China Translated

I took a trip around Jiangsu’s idustrial base last month, visiting a number of factories in Wuxi and Suzhou. Amid sweltering temperatures, of over 40 degrees celsius (not the ideal time to be looking at blast furnances perhaps), several themes came through strongly, but perhaps the one that caught my eye the most was the trend in wages. Several of the managers we talked to said that they were looking at wage increases for 2011 that were roughly 50% higher than in 2010-so if they had gone up 8% in 2010, 12% was expected in 2011, or 15% if this year saw a rise of 10%. As this post from the Plastics News China blog, which notes that companies looking for tough-to-find employees (like plastics injection press operators, construction workers and cooks) are having to offer wages 30-50% higher than normal, shows, our experience seems to be the new norm rather than a fluke.

Against that bakground it was interesting to find this piece from the Jiangsu Merchant newspaper. It notes that the provincial government-mandated basic guideline for pay increases has been set at 10-12%. A suggested floor increase of 4-6% was also offered, but for the first time the government has refused to set a guideline ceiling for wage rises. According to the paper “The reason the upper guideline was abolished this year, is that the relevant government departments hope to provide more space to raise salaries in those companies with a comparatively low rate of base pay.”

It was also revealing to see, given the recent outbreaks of labour activism and debate over the role of the ACFTU, that the announcement of the guidance on pay growth was issued not by the Labour and Social Security Ministry alone, as had been the case in the past, but by the provincial ACFTU and the provincial chamber of commerce (qiyelianhehui). Perhaps ACFTU’s role is being deliberately promoted…

Jiangsu is obviously just one province, and a relatively advanced one at that, but developments there are likely to be broadly reflective of those in the wider Yangtze delta, whose labour markets are quite closely integrated. Wage pressures there will filter out across the region. It is worthwhile remembering that it was only five years or so back that (as Professor Yasheng Huang is fond of pointing out) pay rises for less skilled Chinese workers were not happening at all. Perhaps all of this will be positive for the rebalancing story, promoting a shift in income from company profits to workers wages, and from investment to consumption. I’m optimistic…

Duncan Innes-Ker is a senior economist with the Economist Intelligence Unit

Guest contributor, Labour markets

What’s going on at China’s National Bureau of Statistics (NBS)?  Years of criticism from foreign economists on the way GDP is calculated had little impact on China’s lackluster statistical practices.  But a domestic uproar over the failings of the wage and house price data seems to have done the trick. 

Ma Jiantang, the head of the NBS, has been striking a decidely progressive note.  At a conference today, he made several promises for the reform of key aspects of China’s economic data. This is my translation of the key points of a Xinhua article covering the event:

‘GDP data - we are working toward a unified system for calculating GDP - a trial is already underway with several provinces.

House prices - consultations are underway with other ministries on a new way to collect and calculate house price data and a proposal for public consultation will be out the door in advance of the October holiday.  We will be taking advantage of the current population census to record the number of homes that are empty - as a contribution to understanding the level of speculative purchases in the residential property market.

Wage data - the NBS has already made a major reform to collect and publish data on wages of workers in small private firms.  Now we plan to improve data collection so that we will be able to calculate and publish data on wage dispersion.

Unemployment - the population census will be used as the basis of developing a new and more representative sample of the labour market - with the new system developed over the course of 2011.’

On GDP, I think Ma is referring to the different approaches used at a provincial level to calculate local GDP.  This is still the source of some embarassment, with the sum of provincial GDP typically larger than the NBS calculation of national GDP.

On housing, clearly the census is a much better means of determining the percentage of speculative purchases in the property market than the current approach favoured by China watchers - which consists of picking a few buildings at random and counting the number of apartments with no lights on in the evening.

On wages, data on wages broken down by low, medium, and high earners would be an important contribution to increasing understanding of how China’s labour markets work, and the gap between the haves and the have nots.  A more ambitious and challenging step would be to start collecting and publishing data on wages for migrant workers (the current survey only covers registered urban workers).

As is the case with the wage data, the key to improving unemployment data would be to develop a sample which includes the tens of millions of migrant workers who are currently excluded from the NBS calculation, but who are the most at risk of unemployment when the economy turns down.

