Now that the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China has been signed, including the definitive “early harvest” list of goods and services on which tariffs will be cut or abolished, the so-called “post-ECFA era” is upon us.
Over the next few years there is likely to be a huge increase in business and trade across the Taiwan Strait, and Beijing and Taipei will exert more influence on one another than ever before. Regardless of whether you are for or against the ECFA, people living in Taiwan, and businesspeople in particular, will now need to keep a close watch on events in China, especially economic developments.
The first point to note is that big pay raises announced by Taiwanese electronics maker Foxconn for employees at its plants in China are likely to mark the start of substantial wage hikes for other workers across the country. This means that labor costs in China are almost certain to go up quickly. Labor supply shortages in coastal provinces, as well as changes to the legal environment in which businesses operate, such as China’s Labor Contract Law and other related legislation, can only add to the upward pressure on wages.
Second, a wave of strikes has broken out in foreign-owned factories in China, possibly instigated by the Chinese Communist Party. Now that the labor genie is out of the bottle, it will be impossible to put back. Having gained a taste for collective action and the concessions it can secure, workers are unlikely to want to give up their new found power and the communist government, for all its repressive policies, will not be able to hold back the tide.
Less overt action like go-slows are also effective ways for workers to hamper production and put pressure on employers. Chinese workers are becoming increasingly militant and that change in mindset is going to be an increasing headache for anyone doing business there.
Third, the appreciation of the Chinese yuan has become a hot topic once again following a recent announcement by the People’s Bank of China (PBC) that it intends to adopt a more flexible exchange rate policy. It is true that this measure was taken in part because of political pressures, including calls from the US Congress for sanctions and US Treasury Secretary Timothy Geithner’s criticism that a refusal to let the yuan appreciate was standing in the way of global economic and financial reform.
However, as the PBC made clear, allowing the yuan more flexibility would also help guide funds toward sectors driven by domestic demand, such as services, thereby reducing the Chinese economy’s reliance on exports. In view of this, Beijing’s policy of interfering less with the exchange rate is set to continue. That makes the question of whether the yuan will appreciate or depreciate over the long term an important consideration for those thinking of doing business in China.
Most foreign investors expect the yuan to continue climbing in value. Ma Jun (馬駿), Deutsche Bank’s chief economist for Greater China, predicts that it will appreciate by about 3 percent each year for the next three to five years. If so, that will have a negative impact on exporters.
The above three points all indicate that Chinese labor will no longer be cheap. Most affected will be exporters, as higher wages push up the cost of production and sales prices, making it tough to do business.
However, the most worrying trend is the changing attitude to work displayed by Chinese employees, particularly their rapidly growing interest in speculation.
A recent survey conducted by the social survey center of the China Youth Daily, found young people in China are very interested in making money through speculation. Of 11,557 people interviewed in the survey, 30.6 percent confessed to being speculators, while 88.1 percent said they knew of friends or family members who had speculated. Of those surveyed, 76.8 percent agreed with the idea that it is very hard to get rich through plain, honest work.
Comments posted online such as “It’s hard to find a job — better to play the stock market” and “It’s better to invest in property for three years than work for 40” are signs of how hard it is for young people in China to get rich by just doing their jobs. They can see how their elders have worked their whole lives to amass only meager savings, while many people who have not stuck to plain and honest work have become millionaires by buying and selling property and stocks.
It was recently reported that someone working for a securities firm in Zhejiang Province said that more and more young people have joined his company’s list of clients, with 15 percent of the firm’s customers now under 25 years old, and most of those are university students.
A resident of Jiangsu Province who last year gave up his job to play the stock market full time said that the catchphrase “If you don’t play the stock market in youth and middle age, you’ll regret it when you get old” had made a strong impression on him, and that since he started full-time speculation he has enjoyed an average monthly income of more than 10,000 yuan (US$1,476). Some friends and relatives who originally advised him not to quit his job to deal in stocks had themselves started playing the stock market in their spare time, he said.
Addressing this speculation craze, Zhou Xiaozheng (周孝正), a professor at Renmin University, said that most of those who got rich in China ahead of others did not do so through hard work.
“Those who work don’t make money, and those who make money don’t work. That is the kind of society young people see,” he said. It is hardly surprising that they do not subscribe to the values of their parents.
Zhou notes that wealth distribution is unjust, with a big gap between rich and poor. The only thing that could possibly put a stop to the speculation craze is for the capital bubble to burst, workers to go on strike for higher wages or the economy to collapse and then the whole pack would be reshuffled, he said.
Zhou has good reason to be worried. It is hard to forget the “easy money” roller coaster that played out in Taiwan from 1985 to 1990. That did not just do serious damage to the economy, it also completely undermined Taiwanese people’s work ethic. Indeed, the impact was so far-reaching that it is still being felt today
Taiwan’s past experience foreshadows the profound material and psychological damage China’s present speculation craze could end up doing to the people of that country. It is a threat that should not be taken lightly.
Wu Hui-lin is a researcher at the Chung-Hua Institution for Economic Research.
TRANSLATED BY JULIAN CLEGG
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