martin hart-landsberg and paul burkett china and the dynamics …mli/economies 5430-6430... ·...
TRANSCRIPT
Historical Materialism volume 143 (3ndash43)copy Koninklijke Brill NV Leiden 2006Also available online ndash wwwbrillnl
Martin Hart-Landsberg and Paul Burkett
China and the Dynamics of TransnationalAccumulation Causes and Consequences of Global Restructuring
Most economic analysts believe that Chinarsquos post-1978 record of rapid and sustained export-led growthhas made the country one of the most successfuldevelopers in modern times They also believe thatthe nature and scale of Chinarsquos growth provides new opportunities for a broader restructuring andacceleration of economic activity in other countriesboth Third World and developed These claims if true have profound political implications The first implies that governments pursuing economic development should like China promote greatermarket freedoms and international integration Thesecond implies that capitalist dynamics continue tocreate new global growth centres capable of ensuringeconomic progress for those countries willing andable to embrace the capitalist world market Thusin contrast to the fears of many workers throughoutthe world who view Chinarsquos export activity as athreat to their living and working conditions mostanalysts believe that its long-run impact will be positive for all
The data does indeed show that China has achievedunprecedented rates of growth and that its economic
HIMA 143_f2_3-43 81106 313 PM Page 3
4 bull Martin Hart-Landsberg and Paul Burkett
1 Economist 2004 p 62 Economist 2004 p 4
transformation has greatly influenced the nature and organisation of economicactivity in other countries However we reject the mainstream understandingof the Chinese experience highlighted above and the commonly derived political conclusions To begin with we do not believe that Chinarsquos economicexperience or the resulting restructuring of other economies can be understoodin national or even inter-national terms as if Chinarsquos gains create opportunitiesfor policy makers in other countries to promote their own national restructuringin ways that benefit their respective working-class majorities Rather we seeChinarsquos post-reform economic activity and changes in production processesin other countries being linked and collectively shaped by broader transnational
capitalist dynamics in particular by the establishment and intensification oftransnational corporate-controlled cross-border production networks Andfar from benefiting working people these dynamics are increasing internationalimbalances and instabilities as well as heightening competitive pressures thatwork against the interests of workers in all the countries affected by themincluding China
In short we believe that the conventional wisdom on China presents aflawed picture of global capitalist dynamics and the tensions they generateone that leaves workers with a set of political options largely limited to passiveacceptance of their worsening conditions or a declaration of economic waragainst their counterparts in other countries especially China In contrast byfocusing on the nature and logic of the new transnational accumulationdynamics that are reshaping economic activity in China and other countriesit becomes easier to see the destructive nature of capitalism itself and theneed to build international solidarity and nationally complementary strategiesto oppose and overcome it
IThe rise of China
Since 1978 Chinarsquos GDP has grown by an average of 95 a year This isthree times the rate of the US and faster than that of any other country1 Asa result Chinarsquos GDP now accounts for 13 per cent of world output (basedon purchasing power parity) second only to the United States2 Morespecifically
HIMA 143_f2_3-43 81106 313 PM Page 4
China and the Dynamics of Transnational Accumulation bull 5
3 Lee 2004 p 14 Economist 2004 p 35 Hart-Landsberg and Burkett 2005a Chapter 26 Naughton 1996 p 117 Periodic attempts by the Ministry of Finance to unify the tax rates at the domestic
level have been defeated by the Ministry of Commerce which fears angering foreigninvestors See Huang 2005
China is the fourth largest industrial producer after the US Japan and
Germany As the leading producer in terms of output in more than 100 kinds
of manufactured goods China now makes more than 50 of the worldrsquos
cameras 30 of the worldrsquos air-conditioners and television 25 of washing
machines and 20 of refrigerators in addition to the more than 50 of the
worldrsquos toys When the Multi Fiber Agreement is phased out in 2005 Chinese
apparel will reach 46 of world total production and 20 of textile 85
of bicycles and 80 of shoes sold in the US are made in China3
Even these figures understate Chinarsquos importance to the world economy In2004 China and the United States accounted for almost half of world growthAs the Economist explains lsquoIf American consumers and Chinese producerswere to retreat at the same time global growth could slumprsquo4
Most commentators believe that Chinarsquos economic gains are largely theresult of a series of state decisions to encourage the decentralisation marketisation and privatisation of economic activity Over time and withthe support of the Chinese state this transformation has come to be drivenand the economy shaped by the activities of export-oriented transnationalcorporations5 For example the government established lsquoa programme ofexport processing under which inputs and components needed for the production of goods for export were imported duty free with a minimumof administrative interferencersquo6 Export-oriented foreign enterprises were alsogiven subsidised access to land and utilities tax holidays and preferentialtax rates (15 per cent or less compared to the 33 per cent rate for domesticcompanies)7
The growing importance of foreign investors is highlighted by Table 1which shows the rapid rise in foreign direct investment (FDI) in China beginning in the early 1990s In 2002 China became the largest recipient ofFDI in the world Significantly as Table 2 reveals China has been the onlyEast Asian country to sustain its attractiveness to foreign investors
HIMA 143_f2_3-43 81106 313 PM Page 5
6 bull Martin Hart-Landsberg and Paul Burkett
8 Hart-Landsberg and Burkett 2005a p 48
Table 1Net foreign direct investment in China billions US$
1985 101986 141987 171988 231989 261990 351991 441992 1101993 2751994 3381995 3751996 4171997 4531998 4551999 4032000 4082001 4682002 5272003 5352004 606
Source Asian Development Bank (2005)
Table 2Net foreign direct investment in East Asia billions US$
1997 1998 1999 2000 2001 2002 2003 2004
Korea ndash16 07 51 43 11 ndash02 01 34Singapore 11 46 85 12 ndash76 17 56 54Thailand 33 74 57 34 35 08 15 07Malaysia 56 22 25 18 03 13 11 26Indonesia 47 ndash02 ndash19 ndash46 ndash30 01 ndash06 10Philippines 18 14 11 17 02 06
Source Asian Development Bank (2005)
As a result of their ongoing investments foreign producers are coming to dominate the Chinese economy For example the share of foreign manufacturing affiliates in Chinarsquos total manufacturing sales has grown from 23 per cent in 1990 to 313 per cent in 20008 Foreign firms are alsoincreasingly coming to dominate Chinarsquos export activity The percentage of
HIMA 143_f2_3-43 81106 313 PM Page 6
China and the Dynamics of Transnational Accumulation bull 7
9 Hart-Landsberg and Burkett 2005a p 125 Gilboy 200410 Roach 200311 Hart-Landsberg and Burkett 2005a p 121 Roach 200512 Peoplersquos Daily Online 2005b13 For detailed discussion of the mainstream optimism on China with references
to the academic literature see Burkett and Hart-Landsberg 2000 pp 31ndash6 and Hart-Landsberg and Burkett 2005a Chapter 4 The Economistrsquos (2004) special report combinesthe different elements of the mainstream consensus in compact and highly readablefashion
exports produced by these firms grew from 174 per cent in 1990 to 55 percent in 20039 According to Stephen Roach Chief Economist and Director ofGlobal Economic Analysis for Morgan Stanley lsquoChinese subsidiaries of global multinationals and joint ventures with businesses from the industrializedworldrsquo accounted for lsquofully 65 per cent of the total increase in Chinese exportsrsquoover the period 1994 to mid-200310 As a consequence of these trends theratio of exports to GDP has also climbed steadily from 16 per cent in 1990to 36 per cent in 200311 Thus Chinarsquos economic growth has become increasinglydependent on the export activity of these transnational corporations In factaccording to Chinarsquos State Information Centre net exports will account formore than 35 per cent of the countryrsquos economic growth in 2005 significantlyhigher than in previous years12
II China and the world economy the virtuous growth spiral
In contrast to the many working people and companies in other countriesthat view Chinarsquos foreign-supported export offensive as a threat to their economic survival mainstream analysts typically see China as a new growthcentre capable of supporting a restructured international economy withbenefits for people in both rich and poor countries13 Among the most importantreasons for their confidence are Chinarsquos close integration with global marketsand its abundant supply of cheap labour As the Economist explains
First for such a big economy [China] is unusually open to trade and
investment This year the sum of exports and imports of goods and services
is likely to reach 75 percent of Chinarsquos GDP far more than in other big
countries in America Japan India and Brazil the figure is 30 percent or
less At its peak Japanrsquos trade reached only 32 percent of its GDP Similarly
the stock of total investment in China by foreign firms is equivalent to 36
percent of its GDP compared with 2 percent in Japan
The second feature is that Chinese manufacturers have access to an almost
unlimited supply of cheap labour By some estimates there are almost 200
HIMA 143_f2_3-43 81106 313 PM Page 7
8 bull Martin Hart-Landsberg and Paul Burkett
14 Economist 2004 p 915 Economist 2004 p 1016 Fernald and Loungani 2004 p 217 Ibid
million underemployed workers in rural areas that could move into industry
This surplus labour may take at least two decades to absorb helping to
hold down wages for low-skilled workers (who currently earn less than 50
cents an hour) Japan and South Korea in contrast absorbed their rural
labour much more quickly14
In other words Chinarsquos cheap labour and massive size should enable it tokeep attracting foreign investment and to produce exports at low cost Howeverbecause Chinarsquos foreign production is heavily import-dependent the resultinggrowth will generate a substantial demand for goods and services producedin other countries Therefore those governments that allow market forces torestructure their respective national economies in line with Chinarsquos activitieswill be rewarded with new higher value-added investment and employmentopportunities for their populations15 Mainstream economists generally believethat the experience of other East-Asian countries provides powerful empiricalsupport for this positive view of Chinarsquos growth They find the East-Asianexperience especially relevant because the countries in the region have alsorelied on foreign-produced exports to drive their growth
Table 3 highlights one important way in which Chinarsquos transformation hasinfluenced East-Asian economic activity It shows that China has shifted itsexports of manufactures away from East Asia (minus Japan) and toward thetwo most important international markets those of the US and the EuropeanUnion (EU) And in response most of the other countries in the region haveredirected their exports away from those markets Fernald and Lounganiexamined Chinarsquos competitive strength in the US market by dividing themajor East-Asian developing countries into three groups China (China and Hong Kong) the NIEs (South Korea Singapore and Taiwan) and theASEAN-4 (Indonesia Malaysia Philippines and Thailand) They found thatthe China grouprsquos share of the total exports of the three groups to the UnitedStates rose from approximately one-fourth in 1989 to one-half in 200216
A more detailed industry level examination of this competition is evenmore revealing highlighting the fact that lsquoChina has emerged as a significantexporter across virtually the entire spectrum of industriesrsquo17 This trend isillustrated in Table 4 which shows changing export shares for the three groups
HIMA 143_f2_3-43 81106 313 PM Page 8
China and the Dynamics of Transnational Accumulation bull 9
Table 3Direction of exports of manufactures per cent of national total
Destination Total Exports billions $US
Exporting Country Japan USA EU EAS-Japan
China1992 91 111 95 579 6551996 178 202 140 342 12362000 151 229 167 299 2155
Malaysia1992 77 271 180 395 2591996 111 23 151 427 5872000 113 245 151 398 783
Thailand1992 140 264 213 237 2151996 157 196 196 325 3842000 139 229 177 327 509
Singapore1992 55 264 190 350 4811996 77 217 148 450 10342000 75 197 146 473 1171
Indonesia1992 127 179 219 318 1581996 159 184 193 307 2522000 132 192 185 324 347
Philippines1992 131 655 48 121 581996 161 371 174 247 1692000 137 311 183 327 348
Korea1992 117 259 143 239 6631996 92 190 136 326 10972000 90 239 153 315 1483
Taiwan1992 105 471 73 265 5291996 92 149 149 394 11482000 102 264 183 371 1597
Japan1992 293 208 311 31281996 286 162 407 37472000 312 171 382 4351
Note EAS-Japan includes all the countries listed above minus Japan plus Hong Kong andVietnamSource Athukorala 2003 Table A-1 pp 40ndash1
HIMA 143_f2_3-43 81106 313 PM Page 9
10 bull Martin Hart-Landsberg and Paul Burkett
in the five largest industries ranked according to the dollar value of US importsfrom the three groups For example while the China group accounted for only 7 per cent of the total exports in computers peripherals and semiconductors in 1989 their share rose to 24 per cent by 2002 with theexport share of the NIEs falling from 72 to 42 per cent over the same period
Table 4Export shares in US market in per cent
Computers Apparel Household Recreational Homeperipherals and goods equipment entertainment and footwear and equipmentsemiconductors materials
China and HK1989 7 36 24 38 192002 24 69 67 84 53
NIEs1989 72 52 66 57 642002 42 12 22 11 17
ASEAN-41989 21 12 10 5 182002 34 20 11 6 30
IMPORTS $678 bn $411 bn $388 bn $194 bn $171 bnfrom Asia 2002
Notes NIEs includes South Korea Singapore and Taiwan ASEAN-4 includes Indonesia Malaysiathe Philippines and Thailand HK is Hong Kong This table shows the five largest industriesranked by total dollar value of US imports from these countries The industry shares of the threegroups sum to 100 for each yearSource Fernald and Loungani 2004 p 2
Holst and Weiss found similar results in their investigation of the impact ofChinarsquos export growth on the ASEAN-5 (Thailand Indonesia PhilippinesMalaysia and Singapore) over the period 1995ndash2000 They concluded thatthe ASEAN-5 suffered lsquosubstantial and widespread loss of export marketsrsquo toChina in the US and Japanese markets and that lsquothis loss tends to be greatestin the export activities in which ASEAN economies are most specializedrsquo18
In spite of these trends mainstream economists as noted above believethat Chinarsquos growth has supported a successful restructuring and upgradingof regional economic activity Lall and Albaladejo find confirmation for thisconclusion in their examination of the changing export profiles of East-Asian
18 Holst and Weiss 2004 p 1256
HIMA 143_f2_3-43 81106 313 PM Page 10
China and the Dynamics of Transnational Accumulation bull 11
19 Lall and Albaladejo 2004
countries19 Table 5 shows that while the percentage of Chinese high-technology(HT) exports rose considerably over the period 1990 to 2000 the other East-Asian countries were also able to greatly increase their own specialisation inHT products in many cases even more successfully then China For exampleSingapore raised its share of HT exports from 391 per cent to 612 per centover the same period
Table 5Composition of East-Asian manufactured exports in per cent
RB LT MT HT
China1990 143 519 269 692000 95 449 212 244
Singapore1990 278 96 234 3912000 149 65 174 612
Philippines1990 376 337 129 1582000 65 119 116 700
Malaysia1990 319 148 180 3532000 131 96 178 594
Thailand1990 242 401 151 2062000 184 215 238 363
Indonesia1990 542 326 113 192000 337 313 175 174
Korea1990 71 400 313 2162000 117 171 340 371
Taiwan1990 69 413 261 2572000 44 238 255 463
Note RB refers to resource based it includes processed foods tobacco and wood products refinedpetroleum products dyes leather precious stones and organic chemicals LT refers to low tech-nology it includes textiles garments footwear other leather products toys simple metal prod-ucts simple plastics furniture and glassware MT refers to medium technology it includes heavyindustrial goods such as automobiles industrial chemicals machinery and standard electricaland electronic products HT refers to high technology it includes complex electrical and elec-tronic products aerospace precision instruments fine chemicals and pharmaceuticalsSource Lall and Albaladejo 2004 p 1446
HIMA 143_f2_3-43 81106 313 PM Page 11
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
4 bull Martin Hart-Landsberg and Paul Burkett
1 Economist 2004 p 62 Economist 2004 p 4
transformation has greatly influenced the nature and organisation of economicactivity in other countries However we reject the mainstream understandingof the Chinese experience highlighted above and the commonly derived political conclusions To begin with we do not believe that Chinarsquos economicexperience or the resulting restructuring of other economies can be understoodin national or even inter-national terms as if Chinarsquos gains create opportunitiesfor policy makers in other countries to promote their own national restructuringin ways that benefit their respective working-class majorities Rather we seeChinarsquos post-reform economic activity and changes in production processesin other countries being linked and collectively shaped by broader transnational
capitalist dynamics in particular by the establishment and intensification oftransnational corporate-controlled cross-border production networks Andfar from benefiting working people these dynamics are increasing internationalimbalances and instabilities as well as heightening competitive pressures thatwork against the interests of workers in all the countries affected by themincluding China
In short we believe that the conventional wisdom on China presents aflawed picture of global capitalist dynamics and the tensions they generateone that leaves workers with a set of political options largely limited to passiveacceptance of their worsening conditions or a declaration of economic waragainst their counterparts in other countries especially China In contrast byfocusing on the nature and logic of the new transnational accumulationdynamics that are reshaping economic activity in China and other countriesit becomes easier to see the destructive nature of capitalism itself and theneed to build international solidarity and nationally complementary strategiesto oppose and overcome it
IThe rise of China
Since 1978 Chinarsquos GDP has grown by an average of 95 a year This isthree times the rate of the US and faster than that of any other country1 Asa result Chinarsquos GDP now accounts for 13 per cent of world output (basedon purchasing power parity) second only to the United States2 Morespecifically
HIMA 143_f2_3-43 81106 313 PM Page 4
China and the Dynamics of Transnational Accumulation bull 5
3 Lee 2004 p 14 Economist 2004 p 35 Hart-Landsberg and Burkett 2005a Chapter 26 Naughton 1996 p 117 Periodic attempts by the Ministry of Finance to unify the tax rates at the domestic
level have been defeated by the Ministry of Commerce which fears angering foreigninvestors See Huang 2005
