The Chinese Emperor's nightmare


New Member
Mar 31, 2010
Claude Arpi | 2010-06-16 15:16:25

China was a Communist country. Mao Zedong and his comrades had decided that everything should be shared in the Middle Kingdom, and the old Confucian society should become a classless society. For decades, China adhered to this principle and to the Marxist orthodoxy; the Proletariat was supposed to dictate the terms.

But Mao died and soon after Deng Xiaoping wore the Emperors' Mantle.

Deng was an intelligent man; at the end of 1978 he cleverly put in place an Open Policy as the only way to save the Party. He knew that by opening the door to foreign businesses, he was offering the Chinese people the 'glory of becoming rich'. He could thus pacify the frustrations of the masses who had suffered immensely during Cultural Revolution and this, without encroaching on the supremacy of the Party.

Though first not acknowledged by the Party, Deng's tour of Southern China in 1992 forced his opponents to agree that the old revolutionary was still the most powerful man in China: the Paramount Leader.

Deng's insistence on 'economic openness' triggered a phenomenal development of China's coastal areas, especially the 'Golden Triangle' around Shanghai. Deng declared that "some areas must get rich before others" but added that the coastal regions' wealth would one day be transferred inland.

This marked the beginning of the Peaceful Rise of China. Though China seems today engaged on a wild capitalist path (with Chinese characteristics, of course), the Communist Party of China (CCP) continues to rule supreme over the Middle Kingdom, and wealth has been partially distributed inside the country thanks to the salaries of more than 100 million migrant workers.

Deng's decision was undoubtedly a master stroke.

From time to time, China watchers have predicted the ideological and economic collapse of the Chinese empire, but despite many prophesies, Beijing continues its 'peaceful rise' and has now reached the Number 3 (or 2) economic slot behind the United States of America and Japan.

However, over the past month, many things have changed. It started with a series of suicides in a factory owned by Foxconn Technology Group of Taiwan.

John C. Dvorak, the US columnist wrote about the enigmatic Chairman of the Taiwanese company: "I've never met [Terry] Gou, but by simply following the history of Hon Hai Precision Industry Co - the umbrella company behind Foxconn and other entities - you have to assume that the man is an operations genius, perhaps the greatest the world has ever seen."

Just think: The Foxconn China plant, which manufactures electronic equipment for iPhones, iPads, etc"¦ for multinationals such as Apple and Hewlett-Packard, is two miles long. It employs between 3 and 4 lakh people, most of them 'migrant' workers.

"Statisticians have pointed out that by generalized Chinese standards, the 12 suicides per 800,000 workers is low. Low maybe, but they are making a statement that the company does not want made," says Dvorak.

Most analysts believe that the wave of suicides is due to the extremely tough conditions at the plant (it is quite surprising that Steven Jobs, the founder of Apple dared declare that Foxconn was 'not a sweatshop').

Interestingly, similar incidents have been happening since some time in France with the giant State-owned France Telecom. More than 35 suicides have been reported in 2008 and 2009. In February 2010, two more suicides made the headlines.

It took months for the management to admit that this wave of suicides was linked with the working conditions (though several workers left behind notes accusing France Telecoms' work ethic). The origin of the suicides has now been accepted by the management and heads have started rolling.

But the question remains: why have the Foxconn suicides got such tremendous world coverage while the French ones remain limited to the French national media only?

One of the several reasons is that suicides in China (and Taiwan) mean a 'loss of face' for the management as well as the work force and even for the Western bosses (Steven Jobs did rush to China!). In China, 'losing face' has huge cultural significance.

Another reason is that these incidents involved multinationals and an entire economic system (the so-called 'China Model' on which the world economy is built) which seems to be crumbling.

The Foxconn management is today in two minds about leaving China. Terry Gou recently told a shareholder's meeting that Foxconn could move some factories to Taiwan. He explained that the existing China factory model may not be sustainable, though the company has recently built dormitories and recreational facilities for its China's workforce and the salaries have been raised.

The Chinese blogger Zhou Xiaoyun wrote on "Why do Foxconn employees keep jumping off buildings? "¦Manufactures products or components that are purchased by another company. Foxconn only gets profits of 3%. In order to maintain the profit of 3%, the company shifts the pressure onto every employee, whose private life is completely taken away."

