20100622 New opportunities for Taiwan

New opportunities for Taiwan

Tuesday, Jun 22, 2010, Page 8

Recently, there have been a number of labor protests in China, something rarely seen since the Chinese Communist Party took power. These protests were sparked initially by conditions at the Foxconn plant in Shenzhen, which led to a spate of suicides and resulted in the company promising to increase wages by 122 percent.

This was predictably followed by demands from other workers’ groups for pay increases and, with tacit official approval, the minimum wage was raised. These changes are moving beyond the relatively wealthy areas of the Pearl River Delta manufacturing region and around Shanghai, further inland to regions such as Jiangxi and Shanxi provinces. If the trend continues, it could spread throughout the country. Although this is an internal matter for China, it also represents a huge opportunity for Taiwan.

Such a movement threatens to ignite accumulated discontent that has been simmering under the surface in China for decades. Once it reaches a certain point, the government will find it difficult to contain. It is also likely to do serious damage to China’s economy.

For some time now, Taiwanese businesses have been investing in China, where a great deal of their overseas production is done, accounting for half the orders they receive. This has had serious implications for unemployment in Taiwan and therefore reduced both tax revenue and domestic demand.

If these protests continue, China could well lose its current advantage. Taiwan should then introduce measures to make the domestic environment more attractive for foreign investment. Successfully channelling more investment into domestic enterprises, which would help to usher in a new golden era for the Taiwanese economy.

Although, on the surface, recent demands for improved working conditions appear to be a spontaneous development, they are in fact the inevitable result of underlying socioeconomic trends. There are two major causes behind these developments.

First, the adoption, over the last three decades, of a more capitalist model compared with the more protectionist socialist command economy that preceded it, together with the low labor and land costs as well as low taxes that attracted foreign companies to relocate to China. This powerful combination has driven rapid economic growth, which has significantly strengthened the country and made it a force to be reckoned with internationally.

On the other hand, there have been only limited improvements in the living standards of Chinese workers. This problem has been exacerbated by the abuse of power by businessmen with official positions or influential connections and the rapid amassing of conspicious wealth. The result is a glaring divide between the rich and poor, the size of which has led the World Bank to voice its concern.

While Chinese workers have been subjected to serious exploitation, the advent of the Internet and the mobile phone means that it is no longer possible to keep them in the dark about developments. Any protest movements that start in one area spread quickly and are not so easy to extinguish.

The second factor is the fact that China has built itself up on the labor of workers and peasants. Support from a massive proletariat class lends legitimacy to Communist rule. However, the economic surplus produced by the working class is only enjoyed by a few big officials, a situation that has worsened since China started to adopt a capitalist economy. Most workers still represent cheap labor, but such injustice cannot be tolerated for much longer.

Aware of workers’ simmering discontent over not being able to enjoy the fruits of the economic wealth they have helped create, Beijing is willing to countenance an increase in salaries for workers. Such a move could possibly consolidate the government’s political power. China has declared its intent to give a 100 percent salary raise to its working class within five years.

This is, however, very risky. If too low, the workers will remain unhappy, but companies’ finances will suffer if it is too high. If things don’t change, foreign investors will pull out of China and the country known as the “world’s factory” will lose its competitiveness in the global market. As a result, local Chinese enterprises will also have to shut down.

Things will become even more serious when the workers’ protests become a nationwide movement and everyone is clamoring for a piece of the proverbial pie. This is when the threat of massive riots, or even rebellion, emerges.

Further analysis reveals that most of these strikes are affecting non-Chinese enterprises. It is obvious that China is controlling the situation — why is it that only foreign companies that are being hit by the strikes despite the fact that salaries in Chinese companies are also very low? It is clear that Beijing’s strategy, where possible, is to transfer the cost of salary raises to foreign companies.

The Chinese government is, however, incapable of blocking every bit of information about salary raises and strikes due to widespread Internet access. Sporadic strikes will happen across the country and these protests will eventually develop into a nationwide movement. If that is the case, China will only have two choices: Suppress the workers or bend to pressure and give across the board raises. If Beijing opts for the former, it risks confrontation and bloodshed and the possible collapse of the government. If the latter, Chinese labor costs will skyrocket, causing foreign companies to withdraw, local ones to shut down and China’s economy could eventually collapse.

Taiwan is not interested in the rise or fall of the Chinese economy. However, a loss of competitiveness in China presents a unique opportunity for Taiwan, as it gives the the Taiwanese economy more room to develop.

President Ma Ying-jeou’s (馬英九) administration has been relying exclusively on China. It has also vowed to foster a “golden decade” for Taiwan. If Ma is to achieve this goal, he needs to reflect on the situation and give up his ill-advised pro-China policies. Meanwhile, the government should also try to lure Taiwanese businesspeople back and increase investment in local enterprises. This will help create jobs and increase tax revenue.

Unfortunately, the government is still preoccupied with staying in Beijing’s good books. It has pressed forward with negotiations on an economic cooperation framework agreement and refused to hold a referendum to ensure the pact will signed as early as the end of this month. This would confirm what everyone is thinking — that the government refuses to listen to anyone and will not be persuaded otherwise.