China is the fourth largest industrial producer after the US Japan and
Germany As the leading producer in terms of output in more than 100 kinds
of manufactured goods China now makes more than 50 of the worldrsquos
cameras 30 of the worldrsquos air-conditioners and television 25 of washing
machines and 20 of refrigerators in addition to the more than 50 of the
worldrsquos toys When the Multi Fiber Agreement is phased out in 2005 Chinese
apparel will reach 46 of world total production and 20 of textile 85
of bicycles and 80 of shoes sold in the US are made in China3
Even these figures understate Chinarsquos importance to the world economy In2004 China and the United States accounted for almost half of world growthAs the Economist explains lsquoIf American consumers and Chinese producerswere to retreat at the same time global growth could slumprsquo4
Most commentators believe that Chinarsquos economic gains are largely theresult of a series of state decisions to encourage the decentralisation marketisation and privatisation of economic activity Over time and withthe support of the Chinese state this transformation has come to be drivenand the economy shaped by the activities of export-oriented transnationalcorporations5 For example the government established lsquoa programme ofexport processing under which inputs and components needed for the production of goods for export were imported duty free with a minimumof administrative interferencersquo6 Export-oriented foreign enterprises were alsogiven subsidised access to land and utilities tax holidays and preferentialtax rates (15 per cent or less compared to the 33 per cent rate for domesticcompanies)7
The growing importance of foreign investors is highlighted by Table 1which shows the rapid rise in foreign direct investment (FDI) in China beginning in the early 1990s In 2002 China became the largest recipient ofFDI in the world Significantly as Table 2 reveals China has been the onlyEast Asian country to sustain its attractiveness to foreign investors
HIMA 143_f2_3-43 81106 313 PM Page 5
6 bull Martin Hart-Landsberg and Paul Burkett
8 Hart-Landsberg and Burkett 2005a p 48
Table 1Net foreign direct investment in China billions US$
1985 101986 141987 171988 231989 261990 351991 441992 1101993 2751994 3381995 3751996 4171997 4531998 4551999 4032000 4082001 4682002 5272003 5352004 606
Source Asian Development Bank (2005)
Table 2Net foreign direct investment in East Asia billions US$
1997 1998 1999 2000 2001 2002 2003 2004
Korea ndash16 07 51 43 11 ndash02 01 34Singapore 11 46 85 12 ndash76 17 56 54Thailand 33 74 57 34 35 08 15 07Malaysia 56 22 25 18 03 13 11 26Indonesia 47 ndash02 ndash19 ndash46 ndash30 01 ndash06 10Philippines 18 14 11 17 02 06
Source Asian Development Bank (2005)
As a result of their ongoing investments foreign producers are coming to dominate the Chinese economy For example the share of foreign manufacturing affiliates in Chinarsquos total manufacturing sales has grown from 23 per cent in 1990 to 313 per cent in 20008 Foreign firms are alsoincreasingly coming to dominate Chinarsquos export activity The percentage of
HIMA 143_f2_3-43 81106 313 PM Page 6
China and the Dynamics of Transnational Accumulation bull 7
9 Hart-Landsberg and Burkett 2005a p 125 Gilboy 200410 Roach 200311 Hart-Landsberg and Burkett 2005a p 121 Roach 200512 Peoplersquos Daily Online 2005b13 For detailed discussion of the mainstream optimism on China with references
to the academic literature see Burkett and Hart-Landsberg 2000 pp 31ndash6 and Hart-Landsberg and Burkett 2005a Chapter 4 The Economistrsquos (2004) special report combinesthe different elements of the mainstream consensus in compact and highly readablefashion
exports produced by these firms grew from 174 per cent in 1990 to 55 percent in 20039 According to Stephen Roach Chief Economist and Director ofGlobal Economic Analysis for Morgan Stanley lsquoChinese subsidiaries of global multinationals and joint ventures with businesses from the industrializedworldrsquo accounted for lsquofully 65 per cent of the total increase in Chinese exportsrsquoover the period 1994 to mid-200310 As a consequence of these trends theratio of exports to GDP has also climbed steadily from 16 per cent in 1990to 36 per cent in 200311 Thus Chinarsquos economic growth has become increasinglydependent on the export activity of these transnational corporations In factaccording to Chinarsquos State Information Centre net exports will account formore than 35 per cent of the countryrsquos economic growth in 2005 significantlyhigher than in previous years12
II China and the world economy the virtuous growth spiral
In contrast to the many working people and companies in other countriesthat view Chinarsquos foreign-supported export offensive as a threat to their economic survival mainstream analysts typically see China as a new growthcentre capable of supporting a restructured international economy withbenefits for people in both rich and poor countries13 Among the most importantreasons for their confidence are Chinarsquos close integration with global marketsand its abundant supply of cheap labour As the Economist explains
First for such a big economy [China] is unusually open to trade and
investment This year the sum of exports and imports of goods and services
is likely to reach 75 percent of Chinarsquos GDP far more than in other big
countries in America Japan India and Brazil the figure is 30 percent or
less At its peak Japanrsquos trade reached only 32 percent of its GDP Similarly
the stock of total investment in China by foreign firms is equivalent to 36
percent of its GDP compared with 2 percent in Japan
The second feature is that Chinese manufacturers have access to an almost
unlimited supply of cheap labour By some estimates there are almost 200
HIMA 143_f2_3-43 81106 313 PM Page 7
8 bull Martin Hart-Landsberg and Paul Burkett
14 Economist 2004 p 915 Economist 2004 p 1016 Fernald and Loungani 2004 p 217 Ibid
million underemployed workers in rural areas that could move into industry
This surplus labour may take at least two decades to absorb helping to
hold down wages for low-skilled workers (who currently earn less than 50
cents an hour) Japan and South Korea in contrast absorbed their rural
labour much more quickly14
In other words Chinarsquos cheap labour and massive size should enable it tokeep attracting foreign investment and to produce exports at low cost Howeverbecause Chinarsquos foreign production is heavily import-dependent the resultinggrowth will generate a substantial demand for goods and services producedin other countries Therefore those governments that allow market forces torestructure their respective national economies in line with Chinarsquos activitieswill be rewarded with new higher value-added investment and employmentopportunities for their populations15 Mainstream economists generally believethat the experience of other East-Asian countries provides powerful empiricalsupport for this positive view of Chinarsquos growth They find the East-Asianexperience especially relevant because the countries in the region have alsorelied on foreign-produced exports to drive their growth
Table 3 highlights one important way in which Chinarsquos transformation hasinfluenced East-Asian economic activity It shows that China has shifted itsexports of manufactures away from East Asia (minus Japan) and toward thetwo most important international markets those of the US and the EuropeanUnion (EU) And in response most of the other countries in the region haveredirected their exports away from those markets Fernald and Lounganiexamined Chinarsquos competitive strength in the US market by dividing themajor East-Asian developing countries into three groups China (China and Hong Kong) the NIEs (South Korea Singapore and Taiwan) and theASEAN-4 (Indonesia Malaysia Philippines and Thailand) They found thatthe China grouprsquos share of the total exports of the three groups to the UnitedStates rose from approximately one-fourth in 1989 to one-half in 200216
A more detailed industry level examination of this competition is evenmore revealing highlighting the fact that lsquoChina has emerged as a significantexporter across virtually the entire spectrum of industriesrsquo17 This trend isillustrated in Table 4 which shows changing export shares for the three groups
HIMA 143_f2_3-43 81106 313 PM Page 8
China and the Dynamics of Transnational Accumulation bull 9
Table 3Direction of exports of manufactures per cent of national total
Destination Total Exports billions $US
Exporting Country Japan USA EU EAS-Japan
China1992 91 111 95 579 6551996 178 202 140 342 12362000 151 229 167 299 2155
Malaysia1992 77 271 180 395 2591996 111 23 151 427 5872000 113 245 151 398 783
Thailand1992 140 264 213 237 2151996 157 196 196 325 3842000 139 229 177 327 509
Singapore1992 55 264 190 350 4811996 77 217 148 450 10342000 75 197 146 473 1171
Indonesia1992 127 179 219 318 1581996 159 184 193 307 2522000 132 192 185 324 347
Philippines1992 131 655 48 121 581996 161 371 174 247 1692000 137 311 183 327 348
Korea1992 117 259 143 239 6631996 92 190 136 326 10972000 90 239 153 315 1483
Taiwan1992 105 471 73 265 5291996 92 149 149 394 11482000 102 264 183 371 1597
Japan1992 293 208 311 31281996 286 162 407 37472000 312 171 382 4351
Note EAS-Japan includes all the countries listed above minus Japan plus Hong Kong andVietnamSource Athukorala 2003 Table A-1 pp 40ndash1
HIMA 143_f2_3-43 81106 313 PM Page 9
10 bull Martin Hart-Landsberg and Paul Burkett
in the five largest industries ranked according to the dollar value of US importsfrom the three groups For example while the China group accounted for only 7 per cent of the total exports in computers peripherals and semiconductors in 1989 their share rose to 24 per cent by 2002 with theexport share of the NIEs falling from 72 to 42 per cent over the same period
Table 4Export shares in US market in per cent
Computers Apparel Household Recreational Homeperipherals and goods equipment entertainment and footwear and equipmentsemiconductors materials
China and HK1989 7 36 24 38 192002 24 69 67 84 53
NIEs1989 72 52 66 57 642002 42 12 22 11 17
ASEAN-41989 21 12 10 5 182002 34 20 11 6 30
IMPORTS $678 bn $411 bn $388 bn $194 bn $171 bnfrom Asia 2002
Notes NIEs includes South Korea Singapore and Taiwan ASEAN-4 includes Indonesia Malaysiathe Philippines and Thailand HK is Hong Kong This table shows the five largest industriesranked by total dollar value of US imports from these countries The industry shares of the threegroups sum to 100 for each yearSource Fernald and Loungani 2004 p 2
Holst and Weiss found similar results in their investigation of the impact ofChinarsquos export growth on the ASEAN-5 (Thailand Indonesia PhilippinesMalaysia and Singapore) over the period 1995ndash2000 They concluded thatthe ASEAN-5 suffered lsquosubstantial and widespread loss of export marketsrsquo toChina in the US and Japanese markets and that lsquothis loss tends to be greatestin the export activities in which ASEAN economies are most specializedrsquo18
In spite of these trends mainstream economists as noted above believethat Chinarsquos growth has supported a successful restructuring and upgradingof regional economic activity Lall and Albaladejo find confirmation for thisconclusion in their examination of the changing export profiles of East-Asian
18 Holst and Weiss 2004 p 1256
HIMA 143_f2_3-43 81106 313 PM Page 10
China and the Dynamics of Transnational Accumulation bull 11
19 Lall and Albaladejo 2004
countries19 Table 5 shows that while the percentage of Chinese high-technology(HT) exports rose considerably over the period 1990 to 2000 the other East-Asian countries were also able to greatly increase their own specialisation inHT products in many cases even more successfully then China For exampleSingapore raised its share of HT exports from 391 per cent to 612 per centover the same period
Table 5Composition of East-Asian manufactured exports in per cent
RB LT MT HT
China1990 143 519 269 692000 95 449 212 244
Singapore1990 278 96 234 3912000 149 65 174 612
Philippines1990 376 337 129 1582000 65 119 116 700
Malaysia1990 319 148 180 3532000 131 96 178 594
Thailand1990 242 401 151 2062000 184 215 238 363
Indonesia1990 542 326 113 192000 337 313 175 174
Korea1990 71 400 313 2162000 117 171 340 371
Taiwan1990 69 413 261 2572000 44 238 255 463
Note RB refers to resource based it includes processed foods tobacco and wood products refinedpetroleum products dyes leather precious stones and organic chemicals LT refers to low tech-nology it includes textiles garments footwear other leather products toys simple metal prod-ucts simple plastics furniture and glassware MT refers to medium technology it includes heavyindustrial goods such as automobiles industrial chemicals machinery and standard electricaland electronic products HT refers to high technology it includes complex electrical and elec-tronic products aerospace precision instruments fine chemicals and pharmaceuticalsSource Lall and Albaladejo 2004 p 1446
HIMA 143_f2_3-43 81106 313 PM Page 11
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 5
3 Lee 2004 p 14 Economist 2004 p 35 Hart-Landsberg and Burkett 2005a Chapter 26 Naughton 1996 p 117 Periodic attempts by the Ministry of Finance to unify the tax rates at the domestic
level have been defeated by the Ministry of Commerce which fears angering foreigninvestors See Huang 2005
China is the fourth largest industrial producer after the US Japan and
Germany As the leading producer in terms of output in more than 100 kinds
of manufactured goods China now makes more than 50 of the worldrsquos
cameras 30 of the worldrsquos air-conditioners and television 25 of washing
machines and 20 of refrigerators in addition to the more than 50 of the
worldrsquos toys When the Multi Fiber Agreement is phased out in 2005 Chinese
apparel will reach 46 of world total production and 20 of textile 85
of bicycles and 80 of shoes sold in the US are made in China3
Even these figures understate Chinarsquos importance to the world economy In2004 China and the United States accounted for almost half of world growthAs the Economist explains lsquoIf American consumers and Chinese producerswere to retreat at the same time global growth could slumprsquo4
Most commentators believe that Chinarsquos economic gains are largely theresult of a series of state decisions to encourage the decentralisation marketisation and privatisation of economic activity Over time and withthe support of the Chinese state this transformation has come to be drivenand the economy shaped by the activities of export-oriented transnationalcorporations5 For example the government established lsquoa programme ofexport processing under which inputs and components needed for the production of goods for export were imported duty free with a minimumof administrative interferencersquo6 Export-oriented foreign enterprises were alsogiven subsidised access to land and utilities tax holidays and preferentialtax rates (15 per cent or less compared to the 33 per cent rate for domesticcompanies)7
The growing importance of foreign investors is highlighted by Table 1which shows the rapid rise in foreign direct investment (FDI) in China beginning in the early 1990s In 2002 China became the largest recipient ofFDI in the world Significantly as Table 2 reveals China has been the onlyEast Asian country to sustain its attractiveness to foreign investors
HIMA 143_f2_3-43 81106 313 PM Page 5
6 bull Martin Hart-Landsberg and Paul Burkett
8 Hart-Landsberg and Burkett 2005a p 48
Table 1Net foreign direct investment in China billions US$
1985 101986 141987 171988 231989 261990 351991 441992 1101993 2751994 3381995 3751996 4171997 4531998 4551999 4032000 4082001 4682002 5272003 5352004 606
Source Asian Development Bank (2005)
Table 2Net foreign direct investment in East Asia billions US$
1997 1998 1999 2000 2001 2002 2003 2004
Korea ndash16 07 51 43 11 ndash02 01 34Singapore 11 46 85 12 ndash76 17 56 54Thailand 33 74 57 34 35 08 15 07Malaysia 56 22 25 18 03 13 11 26Indonesia 47 ndash02 ndash19 ndash46 ndash30 01 ndash06 10Philippines 18 14 11 17 02 06
Source Asian Development Bank (2005)
As a result of their ongoing investments foreign producers are coming to dominate the Chinese economy For example the share of foreign manufacturing affiliates in Chinarsquos total manufacturing sales has grown from 23 per cent in 1990 to 313 per cent in 20008 Foreign firms are alsoincreasingly coming to dominate Chinarsquos export activity The percentage of
HIMA 143_f2_3-43 81106 313 PM Page 6
China and the Dynamics of Transnational Accumulation bull 7
9 Hart-Landsberg and Burkett 2005a p 125 Gilboy 200410 Roach 200311 Hart-Landsberg and Burkett 2005a p 121 Roach 200512 Peoplersquos Daily Online 2005b13 For detailed discussion of the mainstream optimism on China with references
to the academic literature see Burkett and Hart-Landsberg 2000 pp 31ndash6 and Hart-Landsberg and Burkett 2005a Chapter 4 The Economistrsquos (2004) special report combinesthe different elements of the mainstream consensus in compact and highly readablefashion
exports produced by these firms grew from 174 per cent in 1990 to 55 percent in 20039 According to Stephen Roach Chief Economist and Director ofGlobal Economic Analysis for Morgan Stanley lsquoChinese subsidiaries of global multinationals and joint ventures with businesses from the industrializedworldrsquo accounted for lsquofully 65 per cent of the total increase in Chinese exportsrsquoover the period 1994 to mid-200310 As a consequence of these trends theratio of exports to GDP has also climbed steadily from 16 per cent in 1990to 36 per cent in 200311 Thus Chinarsquos economic growth has become increasinglydependent on the export activity of these transnational corporations In factaccording to Chinarsquos State Information Centre net exports will account formore than 35 per cent of the countryrsquos economic growth in 2005 significantlyhigher than in previous years12
II China and the world economy the virtuous growth spiral
In contrast to the many working people and companies in other countriesthat view Chinarsquos foreign-supported export offensive as a threat to their economic survival mainstream analysts typically see China as a new growthcentre capable of supporting a restructured international economy withbenefits for people in both rich and poor countries13 Among the most importantreasons for their confidence are Chinarsquos close integration with global marketsand its abundant supply of cheap labour As the Economist explains
First for such a big economy [China] is unusually open to trade and
investment This year the sum of exports and imports of goods and services
is likely to reach 75 percent of Chinarsquos GDP far more than in other big
countries in America Japan India and Brazil the figure is 30 percent or
less At its peak Japanrsquos trade reached only 32 percent of its GDP Similarly
the stock of total investment in China by foreign firms is equivalent to 36
percent of its GDP compared with 2 percent in Japan
The second feature is that Chinese manufacturers have access to an almost
unlimited supply of cheap labour By some estimates there are almost 200
HIMA 143_f2_3-43 81106 313 PM Page 7
8 bull Martin Hart-Landsberg and Paul Burkett
14 Economist 2004 p 915 Economist 2004 p 1016 Fernald and Loungani 2004 p 217 Ibid
million underemployed workers in rural areas that could move into industry
This surplus labour may take at least two decades to absorb helping to
hold down wages for low-skilled workers (who currently earn less than 50
cents an hour) Japan and South Korea in contrast absorbed their rural
labour much more quickly14