You can see the original article here.

Labour markets, Regional, Statistics

The People’s Bank of China (PBOC), like central banks all over the world, is more hawkish on inflation than the rest of the government.  It’s a crude stereotype, but if the mantra that best sums up the objective for the majority of the government is ‘growth’, the mantra for the PBOC is ’stability.’

Inflation has popped back up, with the latest reading for the CPI 3.3% yoy in July, up from 2.9% in June.  But with growth heading south, and the heat coming out of the economy, even the Central Bank are not worried about inflation in the short term.  The PBOC’s own leading indicators for the economy and for consumer prices are both pointing sharply downward.

In the medium term, however, the PBOC are not so relaxed.  The Central Bank’s second quarter report on Monetary Policy made the case for continued vigilance on inflationary pressure.  The three main points from the PBOCs argument are:

1. The economy has not yet paid the price from the massive increase in the money supply in 2009 - there may be a lagged impact on inflation

2. There are structural pressures for wages to rise - including a depleted supply of agricultural workers and an ageing workforce - higher wages will start to put upward pressure on prices

3. Inflationary expectations - as measured by the PBOC’s own household survey - remain at an elevated level.  The index of satisfaction with current prices fell again in the second quarter, with less than 20% of households satisfied with current price levels.  The index of future price expectations rose again, suggesting that the majority of households expect prices to rise in the future

You can see the PBOC’s Monetary Policy Report, in Chinese, here.

Labour markets, Monetary Policy

According to an article in the 21st Century Business Herald, the All China Federation of Trade Unions is on another drive, this time to push collectively negotiated wages. According to the article, the aim is to increase proportion of unionised firms adopting the collective bargaining wage system from the current level of somewhere above 60% to 80% next year. The ACFTU will of course also be maintaining its efforts to get firms without unions to set them up.

According to one Beijing-based ACFTU official there is nothing fundamentally different about this latest drive, except that “we’ve put the focus on small and medium-sized enterprises, strengthening the implementation of the collective bargaining system among SMEs”. The campaign also appears to be winning legal backing in some regions: Guangdong, for example, is currently drafting regulations that would establish a legally binding collective wage bargaining system if 20% or more of workers sought it.

I can’t help but feel that this represents yet another misguided effort by ACFTU to make itself more relevant. It will certainly add more bureaucracy and state interference into a system that is already overburdened with them, and if it’s true that SMEs are the focus, the campaign is targeting those least able to cope with extra regulation. If I believed that ACFTU was genuinely going to be acting as a conduit between workers and management, I could at least see some justification for the move as a means of improving communication, but the government-backed union seems to be wilfully misreading the current situation.

A grassroots union official notes in the Herald that union officers “‘inability to negotiate’ isn’t purely due to the fact that they aren’t good enough…often ‘whether to negotiate’, ‘how to negotiate’ and ‘how far to negotiate’ is not up to the company’s union officers. Particularly because they don’t get a lot of practical negotiating experience, company union officials naturally find it difficult to improve their negotiating ability.” Of course, if lack of practise were the main problem then more collective bargaining might solve the issue.

Sadly, the real trouble still seems to be that all too many union officials represent the government first, management interests second and worker interests very much third. Few workers trust their union officials enough to go to them with demands, or when they’re unhappy, for fear of being branded a trouble maker or worse. Frictions and signs of trouble in the workforce are thus not conveyed up to management. Neither is management thinking especially well conveyed in the other direction. Without trust between workers and union officials, putting union officers into collective wage bargaining with management seems pretty pointless. The risk is that the end result may simply be more government intervention in the workplace, with little improvement in worker satisfaction - a situation that will leave no one happy.

Duncan Innes-Ker is a senior economist with the Economist Intelligence Unit

Guest contributor, Labour markets

In 2009, the National Bureau of Statistics found itself at the center of a storm of controversy over the wage data.  The announcement of an increase in the average wage of 12% for the year was so at odds with the reality of stagnant wages for many and redundancy for many more that it sparked a firestorm of angry commentary. 

