Is industrial upgrading a pie or a trap?
In recent years, the labor dispute cases are on a rise in China, while the city of migrant workers – Shenzhen appears a new trend of labor dispute, that is, the employees propose to terminate the contract unilaterally, but require the enterprises to make compensation. However, before 2008, the focus of the disputes is whether the labor reward is reasonable. After 2010, a string of suicides happened in Shenzhen Foxconn that has shocked the whole country. An important factor for this is dissatisfaction to the labor reward, therefore Foxconn and other enterprises have increased the pay level substantially. In recent years, the labor cost is soaring. The labor-intensive enterprises begin to withdraw from Shenzhen, while the employees either move with the enterprises or terminate the labor contract.
Seeing from a macroscopic view, these labor disputes in Shenzhen are the outcome of industrial upgrading. Since establishment of Shenzhen municipality, foreign investment enterprises, represented by Hong Kong-invested enterprises, have attracted a tremendous number of migrant workers. With the development of economy, Shenzhen has also experienced the industrial upgrading process of quitting “toll processing business and compensation trade”. Since the new round of economic growth of 2003, Shenzhen’s labor remuneration level that has experienced long stagnation begun to rise, and the land cost also rose violently. Then, some labor-intensive enterprises began to move out since 2008.
Although industry upgrading will certainly happen with the development of economy, most of the first-tier and second-tier cities in China have taken more active measures to promote industrial upgrading and eliminate low-end industries. For example, Shenzhen has weeded out some low-end enterprises by enhancing environmental requirements and sorting out illegal immigrant without a license. At the national level, the central government is also advocating industrial upgrading.
For a region, industrial upgrading is a good thing. Compared to 2009, Shenzhen’s manufacturing workers has declined by more than 80,000 in 2012, but employment in service sector has increased by nearly 800,000. Especially the financial, logistics industries, etc. the wealth they have created is surprising. For example, the annual tax amount of CMB (China Merchants Bank) Tower in 2011 was as high as 5.6 billion yuan, which can compare favorably with a small county.
However, such kind of successful cases are scarce. The agglomeration degree of financial industry and other high-end service industries, as well as advanced manufacturing industry, is much higher than that of general manufacturing industry and service industry. In nationwide, only numbered financial centers and R&D centers can be thriving. The employment that they can absorb is also very limited. Currently, there were 140,000 laborers engaged in financial industry in Shenzhen (2012), which has only increased 50,000 persons in comparison with that of 2009. And, this is the result of rapidly-advancing finance in recent years. However, in 2012, the proportion of financial-industry added value among the industry-wide amount has declined than that of 2009. Even financial center in Shanghai that has become a national strategy, its financial jobholders are just over 300,000 (2012), only accounting for 2.7% of the total employment of Shanghai.
As for most cities, industrial upgrading is not as beautiful as that of Beijing, Shanghai, Guangzhou and Shenzhen. Somebody’s pie might be your trap. As to these cities, their original industrial layout leans to low-end industry lack of highly skilled workforce. Most importantly, the local government’s governance level is lower, and the investment environment and judicial justice all need to be improved. In this context, a backfire will be caused if they are devoted to industrial upgrading, because it will result in population outflow and industry relocation when the low-end industries are forced to make a difficult living and the high-end “birds” are reluctant to fly in. In this case, the industrial parks, fiscal subsidies and preferential policies of the government are often obtained by insiders, which will restrain the local economic growth on the contrary.
Moreover, seeing from the overall situation, currently most of the newly added employment in China are all contributed by the eastern area which absorb more than 90% of trans-provincial floating population. However, in recent years, the Beijing-Tianjin-Hebei Region, Yangtze River Delta and Pearl River Delta all continue to launch industrial upgrading, weed out low-end industries and reject low-end floating employees. Before 2011, the growth speeds of permanent population in Beijing, Shanghai, Guangzhou and Shenzhen remain above 4% throughout the year, but most of them have been reduced to below 2% since 2011, and even less than 1% for Shenzhen. China has a huge labor force population base, and most of them are low skilled. If they go to the east, they are not welcomed, and their living conditions will get worse; if they go to the Midwest, the employment chance for them is rare, so that they’re put in a dilemma. This is not just an economic consideration but more a social problem, as to how to place them.
Published in Southern Metropolis Daily | 2014-11-27
