Jobs gained, jobs lost

‘World’s Fac­tory’ may be los­ing more jobs than it’s ‘steal­ing’

China Daily (USA) - - FRONT PAGE - Con­tact the writer at paul welitzkin@chi­nadai­

These are the things that hap­pen when economies re­shape them­selves.” Thomas Rawksi, an eco­nomics pro­fes­sor at the Uni­ver­sity of Pitts­burgh Paul Welitzkin

For Don­ald Trump, China has been a fo­cus of his crit­i­cism since the Repub­li­can pri­maries and now as the party’s pres­i­den­tial nom­i­nee, say­ing re­peat­edly: “They’re steal­ing our jobs; they’re beat­ing us in every­thing; they’re win­ning, we’re los­ing.”

And Demo­cratic chal­lenger Hil­lary Clin­ton has said that the US has to “stand up” to China and make it stop un­fair trade prac­tices that hurt Amer­i­can busi­nesses and kill US jobs.

Since the 1990s, China has been the sym­bol of a job-cre­at­ing jug­ger­naut — the “world’s fac­tory’’. Man­u­fac­tur­ers from the US and other Western coun­tries poured into the coun­try to take ad­van­tage of low wages and other costs, leav­ing be­hind mil­lions of job­less.

Now, it’s a chang­ing story. China is post­ing its weak­est growth in 25 years. Man­u­fac­tur­ing ad­van­tages China once en­joyed have dwin­dled. The push to re­vamp China’s econ­omy, the re­form of State-owned en­ter­prises (SOEs) and com­pe­ti­tion from other low-cost na­tions have com­bined to drive up un­em­ploy­ment in parts of the main­land.

Ac­cord­ing to Quan­ton Data, which tracks global job post­ings by in­dus­try, open man­u­fac­tur­ing po­si­tions in China have been de­clin­ing con­sis­tently since 2012, down nearly six per cent in that time. His­tor­i­cally low wages have risen as China seeks to grow its mid­dle class, mak­ing nearby neigh­bor­ing coun­tries like Bangladesh and Viet­nam more at­trac­tive la­bor mar­kets.

Other man­u­fac­tur­ing costs such as trans­port­ing goods to the US have in­creased to the point where some US man­u­fac­tur­ers are find­ing it ad­van­ta­geous to “reshore” op­er­a­tions back to Amer­ica.

“These are the things that hap­pen when economies re­shape them­selves,” said Thomas Rawksi, a pro­fes­sor of eco­nomics at the Uni­ver­sity of Pitts­burgh, who has writ­ten ex­ten­sively on the econ­omy of China.

Cheap la­bor has been a key com­po­nent of China’s eco­nomic suc­cess in the last 25 years. Af­ter the in­tro­duc­tion of re­forms in the 1980s that opened up China to for­eign busi­nesses, man­u­fac­tur­ing took off as Chi­nese work­ers were plen­ti­ful.

But that cost ad­van­tage is shrink­ing. Monthly pay for China’s fac­tory work­ers now av­er­ages $424, 29 per­cent more than just three years ago, the Ja­pan Ex­ter­nal Trade Or­ga­ni­za­tion es­ti­mated, ac­cord­ing to a re­cent New York Times ar­ti­cle. Fac­tory work­ers in Viet­nam earn less than half the salary of a Chi­nese worker, while those in Bangladesh get paid less than a quar­ter as much.

US com­pa­nies were among the first to open up shop in the main­land and em­ploy thou­sands to make prod­ucts that used to be man­u­fac­tured in Amer­ica. The Eco­nomic Pol­icy In­sti­tute said the US lost about 3.2 mil­lion jobs to China be­tween 2001 and 2013, with three-fourths of those jobs in man­u­fac­tur­ing.

That off-shoring wave is be­gin­ning to change, ac­cord­ing to the Reshoring Ini­tia­tive, a non­profit trade or­ga­ni­za­tion ded­i­cated to re­vi­tal­iz­ing man­u­fac­tur­ing in the US.