In other words Chinarsquos cheap labour and massive size should enable it tokeep attracting foreign investment and to produce exports at low cost Howeverbecause Chinarsquos foreign production is heavily import-dependent the resultinggrowth will generate a substantial demand for goods and services producedin other countries Therefore those governments that allow market forces torestructure their respective national economies in line with Chinarsquos activitieswill be rewarded with new higher value-added investment and employmentopportunities for their populations15 Mainstream economists generally believethat the experience of other East-Asian countries provides powerful empiricalsupport for this positive view of Chinarsquos growth They find the East-Asianexperience especially relevant because the countries in the region have alsorelied on foreign-produced exports to drive their growth
Table 3 highlights one important way in which Chinarsquos transformation hasinfluenced East-Asian economic activity It shows that China has shifted itsexports of manufactures away from East Asia (minus Japan) and toward thetwo most important international markets those of the US and the EuropeanUnion (EU) And in response most of the other countries in the region haveredirected their exports away from those markets Fernald and Lounganiexamined Chinarsquos competitive strength in the US market by dividing themajor East-Asian developing countries into three groups China (China and Hong Kong) the NIEs (South Korea Singapore and Taiwan) and theASEAN-4 (Indonesia Malaysia Philippines and Thailand) They found thatthe China grouprsquos share of the total exports of the three groups to the UnitedStates rose from approximately one-fourth in 1989 to one-half in 200216
A more detailed industry level examination of this competition is evenmore revealing highlighting the fact that lsquoChina has emerged as a significantexporter across virtually the entire spectrum of industriesrsquo17 This trend isillustrated in Table 4 which shows changing export shares for the three groups
HIMA 143_f2_3-43 81106 313 PM Page 8
China and the Dynamics of Transnational Accumulation bull 9
Table 3Direction of exports of manufactures per cent of national total
Destination Total Exports billions $US
Exporting Country Japan USA EU EAS-Japan
China1992 91 111 95 579 6551996 178 202 140 342 12362000 151 229 167 299 2155
Malaysia1992 77 271 180 395 2591996 111 23 151 427 5872000 113 245 151 398 783
Thailand1992 140 264 213 237 2151996 157 196 196 325 3842000 139 229 177 327 509
Singapore1992 55 264 190 350 4811996 77 217 148 450 10342000 75 197 146 473 1171
Indonesia1992 127 179 219 318 1581996 159 184 193 307 2522000 132 192 185 324 347
Philippines1992 131 655 48 121 581996 161 371 174 247 1692000 137 311 183 327 348
Korea1992 117 259 143 239 6631996 92 190 136 326 10972000 90 239 153 315 1483
Taiwan1992 105 471 73 265 5291996 92 149 149 394 11482000 102 264 183 371 1597
Japan1992 293 208 311 31281996 286 162 407 37472000 312 171 382 4351
Note EAS-Japan includes all the countries listed above minus Japan plus Hong Kong andVietnamSource Athukorala 2003 Table A-1 pp 40ndash1
HIMA 143_f2_3-43 81106 313 PM Page 9
10 bull Martin Hart-Landsberg and Paul Burkett
in the five largest industries ranked according to the dollar value of US importsfrom the three groups For example while the China group accounted for only 7 per cent of the total exports in computers peripherals and semiconductors in 1989 their share rose to 24 per cent by 2002 with theexport share of the NIEs falling from 72 to 42 per cent over the same period
Table 4Export shares in US market in per cent
Computers Apparel Household Recreational Homeperipherals and goods equipment entertainment and footwear and equipmentsemiconductors materials
China and HK1989 7 36 24 38 192002 24 69 67 84 53
NIEs1989 72 52 66 57 642002 42 12 22 11 17
ASEAN-41989 21 12 10 5 182002 34 20 11 6 30
IMPORTS $678 bn $411 bn $388 bn $194 bn $171 bnfrom Asia 2002
Notes NIEs includes South Korea Singapore and Taiwan ASEAN-4 includes Indonesia Malaysiathe Philippines and Thailand HK is Hong Kong This table shows the five largest industriesranked by total dollar value of US imports from these countries The industry shares of the threegroups sum to 100 for each yearSource Fernald and Loungani 2004 p 2
Holst and Weiss found similar results in their investigation of the impact ofChinarsquos export growth on the ASEAN-5 (Thailand Indonesia PhilippinesMalaysia and Singapore) over the period 1995ndash2000 They concluded thatthe ASEAN-5 suffered lsquosubstantial and widespread loss of export marketsrsquo toChina in the US and Japanese markets and that lsquothis loss tends to be greatestin the export activities in which ASEAN economies are most specializedrsquo18
In spite of these trends mainstream economists as noted above believethat Chinarsquos growth has supported a successful restructuring and upgradingof regional economic activity Lall and Albaladejo find confirmation for thisconclusion in their examination of the changing export profiles of East-Asian
18 Holst and Weiss 2004 p 1256
HIMA 143_f2_3-43 81106 313 PM Page 10
China and the Dynamics of Transnational Accumulation bull 11
19 Lall and Albaladejo 2004
countries19 Table 5 shows that while the percentage of Chinese high-technology(HT) exports rose considerably over the period 1990 to 2000 the other East-Asian countries were also able to greatly increase their own specialisation inHT products in many cases even more successfully then China For exampleSingapore raised its share of HT exports from 391 per cent to 612 per centover the same period
Table 5Composition of East-Asian manufactured exports in per cent
RB LT MT HT
China1990 143 519 269 692000 95 449 212 244
Singapore1990 278 96 234 3912000 149 65 174 612
Philippines1990 376 337 129 1582000 65 119 116 700
Malaysia1990 319 148 180 3532000 131 96 178 594
Thailand1990 242 401 151 2062000 184 215 238 363
Indonesia1990 542 326 113 192000 337 313 175 174
Korea1990 71 400 313 2162000 117 171 340 371
Taiwan1990 69 413 261 2572000 44 238 255 463
Note RB refers to resource based it includes processed foods tobacco and wood products refinedpetroleum products dyes leather precious stones and organic chemicals LT refers to low tech-nology it includes textiles garments footwear other leather products toys simple metal prod-ucts simple plastics furniture and glassware MT refers to medium technology it includes heavyindustrial goods such as automobiles industrial chemicals machinery and standard electricaland electronic products HT refers to high technology it includes complex electrical and elec-tronic products aerospace precision instruments fine chemicals and pharmaceuticalsSource Lall and Albaladejo 2004 p 1446
HIMA 143_f2_3-43 81106 313 PM Page 11
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
6 bull Martin Hart-Landsberg and Paul Burkett
8 Hart-Landsberg and Burkett 2005a p 48
Table 1Net foreign direct investment in China billions US$
1985 101986 141987 171988 231989 261990 351991 441992 1101993 2751994 3381995 3751996 4171997 4531998 4551999 4032000 4082001 4682002 5272003 5352004 606
Source Asian Development Bank (2005)
Table 2Net foreign direct investment in East Asia billions US$
1997 1998 1999 2000 2001 2002 2003 2004
Korea ndash16 07 51 43 11 ndash02 01 34Singapore 11 46 85 12 ndash76 17 56 54Thailand 33 74 57 34 35 08 15 07Malaysia 56 22 25 18 03 13 11 26Indonesia 47 ndash02 ndash19 ndash46 ndash30 01 ndash06 10Philippines 18 14 11 17 02 06
Source Asian Development Bank (2005)
As a result of their ongoing investments foreign producers are coming to dominate the Chinese economy For example the share of foreign manufacturing affiliates in Chinarsquos total manufacturing sales has grown from 23 per cent in 1990 to 313 per cent in 20008 Foreign firms are alsoincreasingly coming to dominate Chinarsquos export activity The percentage of
HIMA 143_f2_3-43 81106 313 PM Page 6
China and the Dynamics of Transnational Accumulation bull 7
9 Hart-Landsberg and Burkett 2005a p 125 Gilboy 200410 Roach 200311 Hart-Landsberg and Burkett 2005a p 121 Roach 200512 Peoplersquos Daily Online 2005b13 For detailed discussion of the mainstream optimism on China with references
to the academic literature see Burkett and Hart-Landsberg 2000 pp 31ndash6 and Hart-Landsberg and Burkett 2005a Chapter 4 The Economistrsquos (2004) special report combinesthe different elements of the mainstream consensus in compact and highly readablefashion
exports produced by these firms grew from 174 per cent in 1990 to 55 percent in 20039 According to Stephen Roach Chief Economist and Director ofGlobal Economic Analysis for Morgan Stanley lsquoChinese subsidiaries of global multinationals and joint ventures with businesses from the industrializedworldrsquo accounted for lsquofully 65 per cent of the total increase in Chinese exportsrsquoover the period 1994 to mid-200310 As a consequence of these trends theratio of exports to GDP has also climbed steadily from 16 per cent in 1990to 36 per cent in 200311 Thus Chinarsquos economic growth has become increasinglydependent on the export activity of these transnational corporations In factaccording to Chinarsquos State Information Centre net exports will account formore than 35 per cent of the countryrsquos economic growth in 2005 significantlyhigher than in previous years12
II China and the world economy the virtuous growth spiral
In contrast to the many working people and companies in other countriesthat view Chinarsquos foreign-supported export offensive as a threat to their economic survival mainstream analysts typically see China as a new growthcentre capable of supporting a restructured international economy withbenefits for people in both rich and poor countries13 Among the most importantreasons for their confidence are Chinarsquos close integration with global marketsand its abundant supply of cheap labour As the Economist explains
First for such a big economy [China] is unusually open to trade and
investment This year the sum of exports and imports of goods and services
is likely to reach 75 percent of Chinarsquos GDP far more than in other big
countries in America Japan India and Brazil the figure is 30 percent or
less At its peak Japanrsquos trade reached only 32 percent of its GDP Similarly
the stock of total investment in China by foreign firms is equivalent to 36
percent of its GDP compared with 2 percent in Japan
The second feature is that Chinese manufacturers have access to an almost
unlimited supply of cheap labour By some estimates there are almost 200
HIMA 143_f2_3-43 81106 313 PM Page 7
8 bull Martin Hart-Landsberg and Paul Burkett
14 Economist 2004 p 915 Economist 2004 p 1016 Fernald and Loungani 2004 p 217 Ibid
million underemployed workers in rural areas that could move into industry
This surplus labour may take at least two decades to absorb helping to
hold down wages for low-skilled workers (who currently earn less than 50
cents an hour) Japan and South Korea in contrast absorbed their rural
labour much more quickly14
In other words Chinarsquos cheap labour and massive size should enable it tokeep attracting foreign investment and to produce exports at low cost Howeverbecause Chinarsquos foreign production is heavily import-dependent the resultinggrowth will generate a substantial demand for goods and services producedin other countries Therefore those governments that allow market forces torestructure their respective national economies in line with Chinarsquos activitieswill be rewarded with new higher value-added investment and employmentopportunities for their populations15 Mainstream economists generally believethat the experience of other East-Asian countries provides powerful empiricalsupport for this positive view of Chinarsquos growth They find the East-Asianexperience especially relevant because the countries in the region have alsorelied on foreign-produced exports to drive their growth
Table 3 highlights one important way in which Chinarsquos transformation hasinfluenced East-Asian economic activity It shows that China has shifted itsexports of manufactures away from East Asia (minus Japan) and toward thetwo most important international markets those of the US and the EuropeanUnion (EU) And in response most of the other countries in the region haveredirected their exports away from those markets Fernald and Lounganiexamined Chinarsquos competitive strength in the US market by dividing themajor East-Asian developing countries into three groups China (China and Hong Kong) the NIEs (South Korea Singapore and Taiwan) and theASEAN-4 (Indonesia Malaysia Philippines and Thailand) They found thatthe China grouprsquos share of the total exports of the three groups to the UnitedStates rose from approximately one-fourth in 1989 to one-half in 200216
A more detailed industry level examination of this competition is evenmore revealing highlighting the fact that lsquoChina has emerged as a significantexporter across virtually the entire spectrum of industriesrsquo17 This trend isillustrated in Table 4 which shows changing export shares for the three groups
HIMA 143_f2_3-43 81106 313 PM Page 8
China and the Dynamics of Transnational Accumulation bull 9
Table 3Direction of exports of manufactures per cent of national total
Destination Total Exports billions $US
Exporting Country Japan USA EU EAS-Japan
China1992 91 111 95 579 6551996 178 202 140 342 12362000 151 229 167 299 2155
Malaysia1992 77 271 180 395 2591996 111 23 151 427 5872000 113 245 151 398 783
Thailand1992 140 264 213 237 2151996 157 196 196 325 3842000 139 229 177 327 509
Singapore1992 55 264 190 350 4811996 77 217 148 450 10342000 75 197 146 473 1171
Indonesia1992 127 179 219 318 1581996 159 184 193 307 2522000 132 192 185 324 347
Philippines1992 131 655 48 121 581996 161 371 174 247 1692000 137 311 183 327 348
Korea1992 117 259 143 239 6631996 92 190 136 326 10972000 90 239 153 315 1483
Taiwan1992 105 471 73 265 5291996 92 149 149 394 11482000 102 264 183 371 1597
Japan1992 293 208 311 31281996 286 162 407 37472000 312 171 382 4351
Note EAS-Japan includes all the countries listed above minus Japan plus Hong Kong andVietnamSource Athukorala 2003 Table A-1 pp 40ndash1
HIMA 143_f2_3-43 81106 313 PM Page 9
10 bull Martin Hart-Landsberg and Paul Burkett
in the five largest industries ranked according to the dollar value of US importsfrom the three groups For example while the China group accounted for only 7 per cent of the total exports in computers peripherals and semiconductors in 1989 their share rose to 24 per cent by 2002 with theexport share of the NIEs falling from 72 to 42 per cent over the same period
Table 4Export shares in US market in per cent
Computers Apparel Household Recreational Homeperipherals and goods equipment entertainment and footwear and equipmentsemiconductors materials
China and HK1989 7 36 24 38 192002 24 69 67 84 53
NIEs1989 72 52 66 57 642002 42 12 22 11 17
ASEAN-41989 21 12 10 5 182002 34 20 11 6 30
IMPORTS $678 bn $411 bn $388 bn $194 bn $171 bnfrom Asia 2002
Notes NIEs includes South Korea Singapore and Taiwan ASEAN-4 includes Indonesia Malaysiathe Philippines and Thailand HK is Hong Kong This table shows the five largest industriesranked by total dollar value of US imports from these countries The industry shares of the threegroups sum to 100 for each yearSource Fernald and Loungani 2004 p 2
Holst and Weiss found similar results in their investigation of the impact ofChinarsquos export growth on the ASEAN-5 (Thailand Indonesia PhilippinesMalaysia and Singapore) over the period 1995ndash2000 They concluded thatthe ASEAN-5 suffered lsquosubstantial and widespread loss of export marketsrsquo toChina in the US and Japanese markets and that lsquothis loss tends to be greatestin the export activities in which ASEAN economies are most specializedrsquo18
In spite of these trends mainstream economists as noted above believethat Chinarsquos growth has supported a successful restructuring and upgradingof regional economic activity Lall and Albaladejo find confirmation for thisconclusion in their examination of the changing export profiles of East-Asian
18 Holst and Weiss 2004 p 1256
HIMA 143_f2_3-43 81106 313 PM Page 10
China and the Dynamics of Transnational Accumulation bull 11
19 Lall and Albaladejo 2004
countries19 Table 5 shows that while the percentage of Chinese high-technology(HT) exports rose considerably over the period 1990 to 2000 the other East-Asian countries were also able to greatly increase their own specialisation inHT products in many cases even more successfully then China For exampleSingapore raised its share of HT exports from 391 per cent to 612 per centover the same period
Table 5Composition of East-Asian manufactured exports in per cent
RB LT MT HT
China1990 143 519 269 692000 95 449 212 244
Singapore1990 278 96 234 3912000 149 65 174 612
Philippines1990 376 337 129 1582000 65 119 116 700
Malaysia1990 319 148 180 3532000 131 96 178 594
Thailand1990 242 401 151 2062000 184 215 238 363
Indonesia1990 542 326 113 192000 337 313 175 174
Korea1990 71 400 313 2162000 117 171 340 371
Taiwan1990 69 413 261 2572000 44 238 255 463
Note RB refers to resource based it includes processed foods tobacco and wood products refinedpetroleum products dyes leather precious stones and organic chemicals LT refers to low tech-nology it includes textiles garments footwear other leather products toys simple metal prod-ucts simple plastics furniture and glassware MT refers to medium technology it includes heavyindustrial goods such as automobiles industrial chemicals machinery and standard electricaland electronic products HT refers to high technology it includes complex electrical and elec-tronic products aerospace precision instruments fine chemicals and pharmaceuticalsSource Lall and Albaladejo 2004 p 1446
HIMA 143_f2_3-43 81106 313 PM Page 11
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 7
9 Hart-Landsberg and Burkett 2005a p 125 Gilboy 200410 Roach 200311 Hart-Landsberg and Burkett 2005a p 121 Roach 200512 Peoplersquos Daily Online 2005b13 For detailed discussion of the mainstream optimism on China with references
to the academic literature see Burkett and Hart-Landsberg 2000 pp 31ndash6 and Hart-Landsberg and Burkett 2005a Chapter 4 The Economistrsquos (2004) special report combinesthe different elements of the mainstream consensus in compact and highly readablefashion
exports produced by these firms grew from 174 per cent in 1990 to 55 percent in 20039 According to Stephen Roach Chief Economist and Director ofGlobal Economic Analysis for Morgan Stanley lsquoChinese subsidiaries of global multinationals and joint ventures with businesses from the industrializedworldrsquo accounted for lsquofully 65 per cent of the total increase in Chinese exportsrsquoover the period 1994 to mid-200310 As a consequence of these trends theratio of exports to GDP has also climbed steadily from 16 per cent in 1990to 36 per cent in 200311 Thus Chinarsquos economic growth has become increasinglydependent on the export activity of these transnational corporations In factaccording to Chinarsquos State Information Centre net exports will account formore than 35 per cent of the countryrsquos economic growth in 2005 significantlyhigher than in previous years12
II China and the world economy the virtuous growth spiral
In contrast to the many working people and companies in other countriesthat view Chinarsquos foreign-supported export offensive as a threat to their economic survival mainstream analysts typically see China as a new growthcentre capable of supporting a restructured international economy withbenefits for people in both rich and poor countries13 Among the most importantreasons for their confidence are Chinarsquos close integration with global marketsand its abundant supply of cheap labour As the Economist explains
First for such a big economy [China] is unusually open to trade and
investment This year the sum of exports and imports of goods and services
is likely to reach 75 percent of Chinarsquos GDP far more than in other big
countries in America Japan India and Brazil the figure is 30 percent or
less At its peak Japanrsquos trade reached only 32 percent of its GDP Similarly
