China’s New Economy (And What This Means For The Environment)

By Alexandra Harney 25 June, 2010

Alexandra Harney, author of “The China Price: The True Cost of Chinese Competitive Advantage” talks to China Water Risk about China’s manufacturing model and its implications for the environment.

The era of relying on cheap Chinese labor is over.
Most multinationals have a long way to go towards being more environmentally responsible in China.
Alexandra Harney
Author: Alexandra Harney
Alexandra Harney has been writing about Asia, primarily China and Japan, for more than a decade. Alexandra is the author of The China Price: The True Cost of Chinese Competitive Advantage, published by the Penguin Press in 2008. A cum laude graduate of Princeton University, Alexandra speaks, writes and reads Mandarin Chinese and Japanese. She spent seven years as a correspondent and editor at the Financial Times in China, Japan and the UK. She has also written for The Atlantic Monthly, The New York Times, The Wall Street Journal, Time, Slate, The Times of London, Foreign Policy, The China Economic Quarterly and the Economist Intelligence Unit. From her base in Hong Kong, Alexandra consults for global investors to help them understand the issues and opportunities in the region.
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Pundits are predicting the death of China’s manufacturing model, built on low wages, compulsory overtime, uninspiring working conditions and what some call a “militarized” management. The Asia Water Project asks Alexandra Harney, author, The China Price: The True Cost of Chinese Competitive Advantage (Penguin, 2008), which foretold this summer’s labor unrest, what this means for environmental practices in China’s factories.

CWR: There is debate that China’s labour may have reached a turning point, and that workers are finally acting to protect their rights. Do you think a turning point has been reached?

Alexandra: Chinese migrant workers want what we all want: a decent wage, fair working conditions, and prospects for advancement. Like us, they are aware of the prevailing wage in their industry and are connected to colleagues and friends through mobile phones and instant messaging.

This has been the case for close to a decade; what has changed in the last few years is that workers, particularly migrants, are more aware of their rights under Chinese law and there are growing labor shortages in coastal areas. From the workers’ perspective, the turning point was not this year but 2008, when many learned about their rights under China’s labor laws1.

CWR: Aside from greater knowledge of labour law, what else contributed to this shift?

Alexandra: Three things: demographics, media coverage, which educates workers about their rights, and the continued growth of China’s export sector. In addition, the increase in the cost of living in big coastal cities with export sectors also has outpaced pay rises, making life less tenable for migrants. Moving to smaller cities closer to home is cheaper and no longer involves the sacrifice in the quality of life it once did.

Migrants have more options about where to work – partly because of the infrastructure build-out last year during China’s response to the financial crisis.  They can work in a factory closer to home, they can work in service sector jobs closer to home. For China’s migrants, coastal factories are no longer the only game in town.

Finally, Chinese migrant workers know they have more leverage today than before: coastal factories are struggling to fill their orders because they can’t find enough labor, and many export factories still don’t follow the labor law.

CWR: Will this mean an end to the “race to the bottom” mentality?

Alexandra: Putting aside any shift in workers’ mindset, simple demographics alone will tell you that the era of relying on cheap Chinese labor is over. Foreign buyers will have to get used to a rising China price. Factory managers in China will have to get used to treating their workers better. This will require a great leap forward in management for many factories. Short-term thinkers might say this bodes poorly for China’s manufacturing sector, but how can making your factories more efficient, with lower turnover and more consistent quality, be bad for business?

CWR: Will the improvement in labour conditions cause a ripple effect in how companies manage environmental issues?

Alexandra: One could make the argument that factories will have less money to spend on water treatment, for instance, now that they’re paying higher wages. But one could also argue that factories will have to cleave an even deeper difference with the competition to survive, and some may well decide their competitive edge will be environmental responsibility.

Ultimately how the environmental piece plays out will also depend on the level of awareness among local residents and the priority government officials, both at the local and central levels, put on environmental issues.

CWR: How does the labour issue compare with the environmental issue in China?

Alexandra: In the Western public’s consciousness, and I daresay the Chinese public’s consciousness, environmental concerns trump labor issues. Nobody wants to know that their laptop was made in a sweatshop, but then again, most people would rather not think about it at all. Nobody saw any irony in this month’s Bloomberg Businessweek headline “The Killer iPhone”, though one of the deaths at Foxconn over the last year was of an engineer who was under investigation for losing a prototype of that very phone.

To the extent that Western consumers even think about sustainability and act on their concerns, “carbon footprint” has replaced “sweatshop” as the term of the moment. Ask any honest corporate social responsibility executive about their fight to improve working conditions in their company’s supply chain, and they will tell you that they struggle to interest their senior management in labor issues because consumers just don’t seem to care.

Although I’m not persuaded that most international brands care that deeply about cleaning up environmental issues in their supply chains overseas either, despite what they might tell journalists. Customers are more conscious of environmental issues, and so companies feed them stories about their “funding of new wind energy sources” and non-biodegradable paper plates labeled as biodegradable. I’ll take a deep breath of Hong Kong’s air and say that the reality, at least as I see it, is that most multinationals have a long, long way to go towards being more environmentally responsible in China.