I started to talk about problems arising from China’s economic reform in the last blog. When the country became wealthier, there are more rich people getting richer. Even though China can help a lot of people escape the poverty, the existing poor are getting poorer. Growing income inequalities led to the problem of ‘underconsumption’ in China. The middle class are aware of insecurity from the weakened welfare system and therefore increase their saving.
Today I would like to talk about another two big problems that followed the market economy; Water Crisis and Labor Unrest.
Environmental problems cover many sub-problems like air pollution, water pollution, deforestation, and habitat and biodiversity. The main problems that Chinese people are severely affected by now are air and water pollution.
When China started the industrial clusters along the main rivers; Pearl River Delta (around Shanghai), Yangtze River Delta, and Bohai Bay Region, the water pollution problem followed immediately. Factories and cities along these rivers flow their toxic chemicals and wastes into their fresh water resources. More than one third of this waste flows into the rivers without any treatment. A survey conducted by China National Environmental Monitoring Center in 2006 reports that 32% of total drinking water tested was not suitable for drinking (Liu, 2006).
Dirty freshwater resources cause the water shortage problem. When there is growing demand from the urban lifestyle, the water crisis in China is getting worse.
Map of Water availability in China (HSBC Global Research)
You can see from the map that the areas experiencing water crisis are along the coast. Nearly half of China’s largest cities face water shortages. Beijing, Tianjin, Hebei, Shandong, Henan and Shanxi are having an extreme water scarcity problem (0-500 cubic meters per capita per year). This problem is exacerbated by the lack of investment in the water management infrastructure.
The water crisis also leads to many more problems. Public health is at high risk. Diseases can be spread out easily from dirty water and fishery products. Industrial zones need a consistent running water system otherwise the production will be interrupted. The Chinese quality of life and economy are in danger if the Chinese government cannot solve this problem very soon.
Profit is the most important incentive of the investors and entrepreneurs in the market economy. Since profit is the surplus after paying for all cost, reducing labor cost is the strategy where businesses focus. China has the largest labor surplus in the world economy. This labor army reserves makes the labor-intensive manufacturing industries stay competitive.
However, wage rates in China have been increased from higher demand for labor along the coastal and southern cities. Some businesses have decided to relocate their factories to lower wage countries. Industries that are characterized as ‘footloose’ will not have significant change when the location changes because the installation cost is very low. A large share of factories in China falls in that category.
Imagine if you are working in one of the ‘footloose’ factories in China and do not have an alternative job. You have no choices even though you have to work very long hours and the working conditions are very poor. When you have an alternative to choose, you might start to think about quitting the job, bargain for better working conditions, or strike – the only one tools that workers have in bargaining.
From the economic prosperity, Chinese people can afford more education. Chinese workers who have higher degrees started to realized that they have some other choices and learned more about labor standards and labor rights from the international labor organizations. The vast majority of the labor protests in the second half of the 1990s were carried out by workers being laid off from the state-owned enterprises after they went through restructuring (Silver and Zhang, 2009). Labor in the industrial cluster zones then started to have more strikes. There is a very interesting picture from the Washington Post by Denise Lu showing the number of labor strikes in China.
Photo source and more detail: https://www.washingtonpost.com/world/asia_pacific/strikes-and-workers-protests-multiply-in-china-testing-party-authority/2016/02/24/caba321c-b3c8-11e5-8abc-d09392edc612_story.html
More choices in Guangdong province leads to more labor unrest. Inner China areas like Tibet or Qinghai provide less choices for the labor movement. These labor protests can discourage foreign direct investment and become political risks for the communist party. The Chinese government have recognized this problem and passed the ‘New Labor Contract Law” for enhancing job security and putting more restrictions for employers to hire or fire workers without cause. This law is shifting more of the bargaining power towards the workers.
Despite the growing labor unrest in China, keep in mind that in the capitalist system, ‘the capitalists’ own the physical capital (building, machines, assembly lines and equipment). This provides more power over the labor. Also, the Chinese government needs to keep encouraging the capitalists to run the market economy. Therefore, there is a tendency that the labor unrest will continue growing and become a big challenge to the Chinese economy in the future.
Liu, Y. (2006). “China’s drinking water situation grim; Heavy pollution to blame”. ChinaWatch. WorldWatch Institute.Retrieved April 1, 2016, from http://journal.probeinternational.org/2006/08/03/chinas-drinking-water-situation-grim-heavy-pollution-blame/
Silver, B.J. and Zhang, L. (2009). China as an Emerging Epicenter of World Labor Unrest. In Ho fung-Hung, editor, China and the Transformation of Global Capitalism, Baltimore: The John Hopkins University Press