the stock of total investment in China by foreign firms is equivalent to 36
percent of its GDP compared with 2 percent in Japan
The second feature is that Chinese manufacturers have access to an almost
unlimited supply of cheap labour By some estimates there are almost 200
HIMA 143_f2_3-43 81106 313 PM Page 7
8 bull Martin Hart-Landsberg and Paul Burkett
14 Economist 2004 p 915 Economist 2004 p 1016 Fernald and Loungani 2004 p 217 Ibid
million underemployed workers in rural areas that could move into industry
This surplus labour may take at least two decades to absorb helping to
hold down wages for low-skilled workers (who currently earn less than 50
cents an hour) Japan and South Korea in contrast absorbed their rural
labour much more quickly14
In other words Chinarsquos cheap labour and massive size should enable it tokeep attracting foreign investment and to produce exports at low cost Howeverbecause Chinarsquos foreign production is heavily import-dependent the resultinggrowth will generate a substantial demand for goods and services producedin other countries Therefore those governments that allow market forces torestructure their respective national economies in line with Chinarsquos activitieswill be rewarded with new higher value-added investment and employmentopportunities for their populations15 Mainstream economists generally believethat the experience of other East-Asian countries provides powerful empiricalsupport for this positive view of Chinarsquos growth They find the East-Asianexperience especially relevant because the countries in the region have alsorelied on foreign-produced exports to drive their growth
Table 3 highlights one important way in which Chinarsquos transformation hasinfluenced East-Asian economic activity It shows that China has shifted itsexports of manufactures away from East Asia (minus Japan) and toward thetwo most important international markets those of the US and the EuropeanUnion (EU) And in response most of the other countries in the region haveredirected their exports away from those markets Fernald and Lounganiexamined Chinarsquos competitive strength in the US market by dividing themajor East-Asian developing countries into three groups China (China and Hong Kong) the NIEs (South Korea Singapore and Taiwan) and theASEAN-4 (Indonesia Malaysia Philippines and Thailand) They found thatthe China grouprsquos share of the total exports of the three groups to the UnitedStates rose from approximately one-fourth in 1989 to one-half in 200216
A more detailed industry level examination of this competition is evenmore revealing highlighting the fact that lsquoChina has emerged as a significantexporter across virtually the entire spectrum of industriesrsquo17 This trend isillustrated in Table 4 which shows changing export shares for the three groups
HIMA 143_f2_3-43 81106 313 PM Page 8
China and the Dynamics of Transnational Accumulation bull 9
Table 3Direction of exports of manufactures per cent of national total
Destination Total Exports billions $US
Exporting Country Japan USA EU EAS-Japan
China1992 91 111 95 579 6551996 178 202 140 342 12362000 151 229 167 299 2155
Malaysia1992 77 271 180 395 2591996 111 23 151 427 5872000 113 245 151 398 783
Thailand1992 140 264 213 237 2151996 157 196 196 325 3842000 139 229 177 327 509
Singapore1992 55 264 190 350 4811996 77 217 148 450 10342000 75 197 146 473 1171
Indonesia1992 127 179 219 318 1581996 159 184 193 307 2522000 132 192 185 324 347
Philippines1992 131 655 48 121 581996 161 371 174 247 1692000 137 311 183 327 348
Korea1992 117 259 143 239 6631996 92 190 136 326 10972000 90 239 153 315 1483
Taiwan1992 105 471 73 265 5291996 92 149 149 394 11482000 102 264 183 371 1597
Japan1992 293 208 311 31281996 286 162 407 37472000 312 171 382 4351
Note EAS-Japan includes all the countries listed above minus Japan plus Hong Kong andVietnamSource Athukorala 2003 Table A-1 pp 40ndash1
HIMA 143_f2_3-43 81106 313 PM Page 9
10 bull Martin Hart-Landsberg and Paul Burkett
in the five largest industries ranked according to the dollar value of US importsfrom the three groups For example while the China group accounted for only 7 per cent of the total exports in computers peripherals and semiconductors in 1989 their share rose to 24 per cent by 2002 with theexport share of the NIEs falling from 72 to 42 per cent over the same period
Table 4Export shares in US market in per cent
Computers Apparel Household Recreational Homeperipherals and goods equipment entertainment and footwear and equipmentsemiconductors materials
China and HK1989 7 36 24 38 192002 24 69 67 84 53
NIEs1989 72 52 66 57 642002 42 12 22 11 17
ASEAN-41989 21 12 10 5 182002 34 20 11 6 30
IMPORTS $678 bn $411 bn $388 bn $194 bn $171 bnfrom Asia 2002
Notes NIEs includes South Korea Singapore and Taiwan ASEAN-4 includes Indonesia Malaysiathe Philippines and Thailand HK is Hong Kong This table shows the five largest industriesranked by total dollar value of US imports from these countries The industry shares of the threegroups sum to 100 for each yearSource Fernald and Loungani 2004 p 2
Holst and Weiss found similar results in their investigation of the impact ofChinarsquos export growth on the ASEAN-5 (Thailand Indonesia PhilippinesMalaysia and Singapore) over the period 1995ndash2000 They concluded thatthe ASEAN-5 suffered lsquosubstantial and widespread loss of export marketsrsquo toChina in the US and Japanese markets and that lsquothis loss tends to be greatestin the export activities in which ASEAN economies are most specializedrsquo18
In spite of these trends mainstream economists as noted above believethat Chinarsquos growth has supported a successful restructuring and upgradingof regional economic activity Lall and Albaladejo find confirmation for thisconclusion in their examination of the changing export profiles of East-Asian
18 Holst and Weiss 2004 p 1256
HIMA 143_f2_3-43 81106 313 PM Page 10
China and the Dynamics of Transnational Accumulation bull 11
19 Lall and Albaladejo 2004
countries19 Table 5 shows that while the percentage of Chinese high-technology(HT) exports rose considerably over the period 1990 to 2000 the other East-Asian countries were also able to greatly increase their own specialisation inHT products in many cases even more successfully then China For exampleSingapore raised its share of HT exports from 391 per cent to 612 per centover the same period
Table 5Composition of East-Asian manufactured exports in per cent
RB LT MT HT
China1990 143 519 269 692000 95 449 212 244
Singapore1990 278 96 234 3912000 149 65 174 612
Philippines1990 376 337 129 1582000 65 119 116 700
Malaysia1990 319 148 180 3532000 131 96 178 594
Thailand1990 242 401 151 2062000 184 215 238 363
Indonesia1990 542 326 113 192000 337 313 175 174
Korea1990 71 400 313 2162000 117 171 340 371
Taiwan1990 69 413 261 2572000 44 238 255 463
Note RB refers to resource based it includes processed foods tobacco and wood products refinedpetroleum products dyes leather precious stones and organic chemicals LT refers to low tech-nology it includes textiles garments footwear other leather products toys simple metal prod-ucts simple plastics furniture and glassware MT refers to medium technology it includes heavyindustrial goods such as automobiles industrial chemicals machinery and standard electricaland electronic products HT refers to high technology it includes complex electrical and elec-tronic products aerospace precision instruments fine chemicals and pharmaceuticalsSource Lall and Albaladejo 2004 p 1446
HIMA 143_f2_3-43 81106 313 PM Page 11
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
8 bull Martin Hart-Landsberg and Paul Burkett
14 Economist 2004 p 915 Economist 2004 p 1016 Fernald and Loungani 2004 p 217 Ibid
million underemployed workers in rural areas that could move into industry
This surplus labour may take at least two decades to absorb helping to
hold down wages for low-skilled workers (who currently earn less than 50
cents an hour) Japan and South Korea in contrast absorbed their rural
labour much more quickly14
In other words Chinarsquos cheap labour and massive size should enable it tokeep attracting foreign investment and to produce exports at low cost Howeverbecause Chinarsquos foreign production is heavily import-dependent the resultinggrowth will generate a substantial demand for goods and services producedin other countries Therefore those governments that allow market forces torestructure their respective national economies in line with Chinarsquos activitieswill be rewarded with new higher value-added investment and employmentopportunities for their populations15 Mainstream economists generally believethat the experience of other East-Asian countries provides powerful empiricalsupport for this positive view of Chinarsquos growth They find the East-Asianexperience especially relevant because the countries in the region have alsorelied on foreign-produced exports to drive their growth
Table 3 highlights one important way in which Chinarsquos transformation hasinfluenced East-Asian economic activity It shows that China has shifted itsexports of manufactures away from East Asia (minus Japan) and toward thetwo most important international markets those of the US and the EuropeanUnion (EU) And in response most of the other countries in the region haveredirected their exports away from those markets Fernald and Lounganiexamined Chinarsquos competitive strength in the US market by dividing themajor East-Asian developing countries into three groups China (China and Hong Kong) the NIEs (South Korea Singapore and Taiwan) and theASEAN-4 (Indonesia Malaysia Philippines and Thailand) They found thatthe China grouprsquos share of the total exports of the three groups to the UnitedStates rose from approximately one-fourth in 1989 to one-half in 200216
A more detailed industry level examination of this competition is evenmore revealing highlighting the fact that lsquoChina has emerged as a significantexporter across virtually the entire spectrum of industriesrsquo17 This trend isillustrated in Table 4 which shows changing export shares for the three groups
HIMA 143_f2_3-43 81106 313 PM Page 8
China and the Dynamics of Transnational Accumulation bull 9
Table 3Direction of exports of manufactures per cent of national total
Destination Total Exports billions $US
Exporting Country Japan USA EU EAS-Japan
China1992 91 111 95 579 6551996 178 202 140 342 12362000 151 229 167 299 2155
Malaysia1992 77 271 180 395 2591996 111 23 151 427 5872000 113 245 151 398 783
Thailand1992 140 264 213 237 2151996 157 196 196 325 3842000 139 229 177 327 509
Singapore1992 55 264 190 350 4811996 77 217 148 450 10342000 75 197 146 473 1171
Indonesia1992 127 179 219 318 1581996 159 184 193 307 2522000 132 192 185 324 347
Philippines1992 131 655 48 121 581996 161 371 174 247 1692000 137 311 183 327 348
Korea1992 117 259 143 239 6631996 92 190 136 326 10972000 90 239 153 315 1483
Taiwan1992 105 471 73 265 5291996 92 149 149 394 11482000 102 264 183 371 1597
Japan1992 293 208 311 31281996 286 162 407 37472000 312 171 382 4351
Note EAS-Japan includes all the countries listed above minus Japan plus Hong Kong andVietnamSource Athukorala 2003 Table A-1 pp 40ndash1
HIMA 143_f2_3-43 81106 313 PM Page 9
10 bull Martin Hart-Landsberg and Paul Burkett
in the five largest industries ranked according to the dollar value of US importsfrom the three groups For example while the China group accounted for only 7 per cent of the total exports in computers peripherals and semiconductors in 1989 their share rose to 24 per cent by 2002 with theexport share of the NIEs falling from 72 to 42 per cent over the same period
Table 4Export shares in US market in per cent
Computers Apparel Household Recreational Homeperipherals and goods equipment entertainment and footwear and equipmentsemiconductors materials
China and HK1989 7 36 24 38 192002 24 69 67 84 53
NIEs1989 72 52 66 57 642002 42 12 22 11 17
ASEAN-41989 21 12 10 5 182002 34 20 11 6 30
IMPORTS $678 bn $411 bn $388 bn $194 bn $171 bnfrom Asia 2002
Notes NIEs includes South Korea Singapore and Taiwan ASEAN-4 includes Indonesia Malaysiathe Philippines and Thailand HK is Hong Kong This table shows the five largest industriesranked by total dollar value of US imports from these countries The industry shares of the threegroups sum to 100 for each yearSource Fernald and Loungani 2004 p 2
Holst and Weiss found similar results in their investigation of the impact ofChinarsquos export growth on the ASEAN-5 (Thailand Indonesia PhilippinesMalaysia and Singapore) over the period 1995ndash2000 They concluded thatthe ASEAN-5 suffered lsquosubstantial and widespread loss of export marketsrsquo toChina in the US and Japanese markets and that lsquothis loss tends to be greatestin the export activities in which ASEAN economies are most specializedrsquo18
In spite of these trends mainstream economists as noted above believethat Chinarsquos growth has supported a successful restructuring and upgradingof regional economic activity Lall and Albaladejo find confirmation for thisconclusion in their examination of the changing export profiles of East-Asian
18 Holst and Weiss 2004 p 1256
HIMA 143_f2_3-43 81106 313 PM Page 10
China and the Dynamics of Transnational Accumulation bull 11
19 Lall and Albaladejo 2004
countries19 Table 5 shows that while the percentage of Chinese high-technology(HT) exports rose considerably over the period 1990 to 2000 the other East-Asian countries were also able to greatly increase their own specialisation inHT products in many cases even more successfully then China For exampleSingapore raised its share of HT exports from 391 per cent to 612 per centover the same period
Table 5Composition of East-Asian manufactured exports in per cent
RB LT MT HT
China1990 143 519 269 692000 95 449 212 244
Singapore1990 278 96 234 3912000 149 65 174 612
Philippines1990 376 337 129 1582000 65 119 116 700
Malaysia1990 319 148 180 3532000 131 96 178 594
Thailand1990 242 401 151 2062000 184 215 238 363
Indonesia1990 542 326 113 192000 337 313 175 174
Korea1990 71 400 313 2162000 117 171 340 371
Taiwan1990 69 413 261 2572000 44 238 255 463
Note RB refers to resource based it includes processed foods tobacco and wood products refinedpetroleum products dyes leather precious stones and organic chemicals LT refers to low tech-nology it includes textiles garments footwear other leather products toys simple metal prod-ucts simple plastics furniture and glassware MT refers to medium technology it includes heavyindustrial goods such as automobiles industrial chemicals machinery and standard electricaland electronic products HT refers to high technology it includes complex electrical and elec-tronic products aerospace precision instruments fine chemicals and pharmaceuticalsSource Lall and Albaladejo 2004 p 1446
HIMA 143_f2_3-43 81106 313 PM Page 11
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 9
Table 3Direction of exports of manufactures per cent of national total
Destination Total Exports billions $US
Exporting Country Japan USA EU EAS-Japan
China1992 91 111 95 579 6551996 178 202 140 342 12362000 151 229 167 299 2155
Malaysia1992 77 271 180 395 2591996 111 23 151 427 5872000 113 245 151 398 783
Thailand1992 140 264 213 237 2151996 157 196 196 325 3842000 139 229 177 327 509
Singapore1992 55 264 190 350 4811996 77 217 148 450 10342000 75 197 146 473 1171
Indonesia1992 127 179 219 318 1581996 159 184 193 307 2522000 132 192 185 324 347
Philippines1992 131 655 48 121 581996 161 371 174 247 1692000 137 311 183 327 348
Korea1992 117 259 143 239 6631996 92 190 136 326 10972000 90 239 153 315 1483
Taiwan1992 105 471 73 265 5291996 92 149 149 394 11482000 102 264 183 371 1597
Japan1992 293 208 311 31281996 286 162 407 37472000 312 171 382 4351
Note EAS-Japan includes all the countries listed above minus Japan plus Hong Kong andVietnamSource Athukorala 2003 Table A-1 pp 40ndash1
HIMA 143_f2_3-43 81106 313 PM Page 9
10 bull Martin Hart-Landsberg and Paul Burkett
in the five largest industries ranked according to the dollar value of US importsfrom the three groups For example while the China group accounted for only 7 per cent of the total exports in computers peripherals and semiconductors in 1989 their share rose to 24 per cent by 2002 with theexport share of the NIEs falling from 72 to 42 per cent over the same period
Table 4Export shares in US market in per cent
Computers Apparel Household Recreational Homeperipherals and goods equipment entertainment and footwear and equipmentsemiconductors materials
China and HK1989 7 36 24 38 192002 24 69 67 84 53
NIEs1989 72 52 66 57 642002 42 12 22 11 17
ASEAN-41989 21 12 10 5 182002 34 20 11 6 30
IMPORTS $678 bn $411 bn $388 bn $194 bn $171 bnfrom Asia 2002
Notes NIEs includes South Korea Singapore and Taiwan ASEAN-4 includes Indonesia Malaysiathe Philippines and Thailand HK is Hong Kong This table shows the five largest industriesranked by total dollar value of US imports from these countries The industry shares of the threegroups sum to 100 for each yearSource Fernald and Loungani 2004 p 2
Holst and Weiss found similar results in their investigation of the impact ofChinarsquos export growth on the ASEAN-5 (Thailand Indonesia PhilippinesMalaysia and Singapore) over the period 1995ndash2000 They concluded thatthe ASEAN-5 suffered lsquosubstantial and widespread loss of export marketsrsquo toChina in the US and Japanese markets and that lsquothis loss tends to be greatestin the export activities in which ASEAN economies are most specializedrsquo18
In spite of these trends mainstream economists as noted above believethat Chinarsquos growth has supported a successful restructuring and upgradingof regional economic activity Lall and Albaladejo find confirmation for thisconclusion in their examination of the changing export profiles of East-Asian
18 Holst and Weiss 2004 p 1256
HIMA 143_f2_3-43 81106 313 PM Page 10
China and the Dynamics of Transnational Accumulation bull 11
19 Lall and Albaladejo 2004
countries19 Table 5 shows that while the percentage of Chinese high-technology(HT) exports rose considerably over the period 1990 to 2000 the other East-Asian countries were also able to greatly increase their own specialisation inHT products in many cases even more successfully then China For exampleSingapore raised its share of HT exports from 391 per cent to 612 per centover the same period
Table 5Composition of East-Asian manufactured exports in per cent
RB LT MT HT
China1990 143 519 269 692000 95 449 212 244
Singapore1990 278 96 234 3912000 149 65 174 612
Philippines1990 376 337 129 1582000 65 119 116 700
Malaysia1990 319 148 180 3532000 131 96 178 594
Thailand1990 242 401 151 2062000 184 215 238 363
Indonesia1990 542 326 113 192000 337 313 175 174
Korea1990 71 400 313 2162000 117 171 340 371
Taiwan1990 69 413 261 2572000 44 238 255 463
Note RB refers to resource based it includes processed foods tobacco and wood products refinedpetroleum products dyes leather precious stones and organic chemicals LT refers to low tech-nology it includes textiles garments footwear other leather products toys simple metal prod-ucts simple plastics furniture and glassware MT refers to medium technology it includes heavyindustrial goods such as automobiles industrial chemicals machinery and standard electricaland electronic products HT refers to high technology it includes complex electrical and elec-tronic products aerospace precision instruments fine chemicals and pharmaceuticalsSource Lall and Albaladejo 2004 p 1446
HIMA 143_f2_3-43 81106 313 PM Page 11
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
10 bull Martin Hart-Landsberg and Paul Burkett
in the five largest industries ranked according to the dollar value of US importsfrom the three groups For example while the China group accounted for only 7 per cent of the total exports in computers peripherals and semiconductors in 1989 their share rose to 24 per cent by 2002 with theexport share of the NIEs falling from 72 to 42 per cent over the same period