Here’s a few of the comments I found online:

‘The NBS appears to have increased my salary again, if only they had told my employer’

‘This is a harmonized statistic’

‘This statistic is only about those who work in state owned enterprises, only those who know how to eat out at the public expense every day.’

The final comment hits the nail on the head.  With the NBS taking a simple average of salaries from mainly state owned firms, the wage data fails to reflect lower and more variable wages for the many workers who labour in the private sector.

To its credit, the NBS took the criticisms to heart.  This year, for the first time as far as I can see, they have published a breakdown of wages by state owned (strictly speaking state owned + public sector, joint venture, listed, and foreign invested companies) and private (which seems to mean small private) operations.

The NBS also explain why the official data for 2009 showed such a large increase in the average wage for the state sector.  Apparently the data was biased upward by a large pay rise for public sector workers - including a 16.1% hike in compensation for teachers.  Manufacturing workers, even those in the state sector, did rather worse, with only an 8.8% increase in wages.

But the real take away from the data is quite how low wages in the private sector are.  For 2009, the average worker in a private sector company was paid just CNY18,200, compared to CNY32,700 for the average state sector employee.  What is more, the growth rate of wages in the private sector is lower, just 6.6% compared to 12% in the state sector.

The new wage data is a step forward in terms of transparency and coverage of the statistical system.  But it also underlines the gap between the insiders who have benefited most from China’s years of rapid growth, and the outsiders who have not.

You can see the data on state sector wages here and private sector wages here.

Labour markets, Social Policy, Statistics

Labour unrest looks set to be one of the stories for the summer in China’s economy, and that means a continued focus on the All China Federation of Trade Unions (ACFTU) - China’s only official trade union.

An opinion piece in the latest edition of free thinking broadsheet Southern Weekend (南方周末 Nanfang Zhoumo) argues that if the ACFTU is to have any credibility with workers, then the system for selecting union representatives needs to be changed.  This is my translation of the key points:

‘If the ACFTU is to play its proper role in representing the interests of labour, it needs the trust of those it represents.

Today’s ACFTU leaders are, in large part, distant from the workers they claim to represent.  A large number are drawn from the ranks of the Communist Party or are closely linked to company management.  How could workers ever trust this kind of leaders to fairly represent their interests?

What is required is union leaders chosen through election by the workers.  Only then will the ACFTU be an organisation that pays attention to the needs of workers, and can be trusted to represent their interests.’

Direct election of leaders?  Sounds like a dangerous precedent to me.  You can see the entire article here.

Communist Party, Industry, Labour markets

Honda parts suppliers in Guangdong, Taiwanese rubber producers in Kunshan, computer parts firms in Pudong, sewing machina makers in Xi’an… employee strikes seem to be one of the hottest fads of the summer in China. Although media coverage within China has now been toned down under guidance from above, the press outside of China has been latching onto the story with vigour (see this FT article for example).

The question many are asking is whether all this unrest is going to push up wages and lead to inflation. The answer to both questions is probably yes, but there’s nothing to get too worked up about yet. For starters, strikes are (with the exception of the scale of the Honda disruption) quite normal as I mentioned before. We’re basically back to where we were in 2007-08 when the export sector was thriving and firms were scrabbling around trying to find workers, so workers were doing their best to exploit their strong bargaining position. It’s true some of the pay rises being announced are pretty impressive, but the media figures need to be treated with a pinch of salt.

I find it very difficult to believe, for example, that Foxconn is really going to be doubling the pay of all its workers–it would make them hugely overpaid relative to their skill level, although with somewhere between 300,000 and 600,000 workers being employed by Foxconn’s parent Honhai in China it really would be a bombshell for the market if it happened. The China Labour Bulletin’s Geoff Crothall notes that there seem to be strings attached to the pay deals they’ve announced.

Besides, the pay rises announced this year, as well as the increases in the minimum wage (which seem to be averaging between 15-20% this year), need to be seen in the context of the pay freeze that was in place for most regions last year. Meanwhile many firms are offering much lower increases, especially in services, where competition is still tough for places. KFC’s Shenyang unit recently settled on a 5% annual pay rise deal with a minimum monthly salary level of Rmb900 a month (although one stressed KFC worker complained that they were really short of staff as ”as soon as interviewees hear [the pay level] they run”). With economic growth set to cool in the second half, some of the upward pressure on wages may ease as we head into 2011.