The or­ga­ni­za­tion’s 2015 Reshoring Re­port con­tains data on US reshoring and For­eign Di­rect In­vest­ment (FDI) by com­pa­nies that have re­turned or added new US pro­duc­tion from off­shore. The re­port in­cludes cu­mu­la­tive data from 2007 through 2015, as well as de­tailed data for 2015.

More jobs

The com­bined reshoring and FDI trends in 2015 re­sulted in the ad­di­tion of 67,000 jobs in the US, bring­ing the to­tal num­ber of man­u­fac­tur­ing jobs from off­shore to more than 249,000 since a man­u­fac­tur­ing em­ploy­ment low in Fe­bru­ary 2010.

Harry Moser, pres­i­dent of the Reshoring Ini­tia­tive, told the New Yorker ear­lier this year that since 2007 the an­nual in­crease in the num­ber of com­pa­nies’ off­shoring has dropped from 6 per­cent to 2.5 per­cent. Moser said that for the past cou­ple of years, for ev­ery new job of­fered by US com­pa­nies over­seas, an equal num­ber of po­si­tions have been reshored.

Ris­ing costs have also forced even Chi­nese-based man­u­fac­tur­ers to re­assess their op­er­a­tions, ac­cord­ing to Rawksi, who reg­u­larly vis­ited China through­out 1970s and 1980s. He said some Chi­nese man­u­fac­tur­ers are con­sid­er­ing their op­tions to stay com­pet­i­tive.

“Some have con­sid­ered mov­ing plants off­shore and to western China. The wages are lower in Viet­nam and Bangladesh,” he said.

Western China is be­com­ing at­trac­tive for com­pa­nies lo­cated in coastal ar­eas be­cause it en­ables man­u­fac­tur­ers to ad­dress sup­ply-chain con­cerns. “That is why some opt for western China be­cause they can still get crit­i­cal com­po­nents in 24-36 hours,” Rawski said. “It’s what is hold­ing many firms in place.”

Struc­tural changes in China’s econ­omy are also driv­ing em­ploy­ment shifts in the coun­try, ac­cord­ing to Li Wei, a pro­fes­sor of eco­nomics at the Che­ung Kong Grad­u­ate School of Busi­ness (CKGSB) in China. There is a down­turn in the steel and ce­ment in­dus­tries in part be­cause the “…hous­ing mar­ket in China won’t grow as rapidly as it has in the past,” Wei said.

China has also been on a mis­sion to re­form many of its SOEs. In July, Pres­i­dent Xi Jin­ping asked for ef­forts to deepen the re­form of State-owned en­ter­prises. He said SOEs are an im­por­tant force for na­tional de­vel­op­ment and guard­ing peo­ple’s in­ter­ests, but also called for ways to en­hance their vi­tal­ity, com­pet­i­tive­ness and re­sis­tance to risk.

The govern­ment has iden­ti­fied SOE re­form as an es­sen­tial step in the struc­tural trans­for­ma­tion of China’s econ­omy. Over the last three decades, SOEs have un­der­pinned China’s emer­gence as a global man­u­fac­tur­ing pow­er­house and also dom­i­nate key strate­gic sec­tors.

How­ever, the tra­di­tional sin­gle-sided mar­kets are now be­ing dis­rupted by new tech­nol­ogy and pri­vate com­pa­nies, which have un­der­lined the weak­nesses of SOEs, such as in­ef­fi­ciency and high op­er­a­tional costs.

China’s steel and coal-min­ing sec­tors are prime can­di­dates for this re­form. In Fe­bru­ary, the Chi­nese govern­ment said it was plan­ning to shed 1.8 mil­lion coal and steel jobs to re­duce ex­cess ca­pac­ity. Some 1.3 mil­lion jobs will be lost in the coal sec­tor, and 500,000 in the steel in­dus­try. It’s im­por­tant to keep the job losses in per­spec­tive since China’s la­bor mar­ket to­tals 600700 mil­lion work­ers ac­cord­ing to Rawksi.

Help­ing the unem­ployed

To ease the im­pact of the cuts, the govern­ment has ear­marked $15.3 bil­lion over the next two years for un­em­ploy­ment re­lief, of­fer­ing train­ing and job place­ment ser­vices.