Table 4Export shares in US market in per cent
Computers Apparel Household Recreational Homeperipherals and goods equipment entertainment and footwear and equipmentsemiconductors materials
China and HK1989 7 36 24 38 192002 24 69 67 84 53
NIEs1989 72 52 66 57 642002 42 12 22 11 17
ASEAN-41989 21 12 10 5 182002 34 20 11 6 30
IMPORTS $678 bn $411 bn $388 bn $194 bn $171 bnfrom Asia 2002
Notes NIEs includes South Korea Singapore and Taiwan ASEAN-4 includes Indonesia Malaysiathe Philippines and Thailand HK is Hong Kong This table shows the five largest industriesranked by total dollar value of US imports from these countries The industry shares of the threegroups sum to 100 for each yearSource Fernald and Loungani 2004 p 2
Holst and Weiss found similar results in their investigation of the impact ofChinarsquos export growth on the ASEAN-5 (Thailand Indonesia PhilippinesMalaysia and Singapore) over the period 1995ndash2000 They concluded thatthe ASEAN-5 suffered lsquosubstantial and widespread loss of export marketsrsquo toChina in the US and Japanese markets and that lsquothis loss tends to be greatestin the export activities in which ASEAN economies are most specializedrsquo18
In spite of these trends mainstream economists as noted above believethat Chinarsquos growth has supported a successful restructuring and upgradingof regional economic activity Lall and Albaladejo find confirmation for thisconclusion in their examination of the changing export profiles of East-Asian
18 Holst and Weiss 2004 p 1256
HIMA 143_f2_3-43 81106 313 PM Page 10
China and the Dynamics of Transnational Accumulation bull 11
19 Lall and Albaladejo 2004
countries19 Table 5 shows that while the percentage of Chinese high-technology(HT) exports rose considerably over the period 1990 to 2000 the other East-Asian countries were also able to greatly increase their own specialisation inHT products in many cases even more successfully then China For exampleSingapore raised its share of HT exports from 391 per cent to 612 per centover the same period
Table 5Composition of East-Asian manufactured exports in per cent
RB LT MT HT
China1990 143 519 269 692000 95 449 212 244
Singapore1990 278 96 234 3912000 149 65 174 612
Philippines1990 376 337 129 1582000 65 119 116 700
Malaysia1990 319 148 180 3532000 131 96 178 594
Thailand1990 242 401 151 2062000 184 215 238 363
Indonesia1990 542 326 113 192000 337 313 175 174
Korea1990 71 400 313 2162000 117 171 340 371
Taiwan1990 69 413 261 2572000 44 238 255 463
Note RB refers to resource based it includes processed foods tobacco and wood products refinedpetroleum products dyes leather precious stones and organic chemicals LT refers to low tech-nology it includes textiles garments footwear other leather products toys simple metal prod-ucts simple plastics furniture and glassware MT refers to medium technology it includes heavyindustrial goods such as automobiles industrial chemicals machinery and standard electricaland electronic products HT refers to high technology it includes complex electrical and elec-tronic products aerospace precision instruments fine chemicals and pharmaceuticalsSource Lall and Albaladejo 2004 p 1446
HIMA 143_f2_3-43 81106 313 PM Page 11
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 11
19 Lall and Albaladejo 2004
countries19 Table 5 shows that while the percentage of Chinese high-technology(HT) exports rose considerably over the period 1990 to 2000 the other East-Asian countries were also able to greatly increase their own specialisation inHT products in many cases even more successfully then China For exampleSingapore raised its share of HT exports from 391 per cent to 612 per centover the same period
Table 5Composition of East-Asian manufactured exports in per cent
RB LT MT HT
China1990 143 519 269 692000 95 449 212 244
Singapore1990 278 96 234 3912000 149 65 174 612
Philippines1990 376 337 129 1582000 65 119 116 700
Malaysia1990 319 148 180 3532000 131 96 178 594
Thailand1990 242 401 151 2062000 184 215 238 363
Indonesia1990 542 326 113 192000 337 313 175 174
Korea1990 71 400 313 2162000 117 171 340 371
Taiwan1990 69 413 261 2572000 44 238 255 463
Note RB refers to resource based it includes processed foods tobacco and wood products refinedpetroleum products dyes leather precious stones and organic chemicals LT refers to low tech-nology it includes textiles garments footwear other leather products toys simple metal prod-ucts simple plastics furniture and glassware MT refers to medium technology it includes heavyindustrial goods such as automobiles industrial chemicals machinery and standard electricaland electronic products HT refers to high technology it includes complex electrical and elec-tronic products aerospace precision instruments fine chemicals and pharmaceuticalsSource Lall and Albaladejo 2004 p 1446
HIMA 143_f2_3-43 81106 313 PM Page 11
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
12 bull Martin Hart-Landsberg and Paul Burkett
Equally important for the mainstream argument is the fact that the new marketfor these higher technology ASEAN and NIE exports is increasingly East Asiaitself and especially China Table 6 shows that Chinarsquos trade balance withEast Asia (excluding Hong Kong) went from a deficit of $4 billion to a deficitof $40 billion over the decade of the 1990s Looking more specifically at whatLall and Albaladejo call the lsquoNew Tigersrsquo (Indonesia Malaysia the Philippinesand Thailand) we can see that they transformed a deficit with China of $03billion in 1990 to a surplus of $42 billion in 2000 And this surplus was largelybased on trade in HT products In like manner the NIEs (Korea Taiwan and
Table 6Chinarsquos net trade with East Asia billions US$
1990 2000
Japan total ndash29 ndash34RB 07 190LT 08 127MT ndash31 ndash114HT ndash13 ndash66NIEs total ndash14 ndash320RB 007 ndash40LT ndash03 ndash46MT ndash09 ndash149HT ndash02 ndash86Hong Kong total 105 326RB 14 19LT 74 165MT 15 49HT 02 92New Tigers total 03 ndash42RB ndash3 ndash22LT 03 10MT 01 007HT 008 ndash31East Asia-HK total ndash40 ndash400RB 05 -44LT 09 91MT ndash39 ndash262HT ndash15 ndash183
Notes NIEs includes South Korea Taiwan and Singapore New Tigers includes IndonesiaMalaysia Philippines and Thailand HK is Hong Kong Refer to Table 5 for definitions of thefour product groupsSource Lall and Albaladejo 2004 p 1456
HIMA 143_f2_3-43 81106 313 PM Page 12
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 13
20 Keliher 200421 The trade in parts and components highlighted in this paper is measured by the
amount of this trade in only two SITC categories SITC 7 (machinery and transport)and SITC 8 (miscellaneous goods) However these two sectors together accounted forabout 70 per cent of total world trade in manufactures over the period 1992ndash2000And they include the goods most regularly produced through global assembly oper-ations See Athukorala 2003 p 10
Singapore) also greatly expanded their surplus with China through trade inhigher-technology products Recent regional trade patterns are consistent withthis development As the Asia Times reports lsquoIn the past year [2003] Chinahas taken in 40ndash50 percent of Asiarsquos exports accounting for all of Taiwanrsquosand the Philippinersquos export growth last year and over 50 percent of each ofJapanrsquos Malaysiarsquos South Korearsquos and Australiarsquosrsquo20
IIIThe underlying dynamics of regional restructuring
This view of China as a national success story based on its increasing exportprowess and as an anchor for regional and global growth is seriously misleading The reality is that China and East Asia are being jointly reshapedby a larger transnational corporate restructuring dynamic that also encompassesthe more developed capitalist countries in as well as outside the region Thisdynamic is promoting both greater trade dependence and the expansion ofintegrated cross-border production processes with China serving as a processorof manufactured components imported from neighbouring countries and thefinal production platform for the regionrsquos increasingly important extra-regionalexport activity It is also pitting different nationsrsquo workers against each otherto the benefit of transnational capital and its local subordinates in each countrythereby intensifying exploitation and worsening uneven development andoverproduction problems
Several trends help to highlight this development First as Table 7 showsthere has been a significant rise in East-Asian trade ratios (exports plusimports) relative to GNP from 1990ndash2003 demonstrating that a growing shareof each nationrsquos economic activity is being shaped by international dynam-ics with China recording the most rapid increase Second as Table 8 showsan increasing share of this trade is in parts and components21 For the ASEAN-6 countries as a whole (Indonesia Malaysia Thailand Singapore Philippinesand Vietnam) the growth in exports of parts and components accounted for55 per cent of the grouprsquos combined export growth over the period 1992ndash2000
HIMA 143_f2_3-43 81106 313 PM Page 13
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
14 bull Martin Hart-Landsberg and Paul Burkett
22 Athukorala 2003 Table 4 pp 30ndash123 Ibid
The growth in imports of parts and components accounted for 682 per centof their combined import growth22 The experience of the NIEs was similarChinarsquos different role as the regionrsquos main producer of final products is highlighted by the fact that parts and components accounted for only 179per cent of its total export growth over the 1992ndash2000 period but 42 per centof its import growth23 Thus East-Asian economic activity is increasingly beingnarrowed to the production and trade of parts and components within aregionally structured production network
Table 7Total trade as a percentage of GNP
1990 2002 2003
China 297 494 606Hong Kong 2182 2549 2909Korea 534 575 615Taiwan 742 840 917Indonesia 435 529 Malaysia 1392 2135 1940Philippines 482 871 854Singapore 2984 2739 3015Thailand 665 1063 1109
Source Asian Development Bank 2004 p 83
Chinarsquos emergence as East Asiarsquos final export platform is further highlightedby the country-by-country trade patterns shown in Table 9 Note that withthe sole exception of Indonesia the East-Asian countries have all substantiallyincreased the share of parts and components in their exports to China Forexample the percentage of Malaysiarsquos exports to China that are parts andcomponents rose from 64 to 506 between 1992 and 2000 For South Koreathe corresponding percentages were 81 and 267 As Table 9 also shows Chinawas the only country with the exception of Indonesia that continued to sellmainly final goods to the US Japan and the EU Equally revealing of thenature of the transnational accumulation process is the fact that East Asiarsquosparts and components trade is largely concentrated in SITC 7 machinery and transport equipment and within that sector in electronics and electrical
HIMA 143_f2_3-43 81106 313 PM Page 14
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 15
Table 8Parts and components shares of manufactured exports and imports
Total of Total ofexports of exports imports of importsmanufactures parts and manufactures parts and
components componentsUS billions US billions
China1992 655 67 603 1951996 1236 98 1024 2112000 2155 145 1602 335
Malaysia1992 259 404 312 3791996 587 426 611 4752000 783 497 660 588
Thailand1992 215 212 275 2651996 384 234 519 3292000 509 359 483 453
Singapore1992 481 282 532 3201996 1034 397 1059 4282000 1171 496 1081 517
Indonesia1992 158 40 193 2051996 252 74 283 2382000 347 142 189 194
Philippines1992 58 293 72 3261996 169 525 253 4362000 348 640 247 551
Korea1992 663 178 484 2671996 1097 252 904 2742000 1483 306 931 389
Taiwan1992 529 201 376 2961996 1148 288 604 3502000 1507 378 936 373
Japan1992 3128 229 992 1541996 3747 303 1854 1932000 4351 306 2092 242
Source Athukorala 2003 Table A-1 pp 40ndash3 and Table A-2 pp 48ndash50
HIMA 143_f2_3-43 81106 313 PM Page 15
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
16 bull Martin Hart-Landsberg and Paul Burkett
Table 9Parts and components share of trade in selected markets
Share of China ASEAN US Japan EUparts and components in exports
China1992 82 43 62 291996 177 72 118 602000 290 91 154 109
Malaysia1992 64 452 436 455 3581996 161 571 409 352 4402000 506 652 476 405 148
Thailand1992 68 572 173 259 1171996 292 423 164 200 1642000 540 569 263 376 322
Singapore1992 231 376 281 376 1931996 419 483 385 379 3882000 503 563 464 411 477
Indonesia1992 00 76 34 53 261996 11 195 43 72 402000 57 314 94 208 67
Philippines1992 18 644 260 270 1481996 176 825 434 489 5602000 818 875 520 528 665
Korea1992 81 388 204 184 1361996 131 403 377 325 2382000 267 500 305 397 262
Taiwan1992 184 268 186 191 2131996 171 341 272 276 2722000 298 489 328 416 350
Japan1992 117 334 257 1931996 235 406 319 2652000 328 468 275 276
Note ASEAN includes Malaysia Thailand Singapore Indonesia Philippines and VietnamSource Athukorala 2003 Table A-2 pp 48ndash9
HIMA 143_f2_3-43 81106 313 PM Page 16
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 17
24 Athukorala 2003 p 1425 Athukorala 2003 Table 5 p 3226 Developing East Asia includes China Hong Kong Indonesia Malaysia the
Philippines Singapore South Korea Taiwan Thailand and Vietnam Athukorala 2003p 18
industries Moreover lsquothere is little variation among the individual East Asiancountries in terms of trade compositionrsquo24
In sum East-Asian export production (itself a growing portion of total production) is increasingly narrowing not only to parts and componentswhich are largely detached from any national base of production but also toa select few operations in a select few industries in response to the changingneeds of transnational corporate production networks It is thus not surprisingthat the share of East-Asian trade that is intra-regional has grown significantlyBut rather than reflecting a growing regional independence and balance asmainstream economists claim this trade activity is tied to a regionally structuredaccumulation process that is anchored in China and ever more dependent onfinal sales outside the region especially to the US and the EU Distinguishingbetween total trade and final trade (total manufacturing trade net of partsand components) we find that while the intra-regional share of total tradeis going up the intra-regional share of final trade is going down25 More striking and significant is the difference between total trade and final tradeof just exports lsquoIn 2000 over 60 percent of ldquofinal exportsrdquo from developingEast Asia found markets in countries outside the East Asian region up from55 percent in 1992 A similar pattern is observable for the ASEAN countriesrsquo26
Arguably then China now sits at the end point of a transnational productionprocess that is anything but helpful to East Asiarsquos prospects for self-sustainingeconomic development
IV Consequences of restructuring
Some mainstream economists are aware that East Asiarsquos regional growthprocess is now dependent on parts and components trade They argue thatthis is a positive development that only reinforces the need for further international liberalisation of trade finance and foreign direct investmentTheir view is that as the production of growing numbers of higher value-added goods takes place through globalised production networks more countries will have the opportunity to participate in their production enablingthem to upgrade their respective economic activity But for countries to gain
HIMA 143_f2_3-43 81106 313 PM Page 17
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
18 bull Martin Hart-Landsberg and Paul Burkett
27 Athukorala 2003 pp 8ndash928 US Department of Commerce 200529 UNCTAD 2002 p 7530 Ibid
the benefits of this dynamic their governments must ensure flexible labourmarkets and competitive wages reduce tariffs end exclusive regional tradeagreements open up their economies to FDI and harmonise commercial laws(especially those bearing on so-called intellectual property rights) in line withthe pro-corporate standards established under the WTO27
We find little reason to believe that this transnational production systemwill support a stable and sustainable regional development The most obviousproblem is that East Asiarsquos accumulation dynamics are increasingly based onexporting outside the region More specifically as more of Chinarsquos economicactivity and thus the regionrsquos production depends on exports to the US theresult has been ever larger US trade deficits China became the country withwhich the US has the largest trade deficit starting in 2000 That year the UStrade deficit with China was $84 billion in 2004 it was $162 billion Over thesame period the overall US trade deficit soared from $375 billion to $618 billion the 2004 deficit was equal to 53 per cent of GDP28 It is doubtful thatthe US economy can continue to sustain such large and growing trade deficitsYet any disruption to this trade pattern would adversely impact the entireEast-Asian supply line and growth process
However the problems with the regionrsquos accumulation dynamics run deeperthan such trade imbalances suggest The China-based regional system ofexport production is also shifting economic activity away from meeting theneeds of East-Asian working people And while this system appears to enablehigher value-added production it in fact offers limited gains in value addedto the various countries that compete with one another for positions in thecross-border production chains controlled by transnational corporations Forexample a UNCTAD study found lsquoparticipating in international productionchainsrsquo often leaves the host country lsquolocked into its current structure of comparative advantage thereby delaying the exploitation of potential comparative advantage in higher-tech stages of productionrsquo29 These limitationshave lsquobeen causing concern in recent years even in some of the East Asiancountries which have been more successful in exploiting various advantagesassociated with TNCs [transnational corporations]rsquo30 UNCTAD highlightsseveral reasons for such concern Among the most important
HIMA 143_f2_3-43 81106 313 PM Page 18
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 19
31 UNCTAD 2002 p 7632 Steinfeld 2004 pp 1975 1983
The spillovers from engaging in subcontracting or hosting affiliates of TNCs
are reduced because the package of technology and skills required at any
one site becomes narrower and because cross-border backward and forward
linkages are strengthened at the expense of domestic ones Furthermore
when only a small part of the production chain is involved out-contractors
and TNCs have a wider choice of potential sites ndash since these activities take
on a more footloose character ndash which strengthens their bargaining position
vis-agrave-vis the host country This can engender excessive and unhealthy
competition among developing countries as they begin to offer TNCs
increasing fiscal and trade-related concessions in order to compensate for
the shifting competitiveness from one group of developing countries to
another it can thereby aggravate the inequalities in the distribution of gains
from international trade and investment between TNCs and developing
countries31
Many of these limitations are visible in China the centrepiece of the East-Asian export-driven accumulation process The Chinese government hasemployed a variety of policies to attract export-oriented foreign investmenthoping that foreign capital would generate substantial technology transfersand export earnings However as Edward Steinfeld describes
What has moved to China en masse are the manufacturing-intensive
segments of particular value chains More precisely it is the codified
commodified non-integral manufacturing activities that move Chinese
firms though integrated into global supply chains remain focused on
