Many argue that China’s wage competitiveness originates in its fixed exchange-rate regime, which undervalues its currency considerably. Others assert that China’s huge surplus of rural labour allowed it to develop with an ‘unlimited’ supply of labour for much longer than other Asian economies. But closer scrutiny reveals both of these explanations to be inadequate...an unlimited supply of labour is not a natural phenomenon given by China’s population structure, as is so often assumed. Rather, it is a consequence of the government’s rural-agricultural policies which, intentionally or unintentionally, bankrupt the countryside and generate a continuous rural exodus...That mention of the 2008 Labour Contract Law brings up an example of one of the loci for conflicts between different factions of the Party and wider elites, something Hung also addresses in his article (touched on in part in last para quoted above) and is referred to, for example, here at the excellent CLB site that wuwei linked above.
The PRC’s urban-biased development model, then, is the source of China’s prolonged ‘limitless’ supply of labour, and thus of the wage stagnation that has characterized its economic miracle. This pattern also accounts for China’s rising trade surplus, the source of its growing global financial power. However, the low wages and rural living standards that have resulted from this development strategy have constrained China’s domestic consumer market and deepened its dependence on the global North’s consumption demand, which increasingly relies on massive borrowing from China and other Asian exporters. As those other exporters have been integrated with China’s export engine through the regionalization of industrial production networks, the vulnerabilities of the Chinese economy have turned into weaknesses of the East Asian region as a whole...
Just as China’s ‘unlimited’ supply of labour was more a consequence of policy than a natural precondition of its development, the arrival of the Lewisian Turning Point was in fact the outcome of state attempts to reverse a previous urban bias rather than of a process driven by the market’s invisible hand. The concomitant to rising peasant income and industrial wages was unprecedented, soaring retail sales, even controlled for inflation (see Figure 9). But no sooner had the government taken its first step toward domestic consumption-driven growth than vested interests in the coastal export sector complained loudly about their worsening prospects. They asked for compensating policies to safeguard their competitiveness, and attempted to sabotage further initiatives to raise the living standards of the working classes, such as the New Labour Contract Law—which would increase workers’ remuneration and make firing them more difficult—and the managed appreciation of the yuan.
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posted by Thorzdad at 12:01 PM on July 9, 2011 [1 favorite]