“La­bor pro­duc­tiv­ity is de­creas­ing in China’s iron and steel en­ter­prises, and Sta­te­owned en­ter­prises are fac­ing even lower la­bor ef­fi­ciency than pri­vate ones as they are bear­ing more so­cial bur­dens,” Li Xinchuang, sec­re­tary gen­eral of the China Iron and Steel As­so­ci­a­tion wrote in an email.

The north­east re­gion of the coun­try — in­clud­ing Hei­longjiang, Liaon­ing, and Jilin prov­inces which used to be the coun­try’s in­dus­trial pow­er­house — have been suf­fer­ing amid this trans­for­ma­tion.

A re­struc­tur­ing plan an­nounced ear­lier this year that will com­bine two ma­jor steel com­pa­nies could be a sym­bol of SOE re­form in China. The planned merger of Wuhan Iron and Steel and Baos­teel when com­pleted will cre­ate the largest steel pro­ducer in China with an­nual out­put reach­ing at least 60 mil­lion tons a year.

Wuhan and Baos­teel haven’t re­leased de­tails on their com­bi­na­tion, in­clud­ing po­ten­tial job losses.

The merger plan was an­nounced as China’s steel in­dus­try has suf­fered heavy losses due to over­ca­pac­ity and sag­ging global de­mand. In 2015, more than half of China’s steel com­pa­nies re­ported losses to­tal­ing $9.78 bil­lion, the China Iron and Steel As­so­ci­a­tion es­ti­mated.

The steel sec­tor was once a profit en­gine for China’s econ­omy as the in­fra­struc­ture in­vest­ment boom bolstered de­mand for com­modi­ties such as steel and ce­ment. As the econ­omy has cooled, the pro­duc­tion glut has been ex­ac­er­bated. China now aims for gross do­mes­tic prod­uct growth of about 6.5 per­cent a year, down from the dou­ble-digit gains of just a few years ago.

China will not ex­pe­ri­ence an up­surge in lay­offs in the drive to re­vi­tal­ize in­ef­fi­cient and over­staffed State-owned en­ter­prises, Xiao Yaqing, head of the Sta­te­owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion, said ear­lier this year.

“Pro­tect­ing the in­ter­ests of SOE em­ploy­ees will be a ma­jor task in the next step,” said Xiao. The re­form will mainly be pushed for­ward through mergers and ac­qui­si­tions in­stead of bank­rupt­cies, he added.

“The govern­ment will need to be ag­gres­sive in find­ing jobs for dis­placed work­ers,” said CKGSB’s Wei. “The govern­ment can’t guar­an­tee that ev­ery­one has a job, but it can guar­an­tee that peo­ple won’t starve.”

“The prob­lem is that peo­ple who were coal min­ers and steel work­ers are not well suited to pick up jobs in the new econ­omy,” said Rawksi.

Main­tain­ing sta­bil­ity

Li said the Chi­nese govern­ment is re­spond­ing to the chal­lenges of this la­bor shift. “(The) govern­ment has been grad­u­ally in­tro­duc­ing poli­cies to main­tain the sta­bil­ity of the so­ci­ety, to cre­ate new em­ploy­ment op­por­tu­ni­ties and to make sure the laid-off work­ers can steadily trans­fer be­tween (be­ing) laid-off and re-em­ploy­ment,” he said.

Rawski be­lieves the ser­vice sec­tor will cre­ate many new jobs to re­place the ones that are lost. “There will be some struc­tural un­em­ploy­ment where you have peo­ple in one sec­tor strug­gling to find a job while other in­dus­tries strug­gle to fill open­ings with qual­i­fied per­son­nel,” he said.

“China is ad­vo­cat­ing and en­cour­ag­ing sci­en­tific and tech­nol­ogy ori­ented new en­ter­prises to en­gage in in­no­va­tion and en­trepreneur­ship. As iron and steel en­ter­prises are now fac­ing the chal­lenges of ex­cess ca­pac­ity and sig­nif­i­cantly de­creas­ing prof­its, they need to cre­ate op­por­tu­ni­ties to tran­si­tion to­ward (the) ser­vice in­dus­try,” said Li.

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