Asia low cost no longer ?
July 7, 2010 by Jules
Labour dynamics in SE Asia
Recent strikes in China but also in Cambodia and Vietnam have highlighted that the unspoken deal of the last 20 years maybe unravelling. In essence the deal was to be the factory of the world, create private employment to compensate the failures of collectivism and keep quiet, a system invented by China and emulated with varying success from Vetnam to North Korea.
So what is happening?
Eight years ago China boasted that it had now trained enough engineers to take over all the engineering work done in the whole western world twice. ALL. TWICE.
First, this ignored quality aspects. As a favorite mentor reminded us, in those days a Shanghai engineer cost 1/4 of the price of a European but you needed about 4 of them to do the job, plus a manager to coordinate them. Second, this highlights the scale of China, which of course you know about.
They key to regional wages is China. The Thai, Malay, Vietnamese, Cambodian or Laotian economies are simply too small, their labour pools too shallow. Indonesia is very fragmented and disorganised. The only other economy that could bring this much labour on the world scene is India, and it is for now taking a different path to development.
And here is what is happening in China according to the FT
"China’s youth can get a bad press. In most accounts, they are the “Little Emperors” or the “Me Generation”, the spoilt and apolitical offspring of one-child families who are interested in fast cars, video games and designer goods but little else. At the main Shanghai store of Louis Vuitton there is a queue to get in at weekends – young women wait patiently in the rope line, as if they were trying to get into the hottest new LA club.
Yet the Me Generation is beginning to show its teeth. Simmering discontent about soaring house prices and the recent wave of strikes at car plants and other factories both speak of the rising and sometimes frustrated expectations of younger Chinese, who want more from their lives than their parents could dream of. It is a phenomenon that could have all sorts of consequences for China’s future.
There are lots of good explanations for the strikes of the past two months, including low pay and a demographic shift that is reducing the number of young people entering the workforce. But there is also a generational shift at play. Chinese often talk about their capacity to chi ku, or “eat bitterness”, which helps explain their resilience amid the chaos and privations of the past century. But the generation born in the 1980s and 1990s has grown up among much wider prosperity, even in poor parts of the countryside.
Twenty years ago, the main goal of many migrant workers in city factories was to send money home to struggling village families. Now they see the factory as part of a personal project, a first step towards an urban life. Internet access has made them more worldly and since a labour law passed in 2008 they have a stronger sense of their rights.
Writing in Caixin magazine, the economist Andy Xie described the compliant labour force he saw at large Chinese factories a decade ago. The workers were mostly 18-year-old girls prized by their bosses for their “nimble fingers”. They had few toilet breaks and had to remain at their benches during breaks. In contrast, the recent strikes suggest a workforce much less willing to “eat bitterness”. “Today’s young adults and their parents may as well be from different centuries,” says Mr Xie. “They want to settle down in big cities and have interesting, well-paying jobs – just like their counterparts in other countries.”
The same generational forces have been behind the discontent over the cost of housing, which has forced Beijing to deflate the market and risk an economic slowdown. There have been no mass demonstrations about property prices but the tensions are real enough – one adviser to the central bank recently described China’s housing problem as being even worse than pre-crisis US, precisely because it combined elements of a bubble with these political pressures.
For the tens of millions of young Chinese graduates, buying a flat is a central part of their plan to live a modern, middle-class life. Young Chinese men feel the social pressure the most. The first time someone told me his chances of getting married would be ruined if he could not buy an apartment, I thought he was joking, yet it is a refrain one hears constantly. Chinese mothers-in-law to-be, it seems, can be an unforgiving bunch.
It is the young who are hit most by rising prices. If their parents come from the city, it is probable that they were awarded their government flat in the housing reforms of the late 1990s, giving them a foothold in the property market. But many young Chinese now feel priced out. Beijing and other cities have thousands of what Chinese media call the “ant tribe”, young graduates who live in precarious housing on the outskirts as they try to land their first job.
One of China’s biggest recent television hits was a soap opera called Woju, or Snail House. A biting social commentary on the politics of property, it featured one young character who ends up becoming the mistress of a government official to pay off her sister’s mortgage. For many viewers, the programme captured a certain kind of urban disillusionment.
None of this is a prediction about imminent revolution or youthful mass protests for political reform. Over the past two decades, the Chinese Communist party has confounded predictions of imminent demise. The political views of professional young Chinese often tend towards the status quo, their ideas about China’s elite untainted by direct experience of the Cultural Revolution or the massacre of protesting students in 1989.
On the recent occasions when young Chinese have expressed strong political opinions, nationalism has been the dominant tone. In 2008, during the riots and demonstrations in Tibet and European protests around the Olympic torch relay, many young Chinese were irate at the attitude of some western politicians and the western media. If they were critical of Beijing, it was for not being tougher with the west.
Yet it is not a contradiction for young people to be more patriotic, but also more demanding and individualistic. Modernisation has unleashed powerful forces – pride and confidence in China’s achievements but also high expectations about the life that can be lived. The signs of restlessness among young Chinese make for a less predictable political future."
Some people are bound for disappointment. Probably a few tens of millions. The PRC police has reportedly been busy erecting CCTV cameras all over the country, not just in the troubled west but at every downtown crossroad of Shanghai, Beijing or Guangzhou. The SCMP reported this week that in some areas of ultra controlled Beijing night curfews are now being tried for whole neighbourhoods.
More to the point, the impact of the unique mass social experiment that is the one-child policy will soon reveal its full social impact, never mind the alarming population trends. It has created a never seen before buffer of comfort and expectations for the little emperors and empresses. Two parents, four grand parents focusing their care and spending power on just one kid, imagine the concentration in spending power - and the pressures. First, the life savings of grandparents cannot amount to much in modern spending power if they lived in the countryside and did not benefit from the housing reforms. The parents may be a bit better off but for all except the most affluent (the famous 50-80 million or so middle class Chinese making real money) we are still talking small change compared to the kid's demands and the price of for example real estate.
A model such as Korea or Japan, where young singles live with their parents until they marry and blow their income on luxury goods may well appear in China. In China like in Seoul or Tokyo the sad thing is that it may all end up as spending on monogrammed pvc purses and very little else.
In other words, the system worked as long as aspirations were kept in check. The slavery system created by collectivism took care of this. But then, which human parents have ever had low aspirations for their kids?
For a map of minimum wage rises in China, CaiXin (Caijing) online delivers the information.
In: Market News