December 15,2008

Coastal Provinces Determined to Dump Labor Intensive Industries

By Ma Wenluo

China’s export growth in November, at �.2%, was the first negative growth in the past seven years and reveals the serious economic slide in China’s coastal areas that depend mainly on exports. Southern China’s rich Guangdong Province, producer of 1/3 of China’s goods for export, is the biggest loser. But this is strengthening the determination of these areas to readjust their economic structures.

Wang Yang, Guangdong Province’s party chief, said in a December 9 article in the People’s Daily, a newspaper directly under party rule, that Guangdong will never return to its previous development modes, and that government is determined to "empty the bird cage for new birds to settle down," i.e. promote industry upgrading. Wang declared on November 20 that provincial authorities would make no effort to save "backward enterprises," referring to labor-intensive enterprises developed with cheap land and low labor costs. These enterprises have made Guangdong one of the rich areas in China, even without the government’s investment, but in the recent years they have also been the cause of land, power, and water shortages and increased manufacturing costs, and contributed to environmental pollution and growing criminal rates.

Many analysts are criticizing Guangdong’s effort to eliminate labor-intensive industries, claiming that the key point of the central governments�bailout scheme is to maintain employment, and the most important thing for the country is to help surviving companies get through the hard times. Dr. Li Gang, of the Institute of Industrial Economics, Chinese Academy of Social Sciences, believes industrial transformation mustn’t be too quick. "You can’t ask hands that are teasing cotton today to program computers tomorrow," says Dr. Li. Even in Guangdong, Liu Pin’an, director of the Macro Economy Institute of the Guangdong Academy of Social Sciences, believes the further development of current industry, instead of instant and absolute industry transformation, is most crucial for Guangdong. 

The Federation of Hong Kong Industries, whose member companies account for 72% of all the foreign invested enterprises in Guangdong, declared that 90% of the 70,000 HK-owned firms in the Pearl River Delta don’t want to leave the area, as the biggest problems caused by relocation are higher transportation costs and lack of matching facilities. The Hong Kong government has become concerned, and has appealed to the central government for intervention to help HK-invested businesses in the Pearl River Delta in particular ride out the financial crisis to help Hong Kong stabilize its own economy.

According to incomplete statistics, Guangdong has employed about 42 million migrant workers recently, but as many factories are closing, millions of them have returned to their hometowns, worrying local officials there who have neither enough job opportunities for them nor enough money to grant them subsidies. These concerns have been passed on to the central government. The central government’s investment to expand internal demand is mainly going to infrastructure construction, and doesn’t offer much work to migrants without technical skills. During his visit to Guangdong last month, Premier Wen Jiabao asked governments of all levels to help boost small- and medium-sized enterprises. At the executive meeting of the State Council on December 10, he required government departments to give positive support to labor-intensive enterprises and stabilize employment of migrant workers.

But Wang Yang also has many supporters. Zuo Xiaolei, Chief Economist at China Galaxy Securities, thinks promoting economic growth when the economy is sliding may neglect deep economic problems, such as various problems in the economic structure. Zuo thinks the crisis is also a good chance to transform way of economic growth.

More importantly, officials of coastal areas are all supporting Wang Yang and advocating a similar path. Liang Baohua, Party Chief of Jiangsu Province, has developed Wang Yang’s "new birds" idea to "empty the bird cage for the phoenix", and is requiring local governments to accelerate industrial transformation and transfer labor-intensive industries such as textiles, apparel, and building materials from the rich southern part of the province to the poor northern part. Neighboring Zhejiang Province, a rich coastal province, is trying to promote industrial upgrading by financial innovation.

Because of strong appeal from provincial-level officials such Wang Yang, the Central Economic Work Conference, which was concluded not long ago, decided to add "adjust economic structure" to the conclusion of the conference, which, originally, was merely "maintain economic growth". Economists are already raising suggestions. Min Tan, Secretary-general of the China Foundation for Poverty Alleviation and Chief Economist of the Asian Development Bank’s Beijing Office, said during a interview with CCTV that the Chinese government should be offering training to migrant workers that have returned to their hometowns, and that human resources investment should be an important part of Beijing’s promotion of its 4 trillion yuan investment plan.

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