For Zhou, "The 'China Model' is an economic model with limited human rights, low wages, low land prices, exploitation of the peasants and migrant workers, high pollution, high carbon emissions and high energy consumption." He believes that the 'China Model' cannot be sustained and will eventually lead to bankruptcy.

Some already speak of Vietnam, Indonesia or India to replace China. Many in India are foolishly excited that the country could take China's place as the world factory. Wouldn't Indian workers face similar difficulties? Fortunately, perhaps, India today does not possess the infrastructure China has.

One more reason that Foxconn has been making the headlines is that at the same time a series of strikes paralyzed several Honda factories as well as spare-parts manufacturing units in China.

In an article titled Chinese Strikers Win Wave of Raises, The Wall Street Journal explained: "A rash of strikes against some of China's biggest manufacturers is winning Chinese workers higher pay and better conditions, a shift that promises to change the nation's economy while complicating life for foreign companies."

The conclusion is telling: "The shift is also changing business for companies that have come to rely on China's low-cost labor to keep a steady flow of inexpensive goods."

The China Times, affiliated to the Party, candidly reported: "The latest strikes reflect rising tension between workers and companies, especially those from overseas that treat China as a source of cheap labor. The growing labor unrest originating in South China may make wage hikes a trend in the near future, but it might be an opportunity to push local manufacturers to update industry and promote production efficiency."

The reaction of the official press in China tends to demonstrate that Beijing is not adverse to a shift; it probably calculated that higher salaries in the private sector owned by foreign firms would ultimately trigger a higher national consumption which in turn would help to buffer any new financial crisis.
It is a tricky calculation, as the strike wave can also spread to State-owned companies, with incalculable consequences for the harmonious society so dear to President Hu.

The New York Times quoted Dong Tao, an economist at Credit Suisse: "For a long time, China has been the anchor of global disinflation "¦But this may be the beginning of the end of an era."

There is no doubt that the era started by Deng Xiaoping in 1978 and strengthened by his South China trip in 1992 is coming to an end. Foreigners (read multinationals) have come to China but have not made the Chinese proletariat richer (though they make them work harder).

The historic shift of transferring the manufacturing process to China has helped many Western companies to lower costs and prices and provide cheap consumer goods to the West; it is also true that many in the Party have become wealthier, but not the masses who worked hard with salaries not proportional to Deng's promises.

Today the question increasingly doing the rounds is: "The cost of doing business in China is going up, is it worth continuing this way or is it better to find alternatives?"

Is the Chinese Government realizing this?

China has other problems: one is known as the Lewis turning point.

The 1979 Nobel Prize laureate, Arthur Lewis believes that developing countries' industrial wages begin to rise quickly till the point when the supply of surplus labor from the countryside tapers off. It is the case of China with its one-child policy. After the 'turning point', the workforce is not enough and the proletariat does not fear being replaced by newcomers.

The new generation has not, like their grandparents, known the Great Leap Forward during which 30 or 40 million Chinese died of starvation, or like their parents lived through the Great Proletarian Cultural Revolution with its mad ideology.

They want to enjoy life like anyone else in the world; they don't care about ideology or the Party. Why then work for 12 hours or more for a meager salary, when you are too tired to have a good time? Internet and TV programs have shown them the world. It is a natural phenomenon the world over, the younger generation wants to live a better life than their parents. China (and India for this matter) is not exempted.

Further, with the quick development of the service sector in China, the youth has alternatives which were not available a few years back. They also see Party cadres or their siblings getting richer by the day while they are not. All this does not create a harmonious society.

But there is worse.

John Dvorak remembers: "On my first visit to the mainland in 1996/97 I visited a nice factory in Suzhou making computer keyboards and I was told then by the plant manager that they would love to get rid of 'these people' and go robotic."

What will happen to the Peaceful Rise of China when Taiwanese robots will replace migrant farmers?
The answer is, 10 million workers will become jobless, creating what the Chinese Emperor feared most: chaos.

Born in France, Claude Arpi's quest began 36 years ago with a journey to the Himalayas. Since then he has been a student of the history of Tibet, China and the subcontinent. He is the author of numerous English and French books. His book, Tibet: the Lost Frontier (Lancers Publishers) was released recently.

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