non-differentiable production activities Despite high-levels of foreign
ownership only 15 percent of the manufacturing firms surveyed by the
World Bank in 2001 reported engaging in any design efforts for foreign
customers a sign that the respondents are essentially lsquorule takersrsquo in open
modularised production processes Only 7 percent reported providing
customers RampD or other specialized services The figures are noteworthy
given that the sample specifically targeted higher-tech sectors the very ones
in which we should expect high degrees of innovation networking and
development of firm-specific proprietary knowledge32
Government leaders have also worked to create a few world-class Chinesecompanies in an attempt to ensure an independent national base for Chinarsquos
HIMA 143_f2_3-43 81106 313 PM Page 19
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
20 bull Martin Hart-Landsberg and Paul Burkett
33 Economist 200534 Economist 2005 p 5935 Economist 2005 p 6036 Gilboy 2004
future industrial development The companies targeted to become nationalchampions include Huawei (which produces telecommunications equipment)Haier (white goodsconsumer appliances) Lenovo (personal computers)TCL (televisions) and Baosteel (steel)33 However despite the fact that manyof these proposed champions have grown quite large few have succeededin becoming internationally competitive
Huawei for example operates in 70 countries with 24000 employeesincluding over 3000 foreign nationals Over 40 per cent of its 2004 revenuewas earned outside the country But according to the Economist much of itssales are in emerging markets where there is little competition and most ofits success is tied to its connections with the Chinese military Perhaps mosttelling its profits have been quite limited $300 million on $5 billion in revenue34 Lenovo Chinarsquos leading PC maker is also struggling for survivalIts lsquoprofits from PCs are rising by just 1 per year and its market share isbeing squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines Some put its early successdown to good government connections ndash it is majority-owned by the ChineseAcademy of Sciencesrsquo35
Chinarsquos leading firms have also done little to advance national interests interms of research and development Most importantly they continue to relyon imported foreign equipment to stay competitive According to GeorgeGilboy
Over the last decade Chinese industrial firms have spent less than 10
percent of the total cost of imported equipment on indigenizing technology
Indigenization spending at state firms in the sectors in which China is most
often cited as a rising power (telecom equipment electronics and industrial
machinery) is also low (at 8 percent 6 percent and 2 percent of the cost of
imported equipment respectively)36
By comparison such spending by industrial firms in OECD countries averagedapproximately 33 per cent And South-Korean and Japanese firms duringtheir respective periods of rapid industrialisation lsquospent between two andthree times the purchase price of foreign equipment on absorbing and
HIMA 143_f2_3-43 81106 313 PM Page 20
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 21
37 Gilboy 200438 Gilboy 200439 Naughton 1996 p 2140 Economist 2005 p 61
indigenizing the technology embodied in the hardwarersquo37 Chinarsquos leadingfirms have also done little to support the development of national technologysupply networks In fact lsquoChinarsquos best firms are among the least connectedto domestic suppliers for every $100 that state-owned electronics and telecomfirms spend on technology imports they spend only $120 on similar domesticgoodsrsquo38
Unfortunately for Chinese planners the reasons for such failures are largelyfound in the very nature of the countryrsquos economic reform strategy ndash specificallyits direct and heavy reliance on transnational corporations In this regard theChinese experience with export-led growth has been different from that ofJapan South Korea and Taiwan those countries lsquorelied almost exclusivelyon domestic firms to manufacture and to export commodities China haslargely relied on FIEs [foreign invested enterprises] to produce exports and virtually no domestic Chinese companies control significant export networksrsquo39 Because lsquothe central government has allowed foreign companiesinto China at a much earlier stage of its development these [firms] now control the bulk of the countryrsquos industrial exports have increasinglystrong positions in its domestic markets and retain ownership of almost all technologyrsquo40 The declining effectiveness of Chinarsquos strategy is well illustratedby the strong and growing foreign dominance in Chinarsquos high-tech sector
While exports of industrial machinery grew twentyfold in real terms over
the last decade (to $83 billion last year) the share of those exports produced
by FFEs [foreign funded enterprises] grew from 35 percent to 79 percent
Exports of computer equipment shot from $716 million in 1993 to $41 billion
in 2003 with the FFEsrsquo share rising from 74 per cent to 92 per cent Likewise
Chinarsquos electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year) with the FFEsrsquo share of those exports growing from
45 percent to 74 percent over the same period This pattern repeats itself
in almost every advanced industrial sector in China FFEs increased their
total share of high-tech exports from 74 percent to 85 percent between 1998
and 2002 But perhaps more significant in the same period they increased
their share of total domestic high-tech sales from 32 percent to 45 percent
HIMA 143_f2_3-43 81106 313 PM Page 21
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
22 bull Martin Hart-Landsberg and Paul Burkett
41 Gilboy 2004
while the share of that market held by Chinarsquos most competitive industrial
firms SOEs fell from 47 percent to 42 percent41
In sum Chinese state policy has indeed transformed the country into a fastgrowing export platform with some significant domestic production capacityBut autonomous development potential is being eroded as the state loses itsplanning and directing capability and resources are taken over and restructuredin and by foreign networks largely for the purpose of satisfying external market demands
Perhaps an even more damning critique of the regional restructuring processis that insofar as the regionrsquos growth is increasingly dependent on cross-cutting and competing transnational corporate production networks (whetheror not they are directed at exporting) all of the countries of East Asia areunder ever greater pressure to keep wages down and productivity up so as to sustain or improve their position within these networks This in turnreinforces the bias of the system toward exports rather than domestic wage-based demand thereby worsening export overproduction problems Andbecause of its key position in transnational investment and trade networksChina has become the benchmark for competition Therefore workers throughout East Asia have become pitted against each other in a contest tomatch the level of labour exploitation achieved in China with disastrousconsequences for all We highlight some of these negative consequences forworkers in China South Korea and the US
VWorkers China
Given the celebration of Chinarsquos economic success one might expect to seeobvious gains for Chinese workers In fact quite the opposite appears to betrue Despite the growth of a relatively small but numerically significantupper-income group whose consumption opportunities have greatly expandedmost Chinese working people are suffering from deteriorating work and living conditions
Chinarsquos reform programme as noted above involved a sustained effort tomarketise and privatise economic activity and to promote foreign export-oriented enterprises as the leading force in the economy As a consequencethe number of state-controlled companies fell from over 300000 in 1995
HIMA 143_f2_3-43 81106 313 PM Page 22
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 23
42 OECD 2005 p 9543 OECD 2005 p 9644 OECD 2005 p 9545 OECD 2005 p 13346 Hong Kong Confederation of Trade Unions 2004 p 1947 OECD 2005 p 7648 McGuckin and Spiegelman 2004 Part II
to less than 150000 in 200542 In line with this change the share of totalemployment in state controlled enterprises fell from 62 per cent in 1998 to38 per cent in 200343 Over the same period employment in state-controlledindustrial companies fell by 40 per cent44 The growing dominance of foreign-sector operations is most clearly revealed in the distribution of value added inthe non-resource-based industrial sector from 1998ndash2003 the share of industrialvalue added produced by state enterprises in the non-resource-based industrialsector fell from 173 per cent to 67 per cent while the share accounted forby foreign-sector operations rose from 114 per cent to 171 per cent45
Unfortunately the massive decline in state employment has not been offset by the rise in private employment The result has been a major increasein the urban unemployment rate This increase does not show up in officialgovernment statistics largely because these figures exclude laid-off state workers and rural migrants now living and working in urban areas Thuswhile government statistics proclaim an urban unemployment rate in thethree to four per cent range most analysts believe that the true figure is indouble digits46 For example a study based on the 2000 Chinese census yieldedan estimate of 115 per cent while a 2001 targeted labour-force survey placedthe rate at a higher 127 per cent47 Other estimates have ranged as high as23 per cent48
State workers have not fared well in this restructuring process Accordingto the Social Relief Division of the Ministry of Civil Affairs state-owned enterprises laid off 30 million state workers over the period 1998 to 2004 Asof June 2005 over 218 million of these workers were reduced to survivingon the governmentrsquos lsquoaverage minimum living allowancersquo which meant thatthey were living a life of poverty Laid-off state workers normally receive alsquobasic living allowancersquo for three years from their former state enterprise Ifthey are unable to find employment during that period they are able to drawunemployment insurance payments for two additional years Only afterexhausting those payments do laid-off state workers become eligible to receivethe minimum living allowance the basic welfare grant given to all poor urban
HIMA 143_f2_3-43 81106 313 PM Page 23
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
24 bull Martin Hart-Landsberg and Paul Burkett
49 China Labour Bulletin 200550 As quoted in Hong Kong Confederation of Trade Unions 2004 pp 12ndash1351 Coy 2004
residents According to Ministry figures in June 2005 this allowance wasequal to approximately $19 a month by comparison the average monthlyincome of an urban worker was approximately $165 dollars49
Even those laid-off state workers that succeed in finding new employmentgenerally face hard times An All China Federation of Trade Unions (ACFTU)survey of re-employed state workers found that
186 percent were odd-job manual workers 10 percent did various sorts of
hourly work (which usually refers to activities such as picking up othersrsquo
children from school) 52 percent had seasonal jobs 60 percent were retailers
operating stalls and a mere 68 percent had obtained formal contracted
employment50
Many state workers face a hopeless future because they live in cities that areno longer central to the new foreign-dominated export activity that is largelyconcentrated in coastal areas As a result growing numbers are left with fewoptions but to demonstrate for better pensions and health care Even thosestill employed in the state sector must worry about competition from migrantworkers and the possibility of future closures or privatisation of their currententerprises if they demand too much
While there is job growth associated with the new export-oriented foreign-dominated production most of these jobs are low paid and highly exploitativeAccording to Business Week a US Bureau of Labor Statistics consultant attempting to measure the average hourly compensation of Chinese factoryworkers
concluded [that] China has about 38 million city manufacturing workers
The 30 million on whom she found data earn an average $106 an hour
Another roughly 71 million suburban and rural manufacturing workers earn
an average 45 cents an hour for a blended 64 cents In the current BLS
survey Mexicorsquos $248 hourly compensation is the lowest51
Time Asia reports that in Guangdong where approximately one third of Chinarsquosexports are produced
base assembly-line wages in the Pearl River Delta the provincersquos
manufacturing belt have been virtually frozen at about $80 per month for
HIMA 143_f2_3-43 81106 313 PM Page 24
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 25
52 Gough 200553 Lee 2004 p 254 Hart-Landsberg and Burkett 2005a Chapter 355 Cody 200456 Holland 2004 p 42
the past decade according to a recent survey by the Ministry of Labour and
Social Security Factor in inflation over roughly the same period and
average pay in real terms has declined by as much as 30 The reason
Chinarsquos rise as a manufacturing power has contributed to a surplus of global
production capacity for all kinds of goods from sneakers to DVD players
to plastic lawn chairs With the price of raw materials rising and factory
profit margins shrinking blue-collar workers are at the losing end of a long
chain of supply and demand52
Adding insult to injury many of Chinarsquos workers are not even being paidwhat they are owed Chinese government surveys have found lsquothat 725 percent of the countryrsquos nearly 100 million migrant workers were owedwagesrsquo53
These problems are unlikely to be corrected by government action Ratherpoor employment terms and the lack of institutional support for workersseeking to improve them flow directly from the nature of Chinarsquos capitalistrestoration54 As part of the reform process regional and local governmentofficials were freed from central oversight and encouraged to promote privateenterprise especially foreign enterprise for their mutual profit Thus mostprovincial and local authorities now depend heavily for their own successon attracting and keeping profitable firms in their jurisdiction In many caseslocal government officials have actually become shareholders in these ventures55
As a result workers often find their efforts to improve conditions underminedby the very local governments that are supposed to protect them
This situation has triggered two important developments a growing unwillingness of rural workers to keep moving to industrial areas and a growing wave of strikes For example lsquofactories in the Pearl River Delta regionare facing a shortfall of some 2 million workers with shortages also affectingother key manufacturing provinces including Fujian and Zhejiangrsquo56 In atelling commentary on the dynamics of the global economy some analystsclaim that the labour shortages will eventually force employers to boost wagesand actually pay them But others point out that given the competitive conditions of the global accumulation process lsquoHigher wage costs will squeeze
HIMA 143_f2_3-43 81106 313 PM Page 25
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
26 bull Martin Hart-Landsberg and Paul Burkett
57 Ibid
margins forcing some light industry inland or to cheaper locations in VietnamIndia or Bangladeshrsquo57
Even more threatening to the Chinese growth strategy is the fact that workers are beginning to take direct action in their own defence especiallyat foreign-owned export enterprises Table 10 offers some indication of thegrowth in labour disputes The figures are far from complete in that theyonly include those disputes that are officially registered with or recognisedby government arbitration committees or labour courts Nonetheless the datashow that disputes are rising and that they are greatest at foreign and privateenterprises the ones that are most celebrated for driving Chinese growth
Table 10Disputes per 100000 employees by ownership type
Type of firm 1998 1999 2000 2001
SOE 245 312 404 561Urban Collective 692 1062 1546 197Foreign-invested 384 456 327 3006Private enterprises 110 132 159 1566Rural Collectives 96 79 31 18Joint-owned and Stock 81 665 108 199Individually Owned 70 102 191 301
Note SOE refers to State Owned EnterpriseSource Hong Kong Confederation of Trade Unions 2004 p 29
Perhaps most significant is the fact that workers are increasingly pressingtheir demands for improvement through strikes As the Washington Post
notes
Heralded by an unprecedented series of walkouts the first stirrings of unrest
have emerged among the millions of youthful migrant workers who supply
seemingly inexhaustible cheap labor for the vast expanse of factories in
Chinarsquos booming Pearl River Delta
The signs of newly assertive Chinese workers have jolted foreign and
Chinese factory owners who for the last two decades have churned out
everything from Nikes to baby dolls with unbeatably low production costs
Some have concluded that the raw era in which rootless Chinese villagers
would accept whatever job they could get may be drawing to a close
HIMA 143_f2_3-43 81106 313 PM Page 26
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 27
58 Cody 200459 Hong Kong Confederation of Trade Unions 2004 p 760 Hong Kong Confederation of Trade Unions 2004 p 961 Cheng 200462 Peoplersquos Daily 200463 Peoplersquos Daily 2005a
raising questions about Chinarsquos long-term future as world headquarters for
low-paid outsourcing58
Such actions are relatively new In the past the labour news was largely filledwith struggles by laid-off state workers who were demanding fair treatmentin terms of severance payments and pension and health support An examplewas the massive unrest in northeast China during the spring and early summerof 2002 The Chinese government has generally responded to such actionswith policies designed to lsquoprevent workersrsquo protests from spreading beyondtheir immediate localersquo59 These include the use of lsquomedia blackouts denialof the right to demonstrate police spies snatch squads and ldquovisitsrdquo to workersrsquohomes from various organs of the state including the All China Federationof Trade Unions (ACFTU)rsquo60 But this strategy may well lose its effectivenessas more workers take actions that threaten production especially at foreigncompanies
While Chinarsquos rapid growth has also created wealth most of the domesticgains have been captured by a relatively small percentage of the populationthereby creating growing inequality According to the South China Morning
Post
The growing disparity between the mainlandrsquos urban rich and rural poor
has created one of the worldrsquos most pronounced national income gaps It
is on a par with the poverty-stricken African nation of Zimbabwe [W]hile
some urban residents are buying luxury homes and cars the vast majority
of the 800 million peasants live on less than US$1 a day61
And as researchers with the Chinese Academy of Social Sciences point outlsquothe income disparity is evident not only between urban and rural residentsbut also among urban people as wellrsquo62
Although Chinarsquos National Bureau of Statistics has concluded based onsurvey research that only 5 per cent of the countryrsquos population can currentlybe considered middle-class the government is confident that its economicpolicies will raise this to 45 per cent by 202063 However such a prediction
HIMA 143_f2_3-43 81106 313 PM Page 27
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
28 bull Martin Hart-Landsberg and Paul Burkett
64 For a more complete discussion of the ways in which the reform process has ledto deteriorating social conditions for the majority of Chinese working people espe-cially in health care and education see Hart-Landsberg and Burkett 2005b pp 606ndash12
