we hired him. The day we hired him we submitted his application for an employment pass which allows him to work in Singapore. The afternoon the next day, he got his employment pass. How many countries in Asia can you do that?

"He was brave and big enough to do something about it and he did with fantastic benefit to the people of Singapore. He changed that “inequity” in pay scale almost “overnight”, and Singaporean workers did not let him down either. They have earned their keeps ever since."

Why is Singapore increasingly becoming more unequal? Its GINI coefficient has steadily increased over the past 25 years. Here is a paper by Singapore government explaining the increasing inequality in Singapore.

http://webcache.googleusercontent.com/search?q=cache:FSK_2mDA6hAJ:www.ma...

http://www.atimes.com/atimes/Southeast_Asia/HG08Ae01.html

I not criticizing the Chinese government handling of the economy, but you are trying to match what the Chinese government is doing with that in Singapore. Its not just a difference in size, but a completely different outlook on the economy, circumstances etc.

This article is much better than the leader. I am surprised there are so few comments, in contrast to the leader.. Judging by the silly comments in the leader, I guess people did not bother to read this article.

@ bismarck111 wrote: Aug 1st 2010 8:06 GMT

"@justlistenall........."

But Wm, you are still not getting it, on Singapore.

Back then in 1968 and 1985, it was not the law per se, not the union nor MNCs that carried the way, it was the smart leadership (or subtle arm twisting) of strong man Lee K Y that carried the day.

Lee was probably the first Asian statesman who correctly recognized that at that time frame Singaporeans were just as productive as their counterparts in the West but were getting a fraction of the pay.

He was brave and big enough to do something about it and he did with fantastic benefit to the people of Singapore. He changed that “inequity” in pay scale almost “overnight”, and Singaporean workers did not let him down either. They have earned their keeps ever since.

I suppose you could say the same thing for Taiwanese workers in 2000 also although Taiwan did not take such route to short cut the gravity of market force perhaps because of eight years of corruption rule by Mr. Chen ay bien, or of concern that a much larger population of 23 m was involved.

That actually drives home the issue of wage increases in China. It’s debatable if Chinese production workers today in average are on the par in productivity with their Western peers, but they sure are much more productive than they were 5 or 10 years ago, thus deserving more pay now.

Chinese government is correct and just to allow measured wage increases for Chinese workers in my view so long as the cost effectiveness is maintained or sharpened. It will not hurt China’s export capability in manufacturing in relation to other developing economies as such.

BTW, as good as he is, Mr. Lee KY is no cure-it-all for China. The complexity of managing the affairs of 1,230 million and of 5 million souls is not even in the same ballpark.

@ bismarck111 wrote: Jul 31st 2010 4:46 GMT

"@justlistenall....."

But Bis, you can’t argue with history.

Singapore reformed its wages in 1968 and again in 1985, raising its living standard, essentially “overnight”, from of the third world to that of Western standard, successfully.

Korea (South) did similar bootstrapping to lift their wages of living standard to that of developed economy almost in “one gulp” so to speak.

On the other hand, economies like Hong Kong and Taiwan took the more traditional way to raise wages in accordance with true GDP growth.

Chinese workers should have more pay first. The export is not first.

MNCs should prosper if they follow the gold rush to open up the West.

Nothing is more important than living a better life.
China still has a long way to go.

A good article, although the analysis would have been made even better with a more detailed discussion on China's demographic challenges.

www.realpolitiktoday.wordpress.com

@justlistenall

"Wealth redistribution via taxing is not the only way. Wage increase is another way (used effectively, almost overnight, in smaller regions like Singapore and Korea)."

I am not sure about Korea, but Singapore has never really practiced a policy of wage increase as a form of distribution. They don't even have a minimum wage. The policy in Singapore in the past ten years is reverse of what China is doing.

vhttp://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748703494404575081302941575436.html

China has very special labor conditions. 1. Illegal migrants that can't transit and are confined to workshop. 2. There is not surveillance of unhealthy labor conditions. 3. Long working day looking 24 hour. 4. Very low wages. 5. Not limits in environment damage. 6. Information blackout.
This is historically most low wages and historically most bad labor conditions.
Also this is historically most high profit for FDI.
Workers have to fight dissociated Marxist mind that have first sophisticated western techniques of control and also armies that speaks several languages to squash and to repress any strike or political evolution.
Slaves need exterior support to make advances and looks that doesn't exist yet.

I am puzzled, in this Economist version, the currant labor cost in China is shown at $ 0.81 and 2.7% of its US couterpart.
But Alexander van Kemenade, an analyst with the China Regional Forecasting Service for the Economist Intelligence Unit, is peddling $ 1.84 per/h
Now that’s a hell of a difference of more than 100% and I wonder if the Economist has done its Research as thoroughly as it should with Respect for such a great country as China is. Or is it again one of the numerous Junk mail like Articles with the usual mambo jumbo from a Journalist who wants to mislead or is too bored to find out the real figures,perhaps who gets a tip from Krugman,Clinton, Franz Geithner, Biden or Gates whos spidoctoring with the sinking of the Cheonan is getting out of hand?.

I broadly agree with the comment of geremy wong fisher and like to add the following;

chinese huge laboour market as a part of global labour market and its future potential economic development, its impact on global economic and political scenario is strongly correlated on its policy on household land registration(referred to in the article) to its rural agricultural population in inland china and the extent the policy will give the fillip to mobility of population across the inland cross border china to its urban centres and visversa.

Its pragmatic policy on this issue if supplemented by visionary policy may change not only china but also the global present outlook and will tranform the existing global institutional outlook to a new direction of peacefull tranformation disaggregated global national economies to a truly new world economy. It is possible to show to the world that global free economy with free movement of all factors of production including land,labour, capital across national borders with truly global prices of production and its benefits to ultimate consumers and pave the way to a new global outlook overtaking the present national narrow outlook and interests.

Perfect Artical, instead of usual contempt for China, it was objective.