The elephant in the room in all of these pay stories is the All China Federation of Trade Unions. Experts in the labour field say it’s been doing a terrible job managing worker-management relations, and that many in government and the Communist Party have been criticising its failures. It’s hard to generalise across the country, of course, and some branches do much better than others, but it wouldn’t be surprising to see some reshuffling at the ACFTU or policy rethinking if the rash of strikes continues, or escalates.

Duncan Innes-Ker is a senior economist with the Economist Intelligence Unit in Beijing

Communist Party, Guest contributor, Industry, Labour markets

One of the greatest challenges China faces as it tries to move up the value chain is the shortage of high quality universities turning out people with the skills needed for the new economy. It’s a subject that clearly bothers a lot of academics and policy makers, but as far as I can see it doesn’t tend to get the sort of press coverage that many of China’s other pressing problems do–perhaps I am just reading the wrong papers. In any case, it was interesting to see it addressed by Caijing in a recent interview (in Chinese - it doesn’t seem to be translated in their English version yet) with Yang Fujia, the current chancellor of the UK’s Nottingham University.

Professor Yang is clearly well placed to talk about the issue. His background is in nuclear physics, but he has previously headed up Shanghai’s prestigious Fudan University, and he holds numerous other mainland academic titles, not least as a fellow of the Chinese Academy of Sciences.

Using his international perspective to compare China’s system with those in the UK and US he draws out a number of criticisms, for example of the enormous spread out campuses that seem to be proliferating in China, which he argues lead to much time being wasted getting between A and B. He also lays into a couple of bugbears that I’ve seen mentioned in other discussions of the university system: the demands on teachers and research students to hit quantitative targets for being published (which distract them from the task of getting on with worthwhile research), and the lack of contact between teachers and students–he is a big fan of the UK’s tutorial system.

However, the bulk of the interview is taken up with a criticism of the current system through which the Party and the government control universities. He notes that in the UK universities run themselves under their own set of rules and regulations, with the only requirement from the government being that these do not breach national laws. By contrast, in China everything is looked after by the Ministry of Education, but this crimps flexibility and few people seem to pay much attention to the rules that the Ministry imposes. Meanwhile, the system encourages university leaders to pay more attention to the Ministry, which appoints them, than to the needs of the professors and students that they are in charge of.

It is refreshing to see weaknesses of the state- and Party-dominated education system discussed so openly in the domestic media, but I fear that Professor Yang’s calls for reform of the system (he wants universities to be overseen by committees representing in equal proportions Party members from the faculty and student bodies, the university leadership and external representatives) may be optimistic. I’m reading David Shambaugh’s China’s Communist Party: Atrophy and Adaption at the moment, which notes that one of the lessons the Party drew from the collapse of the Soviet Union was the need to maintain tight control over universities. I suspect that the government will find it very difficult to manage that while giving the universities the independence that they need to thrive.

Duncan Innes-Ker is a senior economist with the Economist Intelligence Unit, based in Beijing

Guest contributor, Labour markets, Social Policy

10 suicides so far this year at Foxconn raises a lot of questions.  For Communist Party official’s favourite magazine, Liaowang, those questions are about the system failures that contributed to the tragedy.

An article in the latest edition of Liaowang leads in with the problems with working conditions, noting that workers were routinely asked to sign away the legal protections which control overtime, that salary without overtime was just CNY900/month - barely enough to subsist, and salary with overtime could be between CNY2000-3000/month.

An 18-year old employee called Zhang Jianhua comments that the factory is run ‘half like a military establishment’ and adds that ‘there’s more than a thousand security personal in the factory, they are very aggressive, beating and cursing employees.’  Another employee, from Jiangxi, confirms that the ‘relationship between the security staff and the other employees is strained.’