65 Hong Kong Confederation of Trade Unions 2004 p 2266 Hart-Landsberg and Burkett 2001 Hart-Landsberg 200467 Asia Times 2005
flies in the face of the lived experiences of Chinese working people64 As aHong Kong Confederation of Trade Unions report explains lsquoglobalisationrsquohas left Chinese workers
isolated in a global equation in which job insecurity and poverty award
employers with the upper hand in what has become known as the race to
the bottom Workers in developed countries are told that they must accept
lower wages and flexible working conditions to stop their bosses moving
production abroad Meanwhile workers in SOEs in China are told they
must accept a decline in conditions and welfare or be replaced by migrant
workers from the countryside And migrant workers especially in the coastal
Special Economic Zones are told that they must accept wage arrears
and lax health and safety or the boss will move to a more investor-friendly
environment further inland65
VIWorkers South Korea
South Korearsquos economy is also being rapidly restructured in line with thetransnational accumulation dynamics described above and with negativeconsequences for South-Korean workers This restructuring is largely a resultof the post-crisis (1997ndash8) liberalisation and deregulation of the South-Koreaneconomy that was promoted by US and Japanese policy makers workingthrough the IMF with the ambivalent support of the chaebol (the dominantSouth-Korean conglomerates)66 A major consequence is that Chinarsquos growthhas become the main force driving South Korearsquos economic activity and shaping its economic choices In 2001 China became South Korearsquos numberone foreign investment location In 2004 almost half of South Korearsquos foreigninvestment went to China By November 2004 China had approved some32299 projects by South-Korean firms in China for a contracted value of$491 billion67 In large part because of this investment China became SouthKorearsquos number one export market in 2002 and its number one trading partnerin 2003
HIMA 143_f2_3-43 81106 313 PM Page 28
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 29
68 Korea Herald 2003b69 Hart-Landsberg and Burkett 2001 pp 414ndash1670 Hart-Landsberg 2004 p 93
In the immediate post crisis period the South-Korean government relied ondeficit spending to promote the countryrsquos economic recovery The governmentbudget as a percentage of GDP shifted sharply from a surplus in 1996 to adeficit of 46 per cent in 1999 But such high levels of deficit spending werenot sustainable as the ratio of government debt to GDP rose from 162 percent in 1997 to 396 per cent in 2002 Additional government obligationsincluding a massive shortfall in public pension reserves and interest on outstanding currency stabilisation bonds also weighed heavily on governmentfinances68 Finally under heavy IMF pressure to rein in spending the government returned to a surplus position in 2000
Foreign investment also played an important and early role in boostinggrowth providing the government with critical foreign exchange Howevermuch of this investment was lsquovulture investmentrsquo that involved takeovers ofSouth-Korean assets at fire sale prices One outcome of this investment hasbeen a significant denationalisation of South-Korean capital69 Significantlyonce the most attractive assets had been purchased this foreign investmentrapidly and steadily declined falling from a peak of $157 billion in 2000 to$65 billion in 200370
Desperate to reverse this decline the South-Korean government has takensteps to create a more attractive investment environment for foreign companiesIn August 2003 it established three free economic zones in an effort to makeSouth Korea the lsquobusiness hub of East Asiarsquo foreign businesses that operatewithin these zones will enjoy tax breaks as well as exemptions from variousenvironmental and labour regulations The government also plans to offerforeign high-tech investors a cash grant equal to 20 per cent of the value oftheir total investment However this policy is unlikely to achieve its goalOne important reason is that transnational corporations are far more attractedto China where they have access to extremely low-cost labour an extensivesystem of subsidies and a lax regulatory environment Recognising theirstrong bargaining position these companies are demanding that the South-Korean government do more to improve the countryrsquos lsquobusiness environmentrsquoespecially concerning labour policy According to the Korea Herald
Increased labor flexibility is one of the top priorities for attracting foreign
investment said the head of the American Chamber of Commerce in Korea
HIMA 143_f2_3-43 81106 313 PM Page 29
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
30 bull Martin Hart-Landsberg and Paul Burkett
71 Kim Ji-hyun 200472 Kim Mi-hui 200373 Kim Mi-hui 200374 Kirk 2003 p W175 Kim Hyun-chul 2003
Without tackling the labor issue Korea should become increasingly
vulnerable to the cheap labor in China its main competitor said the
61-year-old chairman at a seminar hosted by the Institute for Global
Economics lsquoKorearsquos competition is Shanghai Hong Kong and China Realize
what your competition is because investors can choose where to gorsquo he
stressed71
At the same time as foreign direct investment inflows have slowed outflowsof South-Korean FDI have grown substantially Over 4000 South-Korean factories have moved their production out of South Korea since 1998 andthe numbers have been increasing dramatically each year According to aKorea Customs Service official lsquoabout 707 percent of those production facilities have moved to Chinarsquo72 A study by the Korea Chamber of Commerceand Industry found that lsquoabout nine out of ten companies manufacturingproducts in Korea have plans to invest in China in the future as the countryrsquoslow production costs and the eager-to-please regulations make the marketmore attractive than Korearsquo73 As a result of this trend South Korearsquos net foreign direct investment actually turned negative in 2002 (see Table 2)
The chaebol like their foreign counterparts are also demanding that theirgovernment take more aggressive steps to weaken the countryrsquos labour movement They have made clear that if the government does not meet theirdemands they will continue to move their production lsquoacross the Yellow Seato China where wages are lower and the demands of workers rarely resultin headaches for managersrsquo74 This is no empty threat As the Korea Herald
reports
Korean industries are moving overseas faster than firms in other advanced
economies and the so-called industrial lsquohollowing outrsquo will likely become
a serious problem by 2007 Korearsquos leading business organization argued
yesterday Industrial migration which in the past took place mostly in
light industries such as shoe-making and apparel industries is rapidly
spreading to other sectors including the electronics telecommunications
metal and machinery industries it noted75
Beginning in 1999 in an attempt to counter these negative developments the South-Korean government started encouraging the use of credit cards to
HIMA 143_f2_3-43 81106 313 PM Page 30
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 31
76 Lowe-Lee 2004 p 177 Kim Jae-kyoung 200578 Kim Jae-kyoung 200579 Kim Ji-ho 2004b80 Hart-Landsberg 200481 Kim Ji-ho 2004a82 Lister 2004 p 183 Brown 2004 p 1
stimulate domestic private consumption by among other things raising thelimits on cash advances and introducing tax deductions for purchases madeby credit card The result was a major consumption boom and correspondingcredit-card debt explosion The total amount of credit-card spending rosefrom $53 billion in 1998 to $519 billion in 200276 Household debt rose from87 per cent of disposable income in 1999 to 131 per cent in 200277
With cash advances and credit-card loans accounting for approximatelytwo-thirds of all consumer transactions it was not long before many households faced unsustainable debt levels Delinquency rates began risingsharply in 2002 Frightened by the prospect of a wave of personal bankruptciesand the danger such bankruptcies could cause the countryrsquos financial systemthe government finally took steps to limit credit-card use in the spring of2003 Not surprisingly the governmentrsquos success led to a sharp decline inprivate consumption South Korearsquos private spending contracted 14 per centin 2003 and a further 09 per cent in 200478 This decline in turn had a negativeeffect on domestic business investment79 South Korea suffered a recession inthe first half of 2003
As a result of these trends South Korea is now more dependent then everon exports to power growth80 In 2003 with domestic consumption and investment down exports accounted for 982 per cent of the countryrsquos growth81
The situation remained much the same in 2004 And as noted above theseexports are increasingly headed to China Many South-Korean analysts claimthat the shift in export orientation from the US to China has greatly reducedthe countryrsquos vulnerability to instabilities in the US market82 But as we haveseen China largely functions as a production platform for exports to theUnited States In line with this orientation most South-Korean exports toChina are intermediate goods used in the production of other goods Studiesby the Korea International Trade Association and the Korea Institute forInternational Economic Policy have shown that lsquoa large portion of the finalproducts are reshipped to third countries with about 40 percent re-exportedto the United Statesrsquo83 Similarly a UNCTAD study of East-Asian trade
HIMA 143_f2_3-43 81106 313 PM Page 31
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
32 bull Martin Hart-Landsberg and Paul Burkett
84 UNCTAD 2005 pp 137 13985 Cooper 2002 p 186 Kim Hyun-chul 200487 Bradsher 200588 Jang 2004 pp 280ndash1
relationships concluded that South-Korean exports to China now move inlockstep with Chinese exports to the United States84
In short South Korearsquos economic future has become increasingly dependenton a narrowing range of exports within a framework shaped by a China-based US-oriented system of export production South Korea is currentlyrunning a trade surplus with China However the country is simultaneouslyexperiencing a premature hollowing-out of large parts of its industrial baseMoreover South-Korea-based export producers are facing growing competitionfrom China produced exports in other third-country markets Studies by private and state research institutes in South Korea are already warning thatlsquoChinarsquos export competitiveness was in some cases greater than that of Koreain sectors such as machinery electronicshome appliances textiles and someinformation productsrsquo85
As developments in the Chinese auto industry make clear this competitionis not limited to low-end manufacturing China has passed South Korea tobecome the worldrsquos fourth largest producer of automobiles out-producingSouth Korea every year since 2002 According to an official of the KoreaAutomobile Manufacturers Association lsquoChina has been accelerating its autooutput because major global carmakers have been scrambling to producevehicles in that country to tap the worldrsquos fastest-growing auto marketrsquo86
Even more threatening to Korean economic interests given that cars accountfor nearly 30 per cent of South Korearsquos exports foreign producers are nowstarting to use China as a production base for their own automobile exports87
South Koreans are paying a high price for their countryrsquos economic restructuring Corporate actions and threats have led to a series of governmentreforms that greatly strengthen their bargaining position with workers Forexample many corporations have taken advantage of new labour laws to fire their permanent workers and rehire them as temporary or even dailyworkers ndash part of the lsquoflexibilisationrsquo of the workforce As a result the percentageof wage-workers with irregular labour status rose from 42 per cent beforethe 1997ndash8 economic crisis to 55 per cent in 200388 These irregular workersreceive on average only 53 per cent of the hourly wages paid to regular
HIMA 143_f2_3-43 81106 313 PM Page 32
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43
China and the Dynamics of Transnational Accumulation bull 33
89 Korea Herald 2003a90 Korea Herald 200591 Hart-Landsberg 2004 pp 98ndash992 Kim Jae-kyoung 200493 Business Week 200494 Bivens 2004 p 2 cf Burke et al 2004 pp 4ndash5
workers89 Moreover state policies have helped to create an enormous reservearmy of the unemployed the self-employed and their unpaid family membersaccount for more than one third of the total workforce90
Not surprisingly then the countryrsquos poverty rate remains considerablyhigher than before the crisis Inequality stands at record levels91 A 2004 KoreaBroadcasting System survey on the economic state of the nation provides perhaps the clearest evidence of the failure of this restructuring process tosatisfy majority needs As reported by the Korea Times the survey found thatlsquoMore than half of South Koreans feel that the current economic situation isworse than it was in late 1997 when the financial crisis shook the nationrsquo92
VIIWorkers the US
We have highlighted some of the ways in which East Asiarsquos regionally-structured production network is worsening living and working conditionsfor East-Asian workers The primary focus of this network has been the US market and the China-based export offensive is also generating serious negative consequences for US workers In the words of Business Week
lsquoThe China pricersquo They are the three scariest words in US industry In general
it means 30 to 50 less than what you can possibly make something for
in the US In the worst cases it means below your cost of materials Makers
of apparel footwear electric appliances and plastics products which have
been shutting US factories for decades know well the futility of trying to
match the China price93
The growth in imports and related plant closures has contributed to a serious decline in US manufacturing employment The US manufacturingsector lost more than 3 million jobs between 1998 and 2003 27 million ofwhich were lost between 2000 and 200394 While most mainstream economistsclaim that this loss is due primarily to changing consumer tastes (demandfor fewer manufactures) andor rising productivity Bivens demonstrates thatimports have been a more important cause He does this by comparing
HIMA 143_f2_3-43 81106 313 PM Page 33
34 bull Martin Hart-Landsberg and Paul Burkett
95 Bivens 2004 p 496 Bivens 2004 p 597 Bivens 2004 p 698 Burke 2000 p 699 McGregor 2004
a measure of manufacturing demand that includes the sum of domestic manufacturing output and net manufactured imports into the US with ameasure of total domestic demand that includes GDP and net imports of allgoods and services
Specifically Bivens finds that while the share of domestic production ofmanufactures relative to GDP has fallen the share of manufacturing demand
(including net imports) as a percentage of total domestic demand (as definedabove) actual grew over the period 1998ndash200395 Thus the loss of manufacturingjobs is not due to a lack of demand for manufactures but rather to a declinein their domestic production Indeed the ratio of domestic manufacturingproduction to total manufacturing demand fell from 892 per cent in 1997 to765 per cent in 200396 Overall according to Bivensrsquos analysis domestic factors (demand and productivity) account for only 415 per cent of the lossin manufacturing jobs over the years 1998ndash2003 while imports account for585 per cent97
Naturally then Chinarsquos new position as anchor of East Asiarsquos transnationalexport reacutegime has led many US businesses and workers to view Chinarsquosexport activity with alarm And whereas in previous years Chinarsquos exportswere largely in low-technology items they are increasingly shifting to productsthat threaten the jobs of higher-paid US workers For example while lsquoin 1989approximately 27 percent of imports from China competed against goodsproduced by high-wage industries in the US market by 1999 that percentagehad grown to almost 45 percentrsquo98
We have argued that the China phenomenon should be understood not insimple national or even inter-national terms but rather as a transnational capitalist process that ties together production across borders to the benefitof transnational capital and to the detriment of enterprises not connected tothis process and most workers in all the countries involved Consistent withthis argument although many US companies are being hurt by China-basedproduction activity other US firms are directly contributing to and profitingfrom this activity Among the biggest beneficiaries according to the Financial
Times are those companies that use China lsquoas a base for exporting or sourcingcheap goods such as Wal-Martrsquo99 In fact Wal-Mart alone accounts for more
HIMA 143_f2_3-43 81106 313 PM Page 34
China and the Dynamics of Transnational Accumulation bull 35
100 China Economic Net 2004101 Jiang Jingjing 2004102 Business Week 2004103 Burke 2000 pp 1ndash2104 Burke 2000 p 4105 Ibid
than 10 per cent of total US imports from China100 One estimate reported inthe China Daily is that Wal-Mart imports from China will top $18 billion in2004101 Other US transnationals such as General Motors Procter amp Gambleand Motorola are also making large profits doing business in China andorwith Chinese subcontractors102
The role of US transnationals in advancing or deepening this China-basedprocess to the detriment of US workers is significant and growing Accordingto Burke lsquoA 10 percent increase in the level of US direct investment in anindustry in China is associated with a 73 percent increase in the volume ofUS imports from China and a 21 percent decline in US exports to China inthat industryrsquo103 Burke charts the changing orientation of US firms operatingin China by comparing lsquoexports shipped to US affiliate firms in China toimports sold to the United States from these affiliates from 1989 to 1997rsquo104
The result is that lsquosince 1995 the value of imports from US affiliates in Chinahas surpassed the value of US exports to these foreign affiliates In just a fewyears US multinationals operating in China have turned from net exportersto China to net exporters to the United States a gap that will only widenwith increased FDI to China further contributing to the growing US tradedeficitrsquo105
Table 11 highlights this shift in orientation by examining the activities ofmajority owned foreign affiliates (MOFA) of US firms We see that by 1998US MOFAs in China were exporting more to their parent companies thantheir parent companies were exporting to them thereby helping to enlargethe US trade deficit The special role of China is highlighted by the fact thatUS MOFA behaviour in the Asia and Pacific region does not follow thispattern There the intra-firm trade of US-based transnationals continues togenerate a surplus for the US economy Clearly there is a broad process atwork in which China-based production does have a significant impact on theUS economy Although that production is largely driven by East-Asian capitalan important segment of US industry is also participating in and benefitingfrom it as well
HIMA 143_f2_3-43 81106 313 PM Page 35
36 bull Martin Hart-Landsberg and Paul Burkett
106 Bronfenbrenner and Luce 2004107 Bronfenbrenner and Luce 2004 p 9 Their study was not intended to be
comprehensive For example they did not look at the co-ordinated expansions andcontractions of production at different sites undertaken by transnational corporations(as opposed to complete closures and openings that were connected) Nor did theyinvestigate the kind of foreign outsourcing in which US firms (whether transnationalor not) shift purchases of intermediate goods from domestic to foreign suppliersBurke et al 2004 show that this last form of foreign outsourcing has greatly acceleratedin recent years
