Policy Watch

China saying farewell to its past economic strategy

(chinadaily.com.cn)
Updated: 2010-07-01 13:40

China is using "currency revaluation as a part of a larger strategy to change from being a producer of low value-added exports to a leader in high-tech, green production" to "increase the cost of production and discourage the old export-processing industries," analyzed by Behzad Yaghmaian in the New York Times on June 27.

The professor of political economy at Ramapo College of New Jersey pointed out that China is heading for "a new economic strategy and is edging into the second stage of its globalization."

He explained that although "China's globalization began with the rise of low-wage export-processing capitalism," the country is trying to "upgrade the economy by pouring resources into high-tech R&D and production" in hopes of changing "the country's role as the producer of cheap and low-end products for others." Meanwhile, China is "redirecting the older export-processing industries toward producing for the domestic market."

According to the article, China is "supporting a new generation of visionary entrepreneurs." And "high-tech economic centers now supplement the old free economic zones." Even Shenzhen, "the epicenter of China's low-wage capitalism has state-of-the-art research centers."

Local governments in coastal areas "have been increasing the minimum wage in recent years," and moreover, the central government has been "actively supporting pro-labor legislation and workers' demands for better wages and rights," Yaghmaian said. He cited the 2007 labor law as an example, which "requires all employers to provide their laborers with a signed contract, regardless of the size of their workforce." The government's changing attitude toward "workers' rights and the gradual increase in wages" mean that it is "ready to leave behind its legacy of low-wage capitalism."

He pointed out that "the new direction has already forced many low value-added exporters out of business." A study conducted before the global economic crisis predicted that more than one-third of China's exporters will be bankrupt by 2009.

Most low-end Chinese exporters are subcontractors getting dollars from American and other foreign companies, so that "the revaluation of the renminbi will cripple thousands of already troubled subcontractors by reducing their income after conversion to the local currency," said the article. Meanwhile, independent exporters will also lose their price competitiveness and market share. "Labor-intensive producers without the technological capacity to improve productivity or the ability to weather the rising costs will be forced out of business."

The article concluded that "China is saying farewell to its past economic strategy" and is "beginning a new path to development." "Higher wages and better-protected labor rights will pave the way for a more democratic China." Meanwhile, "China's trade surplus with the world will persist and the new China will be exporting high-tech, green products."