A landmark eyewitness exposé of how China's factory economy competes for Western business by selling out its workers, its environment, and its future
In The China Price, acclaimed Financial Times correspondent Alex Harney uncovers the truth about how China is able to offer such amazingly low prices to the rest of the world. What she has discovered is a brutal, Hobbesian world in which intense pricing pressure from Western companies combines with ubiquitous corruption and a lack of transparency to exact an unseen and unconscionable toll in human misery and environmental damage.
In a way, Harney shows, what goes on in China is inevitable. In a country with almost no transparency, where graft is institutionalized and workers have little recourse to the rule of law, incentives to lie about business practices vastly outweigh incentives to tell the truth. Harney reveals that despite a decade of monitoring factories, outsiders all too often have no idea of the conditions under which goods from China are made. She exposes the widespread practice of using a dummy or model factory as a company's false window out to the world, concealing a vast number of illegal factories operating completely off the books. Some Western companies are better than others about sniffing out such deception, but too many are perfectly happy to embrace plausible deniability as long as the prices remain so low. And in the gold-rush atmosphere that's infected the country, in which everyone is clamoring to get rich at once and corruption is rampant, it's almost impossible for the Chinese government's own underfunded regulatory mechanisms to do much good at all.
But perhaps the most important revelation in The China Price is how fast change is coming, one way or another. A generation of Chinese flocked from the rural interior of the country to its coastline, where its factory work largely is, in the largest mass migration in human history. But that migration has slowed dramatically, in no small part because of widespread disenchantment with the way of life the factories offer. As pollution in China's industrial cities worsens and their infrastructure buckles, and grassroots activism for more legal recourse grows, pressures are mounting on the system that will not dissipate without profound change. Managing the violence of that change is the greatest challenge China faces in the near future, and managing its impact on the world economy is the challenge that faces us all.
Chapter 9, (pp.286-289)Facing growing social unrest, trade tensions, excess capacity across
many sectors and environmental degradation, Beijing has pledged
to reposition its economy away from heavy reliance on exports. The
new policy reflects a recognition that China’s rapid growth will be
more sustainable if it is rooted more in domestic consumption.
In December 2004, Chinese leaders at the Central Economic
Work Conference, an annual event, agreed to shift the economy
away from reliance on investment and exports toward domestic
consumption—what one Chinese report called a move away from
the two “strong horses” of investment and international trade and
toward the “weak donkey” of consumption. The government has
been slashing incentives for exporters in energy- and resource intensive
industries and heavily polluting sectors, lowering or removing
tax rebates on thousands of categories of exports, expressly
to take the wind out of trade conflicts in sensitive areas like textiles.
Simultaneously, it has been raising rebates for exporters of
high- technology products.
As part of its attempt to raise the growth of domestic consumption
relative to the growth of exports and investment, Beijing is
increasing its spending on rural health care, for example, and introducing
pilot programs to insure urban residents.
Still, some economists reckon that despite all efforts by the
government to increase its spending, stimulate consumption and
reform the currency, so far they haven’t had much impact. The
Chinese economy is still hooked on exports. And so is the rest of
the world.
The human legacy of this mutual dependency will remain long
after low- end manufacturing has moved on to other countries. Chinese
workers’ slice of the profits from global supply chains has and
will continue to lift countless families out of poverty. The lure of a
better life in the cities will continue to stretch the horizons of young
men and women. But the country will also face a mounting health
care bill in caring for the hundreds of thousands, if not millions, of
people who have fallen ill as a result of exposure to environmental
pollution or occupational hazards. Caring for these casualties of the
country’s rapid economic expansion will put extra burdens on the
country’s ailing health care system.
Updating the supply chains in industries with lagging safety and
health standards will cost money, too. A.T. Kearney, the management
consultancy, has estimated that upgrading China’s food safety
process to improve standards, training, transportation and warehousing
will cost $100 billion. For sure, that will add to the cost
of food from China.
Some of the enduring costs of the China price are harder to
measure in figures. If China continues to produce low- quality exports
that violate safety standards, it could risk losing some of its
manufacturing business.
At the same time, the willingness of individuals to stand up for
their rights in public could act as a brake on economic growth by
derailing projects that might have helped nudge China’s GDP even
higher. It could also make China less attractive to foreign investors
seeking political stability and predictability. As China becomes
more tightly knit into the fabric of global commerce, its choices
about how it responds to popular protests carry consequences for
its international reputation.
Ultimately, however, this kind of individual rights awareness
has an effect that is at once prosaic and momentous: It makes China
more like other countries. It forces government officials in China to
consider the public’s views, at least occasionally. That isn’t democracy,
but it’s a step toward a more balanced political system.
The government’s efforts to introduce a new labor law and encourage
the establishment of ACFTU branches are evidence of
Beijing’s recognition that the downsides of the China price threaten
its interests. But there are more fundamental challenges ahead, the
most substantial of which is improving the rule of law and the legal
system. China needs to end official collusion with industry at the
expense of workers’ and ordinary citizens’ health, safety and livelihood.
It needs to make the legal system a reliable, predictable channel
for people to resolve disputes. It needs to substantially expand
inspections of factories and mines for labor and environmental law
violations and make its punishments stick. It needs to create an
organization that truly represents workers, particularly migrants, in
their negotiations with government agencies, the judicial system
and employers. It’s not unthinkable that this organization could be
the ACFTU, but the state- backed union would need to undergo
substantial reform in order to serve workers more effectively. It
needs to loosen the reins on the media so it can serve as a watchdog
on polluting industries, law- breaking factories and corrupt officials.
China needs to dramatically improve its capability to prevent
and treat occupational disease. The health care system, particularly
in rural areas, is ill equipped to handle the volume of sick workers
the country is producing. Likewise, it must increase its research on
the environment’s impact on health.
Reforms of this magnitude will take decades, if they happen at
all. Ironically, one of the factors that first lured foreign investors to
China—the bottomless pool of labor—could make it harder for
China to improve its labor and environmental record. The need to
keep such a large number of people employed could work against
the need to strengthen enforcement of labor laws and regulations,
as well as the need to move up the value chain to less labor- intensive
industries.
That said, when the Chinese government puts its mind to a
certain task, it gets the job done. If China applied the same elbow
grease to policing its factories that it does to policing political debate
on the Internet, it would improve the standard of its manufacturing
base, reduce the caseload of lawsuits and protests by
disgruntled workers and ease tensions with its trading partners. Indeed,
any country that has to go to the lengths that China is having
to go to to control its economic growth could afford to sacrifice
some of its competitiveness through more consistent enforcement
of the law.
In the end, as much as the responsibility seems to lie with Beijing,
it also lies with the global consumer. Our appetite for the $30
DVD player and the $3 T- shirt helps keep jewelry factories filled
with dust, illegal mines open and 16- year- olds working past midnight.
We all pay the China price.
"With unusual insight and reportorial perseverance Alexandra Harney presents the inconvenient truths about China and globalization that flat worlders have overlooked. This book is very important and is a must read for those who want to understand how today's world really works."
--Clyde Prestowitz, President of the Economic Strategy Institute and the author of Three Billion New Capitalists.