Table 11US intra-firm trade Majority Owned (Nonbank) Foreign Affiliates (MOFA)
millions US$
US exports US imports US exports US imports of goods to of goods of goods to of goods MOFA in from MOFA MOFA in from MOFAChina in China Asia and in Asia
Pacific and Pacific
1997 1745 1659 50922 355441998 1967 2026 44615 364192001 2152 3027 41757 343462002 2093 3037 35967 30870
Source Bureau of Economic Analysis 2000ndash4
We have focused on China because of its importance for contemporary globalcapitalist dynamics especially for the development of East-Asian industryand the US trade deficit However precisely insofar as Chinarsquos new globalrole has largely grown out of the changing nature of transnational capitalistproduction imperatives it is important to acknowledge that this transnationalactivity is not limited to East Asia and that capitalist competition generatesa complex array of intersecting cross-border relationships around the worldThis complexity is highlighted by a study done by Kate Bronfenbrenner and Stephanie Luce for the US-China Economic and Security ReviewCommission106 Their main focus was on US production shifts (tied contractionsand expansions of jobs) to China as reported in English language mediaduring the first quarters of 2004 and 2001 respectively However in order tosituate these corporate moves in a wider geographical perspective they alsolooked at lsquojob shifts from the US to other Asian countries Mexico and otherLatin American countries and production shifts from Asia Europe and othercountries into China other Asian countries and Latin American countriesrsquo107
For the first quarter of 2004 they found 255 shifts announced or reportedby US facilities Mexico was the location for 69 China for 58 other Asian
HIMA 143_f2_3-43 81106 313 PM Page 36
China and the Dynamics of Transnational Accumulation bull 37
108 Bronfenbrenner and Luce 2004 p 16109 Bronfenbrenner and Luce 2004 p 17110 Bronfenbrenner and Luce 2004 p 20111 Bronfenbrenner and Luce 2004 pp 33ndash4
countries for 39 India for 31 and other Latin-American and Caribbean countries for 35108 This number of production shifts out of the US representeda major leap compared to the first quarter of 2001 for example during thisperiod the authors found only 30 shifts to Mexico and 25 to China109 Thesefigures also suggest that while China is a major destination for US productionthe largest number of production shifts out of the US continue to go to Mexiconot to China
Perhaps even more significant then the rise in the number of shifts is thefact that their strategic orientation also appears to be changing In 2001 thegreat majority of shifts involved US-based firms moving production from the US to a single foreign location In 2004 48 per cent of all production shiftsinvolved moving production to multiple foreign destinations According tothe authors lsquoA large percentage of these shifts were simultaneous shifts toldquonearshorerdquo countries in Latin America (primarily Mexico) and to China andother ldquooffshorerdquo countries in Asiarsquo110 In other words for US corporationsglobal restructuring tended to involve both Mexico and China The authorshighlight this new pattern as follows
For example US based Amerock announced in February 2004 that it would
be shutting down its Rockford Illinois cabinet and window manufacturing
plant after seventy-five years in operation The company plans to move 450
jobs from Illinois to China and Mexico ndash not to sell hardware to the Chinese
and Mexican market but in an effort to reduce production prices and stay
competitive in the US market This is true for a wide variety of products
that will be produced in China to sell back to the US market by companies
such as Carrier Corp (air conditioners) Levis (jeans) Werner Co (ladders
for Home Depot) Union Tools Inc (lawn and garden tools) and Remington
Products Company (electric shavers)111
The unique role played by China in the transnational restructuring processbecomes clearer thanks to Bronfenbrenner and Lucersquos examination of production shifts from countries other than the US They found that overthe January-March 2004 period there were 55 announcedreported productionshifts from Europe to China and 33 shifts from Asian countries to China (with17 from Japan alone) And similar to the US experience many of these relocations were co-ordinated with shifts to production sites other than China
HIMA 143_f2_3-43 81106 313 PM Page 37
38 bull Martin Hart-Landsberg and Paul Burkett
112 Bronfenbrenner and Luce 2004 p 21113 McGuckin and Spiegelman 2004 Part I
While the Asian companies tend to shift operations to multiple countries
within Asia we found several cases where European countries simultaneously
shifted production to China and Eastern Europe This most likely occurred
for the same reasons that a US company would shift to Mexico and China
to keep some production cross border but not offshore so it still can be
quickly easily and cheaply accessed through ground transportation112
Thus transnational corporations from all three regions are expanding theirproduction lines to include both near-shore and offshore operations Chinais the dominant production base in East Asia representing for many East-Asian companies the best near-shore and offshore option But for USand European companies China is the desired offshore option with UScompanies choosing Mexico for near-shore operations and European companieschoosing Eastern Europe Since European and US firms have other optionscloser to home their cross-border operations are not as dependent on Chinaas are those of firms in Asia
All of this highlights the fierce competition among transnational corporationsbased in the US Europe and Asia to expand and diversify their productionnetworks the effect of which is to bring different countriesrsquo workers into anoverarching framework of competition both within and between differententerprises Asian capital appears to have moved fastest and furthest in thisdirection but US and European companies are quickly catching up Chinarsquosrole is critical because while it is the dominant production base for East Asiathe region that is the most export-oriented it also plays a critical role in thetransnational production networks being extended by US and European firms
The commonality of worker experiences resulting from this transnationalcapitalist investment and production dynamic is perhaps best highlighted by employment trends in both China and the US the countries that appearto lie at opposite ends of the dynamic The reality is that while the US is losing manufacturing employment so is China As a Conference Board reportnotes lsquoWhile there has been much discussion about offshoring high-wagejobs from the United States to low-wage countries like China the loss of largenumbers of manufacturing jobs is actually occurring in both countries simultaneouslyrsquo113 More specifically China has lost lsquomore manufacturing jobsthan the United States ndash 15 million in total a 15 per cent decline ndash between
HIMA 143_f2_3-43 81106 313 PM Page 38
China and the Dynamics of Transnational Accumulation bull 39
114 Ibid
1995 and 2002rsquo Moreover it has suffered job losses in many of the same industries lsquoFor example the United States lost 202000 textile jobs between1995 and 2002 a tremendous decline by any measure But China lost manymore ndash 18 millionrsquo In fact China has suffered job losses in 26 of its 38 majormanufacturing industries114 In sum workers in China East Asia and the USare increasingly captured by a common dynamic of capitalist restructuringWealth is being generated but little is being shared with those who do theactual production most of whom are being pitted against each other and suffering similar consequences including unemployment and worsening living and working conditions
VIII Conclusion
Our analysis of China verifies the continuing dynamism of contemporarycapitalism That dynamism leads to rapid shifts in the economic fortunes ofnations and the development of new production and exchange relationshipswithin and among countries Indeed it is the very rapidity of change thatleads many to celebrate contemporary capitalism as an engine of developmentNonetheless we believe that a careful examination of contemporary dynamicsshows that despite its rapid growth and export success China is not anattractive model of development from a working-class perspective Chineseworkers are facing increasingly difficult conditions even as they succeed inproducing more exports
China also does not anchor a development process that is beneficial forworkers in other countries Workers throughout East Asia are being knittedtogether in a production process that crosses many borders and in so doingrestructures national activity and resources away from meeting domesticneeds Activity and resources are being organised to serve export marketsout of the region under the direction of transnational corporations whoseinterests are largely in cost reduction regardless of the social or environmentalconsequences The US economy and US labour are also being restructuredas part of the same process
Our analysis of contemporary dynamics also highlights the fact that thistransnational capitalist restructuring within which China plays such a criticalrole is generating tensions and imbalances For example East-Asian growthis increasingly dependent on ever-greater US trade deficits This trend cannot
HIMA 143_f2_3-43 81106 313 PM Page 39
40 bull Martin Hart-Landsberg and Paul Burkett
continue forever In saying this we do not mean to predict that capitalismhas reached some final crisis Rather our point is that these imbalances will have to be corrected and insofar as the logic of capitalist competitiongoes unchallenged governments can be expected to manage the resultingeconomic instabilities with policies that will only further worsen living andworking conditions In fact they are likely to generate explanations for thenecessity of such policies that will deliberately foment racism and a destructivenationalism
Whether workers can develop a response to this situation remains to beseen Clearly the dynamic nature of the system and the fact that wealth isbeing created tends to mask the destructive nature of the system So does themainstream perspective on the Chinese experience We need to challenge thatperspective and demystify the transnational capitalist processes that arereshaping different countriesrsquo economies in order to reveal the capitalist rootsof the growing social problems faced by workers around the world and thestructural imbalances that threaten yet further immiseration Finally we needto translate this understanding into a programme of action that can assist thebirth of national regional and global movements for change that can enableworking people to reclaim control over their lives
References
Asian Development Bank 2004 Key Indicators 2004 May ltwwwadborgstatisticsgt
Asian Development Bank 2005 Asia Regional Information Center Indicators lthttparicadborggt
Asia Times 2005 lsquoChinarsquos Trade With South Korea on Fast Trackrsquo 5 March availableat ltwwwatimescomgt
Athukorala Prema-chandra 2003 lsquoProduct Fragmentation and Trade Patterns in EastAsiarsquo Working Paper No 200321 Division of Economics Research School of Pacificand Asian Studies Australian National University October 1ndash67
Bivens Josh 2004 lsquoShifting Blame for Manufacturing Job Lossrsquo Briefing Paper No149 Economic Policy Institute April available at lthttpwwwepinetorgbriefingpapers149bp149pdfgt
Bradsher Keith 2005 lsquoNext Wave From China Exporting Cars to the Westrsquo New YorkTimes 25 June available at ltwwwnytimescomgt
Bronfenbrenner Kate and Stephanie Luce 2004 The Changing Nature of Corporate GlobalRestructuring The Impact of Production Shifts on Jobs in the US China and Around theGlobe Submitted to the US-China Economic and Security Review Commission 14October available at lthttpwwwusccgovresearchpapers2004cornell_u_mass_reportpdf 1ndash95gt
Brown Christine P 2004 lsquoTrade Sector Leads Korearsquos Economic Growth in First Halfof 2004rsquo Korea Insight 6 8 1
HIMA 143_f2_3-43 81106 313 PM Page 40
China and the Dynamics of Transnational Accumulation bull 41
Bureau of Economic Analysis 2000ndash4 lsquoReports on US Multinational CompaniesrsquoOperationsrsquo US Department of Commerce Survey of Current Business various issuesavailable at lthttpwwwbeadocgovbeapubshtmgt
Burke James 2000 lsquoUS Investment in China Worsens Trade Deficitrsquo Briefing PaperNo 90 Economic Policy Institute May available at lthttpwwwepinetorgbriefingpapersFDIFDI_BPpdfgt
Burke James Gerald Epstein and Minsik Choi 2004 Rising Foreign Outsourcing andEmployment Losses in US Manufacturing 1987ndash2002 Working Paper No 89 PoliticalEconomy Research Institute University of Massachusetts at Amherst October
Burkett Paul and Martin Hart-Landsberg 2000 Development Crisis and Class StruggleLearning from Japan and East Asia New York St Martinrsquos Press
Business Week 2004 lsquoSpecial Report The China Pricersquo 6 December available at ltwwwbusinessweekcomgt
Cheng Allen T 2004 lsquoRich-Poor Gap Among the Worst Study Findsrsquo South ChinaMorning Post 26 February available at ltwwwscmpcomgt
China Economic Net 2004 lsquoImplications of Wal-Martrsquos Procurement in Chinarsquo 26November available at lthttpencecngt
China Labour Bulletin 2005 lsquoSubsistence Living for Millions of Former State Workersrsquo7 September available at ltwwwchina-labourorgukgt
Cody Edward 2004 lsquoWorkers In China Shed Passivity Spate of Walkouts ShakesFactoriesrsquo Washington Post 27 November available at ltwwwwashingtonpostcomgt
Cooper Caroline 2002 lsquoDoes China Pose an Economic Threat to Korearsquo Korea Insight4 1 1
Coy Peter 2004 lsquoJust How Cheap Is Chinese Laborrsquo Business Week 3 December available at ltwwwbusinessweekcomgt
Economist 2004 lsquoThe Dragon and the Eaglersquo 2 October 3ndash26
Economist 2005 lsquoThe Struggle of Championsrsquo 6 January 59ndash61
Fernald John and Prakash Loungani 2004 lsquoComrades or Competitors On TradeRelationships Between China and Emerging Asiarsquo Chicago Fed Letter No 20 (March)1ndash4
Gilboy George G 2004 lsquoThe Myth Behind Chinarsquos Miraclersquo Foreign Affairs JulyndashAugustavailable at ltwwwforeignaffairsorggt
Gough Neil 2005 lsquoTrouble on the Linersquo Time Asia 31 January available at ltwwwtimecomtimeasiagt
Hart-Landsberg Martin 2004 lsquoThe South Korean Economy and US Policyrsquo AsianPerspective 28 4 89ndash117
Hart-Landsberg Martin and Paul Burkett 2001 lsquoEconomic Crisis and Restructuringin South Korea Beyond the Free Market-Statist Debatersquo Critical Asian Studies 333 403ndash30
Hart-Landsberg Martin and Paul Burkett 2005a China and Socialism Market Reformsand Class Struggle New York Monthly Review Press
Hart-Landsberg Martin and Paul Burkett 2005b lsquoChina and Socialism Engaging theIssuesrsquo Critical Asian Studies 37 4 597ndash628
Holland Tom 2004 lsquoLabour Painsrsquo Far Eastern Economic Review 23 September 42
Holst David Roland and John Weiss 2004 lsquoASEAN and China Export Rivals orPartners in Regional Growthrsquo World Economy 27 8 1255ndash74
HIMA 143_f2_3-43 81106 313 PM Page 41
42 bull Martin Hart-Landsberg and Paul Burkett
Hong Kong Confederation of Trade Unions 2004 Chinese Labour and the WTOlthttpwwwihloorggt 1ndash60
Huang Cary 2005 lsquoUnified Taxation Plan for Businesses Delayedrsquo South China MorningPost 28 January available at ltwwwscmpcomgt
Jang Sang-hwan 2004 lsquoContinuing Suicides Among Laborers in Korearsquo Labor History45 3 271ndash97
Jiang Jingjing 2004 lsquoWal-Martrsquos China Inventory to Hit US$18b This Yearrsquo China Daily29 November available at ltwwwchinadailycomcngt
Keliher Macabe 2004 lsquoReplacing US in Asian Export Marketrsquo Asia Times 11 Februaryavailable at ltwwwatimescomgt
Kim Hyun-chul 2003 lsquoChaebol Lobby Warns of Exodusrsquo Korea Herald 27 June available at ltwwwkoreaheraldcokrgt
Kim Hyun-chul 2004 lsquoChina Outstrips Korean Car Productionrsquo Korea Herald 2 Februaryavailable at ltwwwkoreaheraldcokrgt
Kim Jae-kyoung 2004 lsquoHardship More Serious Than 6 Years Agorsquo Korea Times 26May available at lthttptimeshankookicomgt
Kim Jae-kyoung 2005 lsquoSouth Korearsquos Consumption Growth Lowest in OECDrsquo KoreaTimes 3 January available at lthttptimeshankookicomgt
Kim Ji-ho 2004a lsquoMorgan Stanley Warns of Economic Slowdown in Chinarsquo KoreaHerald 24 March available at ltwwwkoreaheraldcokrgt
Kim Ji-ho 2004b lsquoChaebol Investment Falls 335rsquo Korea Herald 12 July available at ltwwwkoreaheraldcokrgt
Kim Ji-hyun 2004 lsquoFlexibility in Labour Top Priorityrsquo Korea Herald 22 May availableat ltwwwkoreaheraldcokrgt
Kim Mi-hui 2003 lsquoFactories Relocating Abroad to Cut Costsrsquo Korea Herald 25 Octoberavailable at ltwwwkoreaheraldcokrgt
Kirk Don 2003 lsquoContract at Hyundai Raises Sights of Korean Workersrsquo New YorkTimes 19 August W1 W7 ltwwwnytimescomgt
Korea Herald 2003a lsquoLabor Group Seeks Equality For All Workersrsquo 16 January available at ltwwwkoreaheraldcokrgt
Korea Herald 2003b lsquoKorearsquos State Debt Tripled Over 5 Yearsrsquo 8 September availableat ltwwwkoreaheraldcokrgt
Korea Herald 2005 lsquoThe Self-Employed In Plightrsquo 12 February available at ltwwwkoreaheraldcokrgt
Lall Sanjaya and Manuel Albaladejo 2004 lsquoChinarsquos Competitive Performance A Threatto East Asian Manufactured Exportsrsquo World Development 32 9 1441ndash66
Lee Ching Kwan 2004 lsquoldquoMade in Chinardquo Labor as a Political Forcersquo Presentationat the 2004 Mansfield Conference The University of Montana Missoula 18ndash20 Aprilavailable at lthttpwwwumtedumansfieldChing20Kwan20Lee20paperpdfgt
Lister James M 2004 lsquoOutlook for Korearsquos Economyrsquo Korea Insight 6 1 1
Lowe-Lee Florence 2004 lsquoA New Financial Crisis Credit Card Excessesrsquo Korea Insight6 2 1ndash2
McGregor Richard 2004 lsquoCompetition in China Keeps Foreign Profits Lowrsquo FinancialTimes 5 December available at ltwwwftcomgt
HIMA 143_f2_3-43 81106 313 PM Page 42
China and the Dynamics of Transnational Accumulation bull 43
McGuckin Robert H and Matthew Spiegelman 2004 Chinarsquos Experience with Productivityand Jobs Benefits and Costs of Change Parts I II III IV Research Report No R-1352ndash04-RR The Conference Board June available at lthttpwwwconference-boardorgpublicationsreportscfmgt
Naughton Barry 1996 lsquoChinarsquos Emergence and Prospects as a Trading Nationrsquo BrookingsPapers on Economic Activity No 2 273ndash344
OECD (Organisation for Economic Co-operation and Development) 2005 EconomicSurveys China Paris OECD
Peoplersquos Daily 2004 lsquoIncome Gaps Have to be Closedrsquo 25 February available atlthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005a lsquoChinarsquos Middle Class Defined by Incomersquo 20 January availableat lthttpenglishpeopledailycomcngt
Peoplersquos Daily 2005b lsquoChinarsquos Dependence Upon Overseas Domestic Demand SeverelyImbalancedrsquo 20 November available at lthttpenglishpeopledailycomcngt
Roach Steven 2003 lsquoThe Hypocrisy of Bashing Chinarsquo Financial Times 7 August available at ltwwwftcomgt
Roach Steven 2005 lsquoWhat if China Slowsrsquo Global Economic Forum Morgan Stanley23 May available at ltwwwmorganstanleycomGEFdatadigestsgt
Steinfield Edward S 2004 lsquoChinarsquos Shallow Integration Networked Production andthe New Challenges for Late Industrializationrsquo World Development 32 11 1971ndash87
UNCTAD (United Nations Conference on Trade and Development) 2002 Trade andDevelopment Report 2002 New York United Nations
UNCTAD (United Nations Conference on Trade and Development) 2005 Trade andDevelopment Report 2005 New York United Nations
US Department of Commerce 2005 lsquoUS Aggregate Foreign Trade Datarsquo available atlthttpwwwitadocgovtdindustryoteausfthtabconhtmlgt
HIMA 143_f2_3-43 81106 313 PM Page 43