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    Reporters Without Borders said in it’s 2005 special report titled “Xinhua: the world’s biggest propaganda agency”, that “Xinhua remains the voice of the sole party”, “particularly during the SARS epidemic, Xinhua has for last few months been putting out news reports embarrassing to the government, but they are designed to fool the international community, since they are not published in Chinese.”
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The “China Price” and Weapons of Mass Production

Posted by Author on March 3, 2007

By Peter Navarro, Sample Chapter of the book The Coming China Wars, provided courtesy of Financial Times, published on wbsite, Mar 2, 2007-

The China Price. They are the three scariest words in U.S. industry. Cut your price at least 30% or lose your customers. Nearly every manufacturer is vulnerable—from furniture to networking gear. The result: a massive shift in economic power is underway.
—Business Week1

China has an official policy for the economy to grow at 7%–8% per year, the rate which the ruling mandarins calculate is needed to create about 15 million new jobs a year, to absorb new entrants into the labor market and discards from the shrinking state sector. Every policy, from the value of the Chinese currency to the delay in closing an unsafe coal mine, is calibrated to ensure that economic output continues to expand at this rapid pace.
—Financial Mail2

Since 1980, China’s Adam Smith-on-steroids economy has grown by almost 10% a year—doubling an astonishing three times. During its ascent, China has far outperformed Japan’s 1980s “economic miracle.” It has also run circles around the vaunted “Four Dragons”—Hong Kong, Korea, Taiwan, and Singapore—even in their economic heydays.

Any complete understanding of the Coming China Wars must begin with this observation: China’s hyper-rate of economic growth is export driven; and the ability of the Chinese to conquer one export market after another, often in blitzkrieg fashion, derives from their ability to set the so-called China Price.

The China Price refers to the fact that Chinese manufacturers can undercut significantly the prices offered by foreign competitors over a mind-bogglingly wide range of products and services. Today, as a result of the China Price, China produces more than 70% of the world’s DVDs and toys; more than half of its bikes, cameras, shoes, and telephones; and more than a third of its air conditioners, color TVs, computer monitors, luggage, and microwave ovens. The country also has established dominant market positions in everything from furniture, refrigerators, and washing machines to jeans and underwear (yes, boxers and briefs).

Given China’s demonstrated ability to conquer one export market after another, the obvious question is this: How has China been able to emerge as the world’s “factory floor”? The answer lies in China’s primary “weapon of mass production”—the China Price. The nine major economic “drivers” of the China Price are as follows:

* Low-wage, high-quality work by a highly disciplined, educated, and nonunion work force
* Minimal worker health and safety regulations
* Lax environmental regulations and enforcement
* The supercharging, catalytic role of foreign direct investment (FDI)
* A highly efficient form of industrial organization known as “network clustering”
* An elaborate, government-sanctioned system of counterfeiting and piracy
* A chronically undervalued, “beggar thy neighbor” currency
* Massive government subsidies to numerous targeted industries
* “Great Wall” protectionist trade barriers, particularly for “infant industries”

In analyzing the nine key economic drivers, I show you that only one—network clustering—is truly legitimate from the perspective of a global economic system that is supposed to be based on free and fair trade. Each of the other eight China Price drivers violate one or more of the many “rules of the trading road” that have been established by organizations such as the World Trade Organization and treaties such as the General Agreement on Tariffs and Trade or that are embodied in international labor and environmental standards.

The broader point that should emerge from the foundation chapter is that by engaging in a comprehensive set of unfair trade policies and by wielding its primary “weapon of mass production,” the China Price, China is enjoying unprecedented rates of export-driven economic growth—and thereby trouncing the competition in global markets. In the process, China is effectively sowing the economic seeds of the Coming China Wars with the rest of the world. And, in the worst “wars from within” scenario, China is also setting itself up for its own environmental, political, and social destruction.

Low Wages for High-Quality Work

What is stunning about China is that for the first time we have a huge, poor country that can compete both with very low wages and in high tech. Combine the two, and America has a problem.
—Professor Richard Friedman, Harvard University

It is difficult to estimate accurately wage levels in China because much of the data is of poor quality. In addition, the government wants to hide the fact that numerous companies illegally pay their workers far less than the stated minimum wage.

Estimates that do exist put the average hourly earnings well below a dollar. Interesting, however, is that in many other countries, wages are as low or even substantially lower than in China. These countries, scattered all over the world, range from the Dominican Republic and Nicaragua in Latin America and Bangladesh and Pakistan on the Indian subcontinent to Burma, Cambodia, and Vietnam in Southeast Asia. Despite their lower wages and often equally wretched working conditions, none of these countries can compete effectively with China. One important reason is simply that manufacturers in China get a lot more productivity bang out of the wage buck. Chinese workers are relatively better educated and, more important, far more disciplined than the workers found in the poor barrios of Caracas or Rio de Janeiro or the slums of Soweto or Lesotho. This means that dollar for dollar and yuan for yuan, China can provide higher-quality, more-disciplined workers; on a productivity-adjusted basis, their workers are highly competitive with virtually every other country in the world.

There is, however, a far more subtle part of this wage story—one that seeks to answer the question: How is it that year after year, indeed decade after decade of record economic growth, Chinese wages do not really rise much? Or to put it another way, how can Chinese manufacturers continue to pay such low wages for a high-quality work force in the face of rapid growth that in other countries would quickly tighten the labor market and cause wages to spike?

At least part of the answer lies in one of the great ideological, economic, and darkly comic ironies of our time. In a country that was built on a foundation of Marxist doctrine, there exists the largest “reserve army of the unemployed” ever created in human history. In this regard, one of the central tenets of Marxist theory is that the exploitation of workers by capitalists is made possible because capitalism will always generate significant unemployment. The inevitable presence of this “reserve army” of unemployed workers will always depress wages and allow the capitalists to exploit their workers in other ways, too (for example, poor working conditions).

On this count, and at least at this time in China’s history, Karl Marx got it absolutely right. The size of China’s reserve army is breathtaking and, at least on first hearing, almost unbelievable. This reserve army of surplus labor numbers significantly more than a hundred million workers. To put this in perspective, this means that China has almost as many unemployed and underemployed workers as America employs in total.4

Now, here is what is perhaps most interesting about this surplus labor: Despite two decades of double-digit GDP growth, China’s reserve army continues to grow, not shrink. The next question is how this huge pool of surplus labor that so effectively depresses wages and benefits in China got to be so large—and why it continues to grow. The answer may be found in four important elements that explain China’s labor market advantage: continued population growth in the world’s most populous country; a massive privatization of the work force that has cast off tens of millions of industrial workers from the security of the “iron rice bowl” system; a government-decreed, rapid urbanization that is moving hundreds of millions of farmers into Chinese factories; and a system, in many cases, of quasi-slave labor facilitated by the outlawing of labor unions. …… ( more details from )

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