Concerns about excessive overtime, a military style regime, and aggressive security staff are familiar from other coverage of the affair.  What’s interesting about this Liaowang article is that it goes on to raise questions about the dogs that didn’t bark on the Foxconn factory environment.

First, the authors ask why the security personnel were not properly registered with the Shenzhen public security bureau.

Next, Liaowang wonders what role the Communist Party’s committee in Foxconn played, whilst worker’s living conditions deteriorated to the point where suicide became a common choice?  Prof Qi Shanhong of Nankai University says: ‘the Communist Party group at Foxconn enjoyed substantial investment but they strayed from their principles and lost the sensitivity to the conditions of workers, in fact their voice in the company was very small.’

Finally, where was the All China Federation of Trade Unions?  The authors note that the union rep for Foxconn was not willing to accept an interview, and that the workers they spoke to did not even know there was a union branch in the factory.  Beijing Teaching University Professor Shen Youjun notes that ‘if union representatives find themselves in conflict with management, they can also find themselves in line for a beating.  This is in stark contrast to the powerful position enjoyed by labour representatives in France or the UK.’

Liaowang concludes that the Foxconn suicides are a wake up call to the Party and the Union to pay more attention to workers’ rights.  I think lots of readers reviewing Liaowang’s own material would draw different conclusions.  The Communist Party committee would be more attentive to workers’ conditions if there were other parties competing for workers attention.  The trade union would show more concern for workers’ plight if they were more than an appendage of the Party.  The problem is not that these institutions did not do their job, but rather that the system within which they operate makes it impossible, or at least very unlikely, that they will be able to do so.

Communist Party, Industry, Labour markets, Uncategorized

10 suicides so far this year at Foxconn, one of the world’s largest manufacturer of computers, demands an explanation.  Is it living conditions in a factory run along military lines?  Is it low wages, long hours, and distance from family and friends?  Is it just an average number of suicides for a factory with a population the size of a small city?

A recent article in the Beijing Youth Daily suggests that, in fact, the suicides are the result of a lack of self esteem fostered by the total control of all aspects of workers lives at the Foxconn factory.  This is my translation of the main points:

‘The tens of thousands of workers at Foxconn’s factory have a nickname for each other ‘pubic hair’ (屌毛 diaomao).  With a nickname like that in common use amongst the company’s tens of thousands of employees, there’s no need to ask if they have high self esteem.

Foxconn leaders’ latest plan for bringing the spate of suicides to an end, bringing in a monk to improve the atmosphere, hardly inspires confidence that management have the situation under control.

Compared to the other factories on China’s East coast, working and living conditions in Foxconn are actually rather good.  It’s hardly a sweatshop.  There are no glaring violations of the labour law.  Journalists who have visited the factory have not found anything to raise alarm in the conditions there.

But the ‘pubic hair’ nickname in common parlance at the factory gives a clue to the reason for the rash of suicides.  Psychologists tell us that a suicide can only trigger other suicides if those in the circle of the initial victim have already considered ending their lives.  The ‘pubic hair’ nickname suggests that for many at Foxconn, the value of life was limited.

The sources of low self esteem for Foxconn’s tens of thousands of employees is complex, but it is doubtless connected to the Taiwanese company’s approach to management.

Reports on Foxconn show that they have taken modern production efficiency techniques to an extreme degree.  In the factory, time is managed to the second, mistakes are managed down to zero, workers become a part of a massive machine.  Food and shelter are all provided, and are of a reasonable standard, but this too takes away a part of workers’ capacity to make meaningful decisions about their lives.

Workers are required to sign a contract that waives the usual legal controls on overtime.  If they don’t sign, they receive no overtime and the basic wage is barely enough to subsist.  If they do sign they can be required to work overtime anytime management requires - they lose control of their lives.

A second problem for the current generation of workers, is that they have lost their connection with their village home.  For their parent’s generation, work was hard, and the city unwelcoming, but the thought of a return home, using hard won savings to build a home or start a business, was a sustaining thought.  For the current generation, the village is a distant memory, the city remains unwelcoming, and so their only source of self esteem is the factory that strips them of volition.’

You can see the complete Beijing Youth Daily article here.

Industry, Labour markets, Social Policy