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China, Capitalist Accumulation, and Labor

Posted by Indian Vanguard on September 1, 2007

by Martin Hart-Landsberg & Paul Burkett
Most economists continue to celebrate China as one of the most successful developing countries in modern times. We, however, are highly critical of the Chinese growth experience. China’s growth has been driven by the intensified exploitation of the country’s farmers and workers, who have been systematically dispossessed through the break-up of the communes, the resultant collapse of health and education services, and massive state-enterprise layoffs, to name just the most important “reforms.” With resources increasingly being restructured in and by transnational corporations largely for the purpose of satisfying external market demands, China’s foreign-driven, export-led growth strategy has undermined the state’s capacity to plan and direct economic activity. Moreover, in a world of competitive struggle among countries for both foreign direct investment and export markets, China’s gains have been organically linked to development setbacks in other countries. Finally, China’s growth has become increasingly dependent not only on foreign capital but also on the unsustainable trade deficits of the United States. In short, the accumulation dynamics underlying China’s growth are generating serious national and international imbalances that are bound to require correction at considerable social cost for working people in China and the rest of the world.1

Significantly, many on the left (including those who acknowledge that China is now predominately a capitalist country) find these criticisms of the Chinese experience largely beside the point. They see China as a viable and praiseworthy example of economic modernization.2 For them, the relevant counterpoint to China’s economic achievements is the long-run development crises experienced by countries in Africa and Latin America. These countries have failed to develop the productive forces necessary to generate significant long-term job opportunities in the “formal labor market,” with the result that the overwhelming majority of workers in Africa and Latin America are forced to eke out an existence in the relatively unregulated and non-institutionalized “informal sector” or in subsistence (or below-subsistence) agriculture. In contrast, China, with its dynamic industrial development and manufacturing export activity, is assumed to have made great strides toward overcoming such problems.

Although this assumption about the progressive nature of Chinese growth and employment creation seems beyond challenge, unfortunately it is false. In fact, the labor market outlook in China (and in the East Asian countries that are most closely integrated with China) is rapidly approaching a crisis situation similar to that found in much of Africa and Latin America. And this is not because capitalism has ceased to be a dynamic mode of production. Far from it: the emerging employment crisis is a direct outcome of transnational capital’s dynamic shaping and integration of China and a number of other East Asian countries into a regional system of export-oriented production.

Regrettably, the celebration of these countries as development successes has led many on the left to defend the position that (properly regulated) capitalism remains a historically progressive mode of production. But this ignores the possibility that the basic dynamics of contemporary capitalism themselves constitute the main barrier to sustained improvements in working and living conditions on national, regional, and global levels. Demonstrating that workers in China and throughout East Asia are increasingly suffering the very same labor outcomes as workers in Latin America and Africa offers a powerful argument against current celebratory accounts of the China–East Asia system.

China’s Economic Transformation

Beginning in 1978, the Chinese state launched a reform program that has produced an impressive growth record. According to the International Labor Organization, “Between 1990 and 2002, GDP per capita grew at a rate of 8.3 percent per annum. This phenomenal growth was driven by an industrial revolution that has made China a manufacturing powerhouse.”3

Underlying this program was a set of state policies that has, over time, led to the privileging of market forces over planning, private production over state production, and foreign enterprises and markets over domestic ones. One consequence is that Chinese economic activity has become increasingly dominated by transnational corporations. For example, the share of foreign manufacturers in China’s total manufacturing sales grew from 2.3 percent in 1990 to 31.3 percent in 2000. From 1998 to 2003, the share of industrial value added produced by state enterprises in the non-resource based industrial sector fell from 17.3 percent to 6.7 percent, while the share accounted for by foreign enterprises rose from 11.4 percent to 17.1 percent.4

Another consequence is that China’s economic growth has become increasingly dependent on foreign produced exports. Approximately 46 percent of foreign manufacturing production is exported, compared with only 16 percent for domestically owned manufacturing firms. Foreign firms now dominate China’s export activity; their share of China’s exports grew from 2 percent in 1985, to 30 percent in 1995, and 57 percent in 2004. As a result of these trends, the ratio of exports to GDP has steadily climbed from 16 percent in 1990 to 36 percent in 2003.5

Numerous studies have found that the contribution made by transnational corporations to China’s growth is substantial and increasing over time. For example, an analysis published by the National Bureau of Economic Research concluded that approximately 30 percent of China’s growth over the period 1995–2004 was due to transnational corporate activity, with the foreign contribution rising to over 40 percent in 2003 and 2004.6

In terms of expenditure categories, the two main drivers of Chinese growth are exports and fixed investment—with much of the investment undertaken in support of export activity. Stephen S. Roach (managing director and chief economist of Morgan Stanley) estimates that investment and exports account for approximately 80 percent of Chinese GDP.7 As table 1 shows, the growing importance of gross capital formation and net exports has come largely at the expense of private (household) consumption, which fell as a share of GDP from 51.1 percent in 1988 to 38.9 percent in 2005.

This focus on export-oriented capital accumulation highlights China’s growing external dependence. China’s exports are largely directed toward the U.S. market. According to one analyst, if one includes goods that are re-exported from other countries (especially Hong Kong), China’s exports to the United States account for about half of its total exports. “Thus export growth is largely determined by the growth of US demand. Because almost all of China’s exports are consumer goods, personal consumption demand in the US drives China’s export growth.”8

Moreover, even China’s fixed investment is heavily dependent on external forces. Foreign direct investment is one of the main determinants of investment in the country’s manufacturing sector. It also strongly influences Chinese spending on “domestic infrastructure, such as power generation, ports, and road and rail transport, which is critical to expanding manufacturing and export capacity. Finally, external demand also influences China’s domestic investment in real estate, which is necessary in securing locations for new manufacturing and power plants, as well as housing for employees.” According to one estimate, “external demand directly and indirectly drives about 65% of all domestic investment in China.”9

Table 1. Structure of demand, percent of GDP at current prices
1988 1990 1995 2001 2002 2003 2004 2005
Private consumption 51.1 49.1 46.1 47.2 46.5 44.9 46.6 38.9
Government consumption 11.6 12.1 11.4 13.4 13.2 12.6 16.9 14.2
Gross domestic capital formation 36.8 34.7 40.8 38.5 40.2 43.9 50.5 44.1
Net exports of goods and services 1.0 2.7 1.7 2.3 2.7 2.3 3.0 4.6
Source: People’s Republic of China, Key Indicators of Developing Asian and Pacific Countries, Asian Development Bank, updated July 21, 2006, .

Supporters of China’s growth strategy tend to minimize the significance of the country’s reliance on foreign investment and exporting. Rather, they emphasize that China’s reform strategy has enabled the country to steadily upgrade the sophistication of its industrial activities, thereby demonstrating that the country is indeed making major strides towards development. One of the most commonly used measures of this progress is China’s growth as a producer and exporter of electronics and information technology goods. In fact, “After almost a decade of explosive growth in its electronics sector, China has overtaken the United States as the world’s biggest supplier of information technology goods, according to a report by the Organization for Economic Cooperation and Development.” These exports now account for more than 28 percent of total Chinese exports.10

Although impressive, this accomplishment is misleading as a measure of China’s national technological development. One reason is that China’s electronic and information technology products are generally of lower technological sophistication. For example, China’s main high-technology exports are in consumer electronics, office equipment and computers, and communications equipment. Within these categories, China’s leading products are DVD players, notebook computers, and mobile telephones, respectively. As two leading China observers, Lee Branstetter and Nicholas Lardy, point out, “Each of these is a high volume, commodity product sold primarily by mass merchandisers of electronic products….The huge volumes and low unit costs of these products undermine the argument that these are high-tech products.”11
Perhaps more revealing of China’s ongoing foreign technological dependence is the fact that China, as Branstetter and Lardy note, “does not in any real sense manufacture…[high-technology] goods. Rather it assembles them from imported parts and components. For example, domestic value-added accounts for only 15 percent of the value of exported electronic and information technology products. All the rest is import content. In short, for many of these products it is doubtful that China is supplying anything but the labor required to produce these goods.”12

Finally, not only is China’s high-technology production dependent on imported technology, it is largely carried out by foreign-invested firms (most of which are wholly foreign owned). For example, in 2003, foreign-invested firms accounted for approximately 90 percent of China’s exports of computers, components, and peripherals and 75 percent of its exports of electronics and telecommunications equipment. Not only do foreign firms dominate China’s high-technology export activity, they are also coming to dominate China’s domestic markets. For example, between 1998 and 2002, foreign firms increased their share of total domestic high-tech sales from 32 percent to 45 percent.13

Moreover, the foreign domination of this sector continues to grow. According to China’s Ministry of Information Industry, the percentage of foreign ventures in China’s electronic information industry rose from 58.7 percent in 2000 to 77.4 percent in 2005. And, in the first two months of 2006, these foreign firms were responsible for 86.9 percent of China’s total exported electronic products.14

Although committed to a program that has emphasized market liberalization and reliance on foreign capital, the Chinese state simultaneously tried to promote a few “national champions” in an attempt to ensure the establishment of a domestically rooted industrial base. Among the most important are: Huawei (which produces telecommunications equipment), Haier (consumer appliances), Lenovo (computers), TCL (televisions), and Baosteel (steel).

However, despite the fact that many of these companies have grown quite large, few have succeeded in becoming internationally competitive or profitable. In addition, these leading firms have done little to advance national interests in terms of technological development. Most continue to rely on imported foreign equipment to stay competitive and spend little on indigenizing their purchased technology. They have also done little to support the development of national technology supply networks. In fact, “China’s best firms are among the least connected to domestic suppliers: for every $100 that state-owned electronics and telecom firms spend on technology imports, they spend only $1.20 on similar domestic goods.”15

Unfortunately for Chinese planners, the reasons for such failures are largely found in the very logic of the country’s economic reform strategy—specifically its direct and heavy reliance on transnational corporations. In this regard, the Chinese growth strategy has differed greatly from that employed by Japan, South Korea, and Taiwan. As a Brookings Institute economist observes, those countries “relied almost exclusively on domestic firms to manufacture and to export commodities; China has largely relied on FIEs [foreign invested enterprises] to produce exports, and virtually no domestic Chinese companies control significant export networks.” The Economist adds that because “the central government has allowed foreign companies into China at a much earlier stage of its development…these [firms] now control the bulk of the country’s industrial exports, have increasingly strong positions in its domestic markets and retain ownership of almost all technology.”16

In sum, China’s post-reform policies have produced an economy that is increasingly dominated by foreign capital and foreign produced exports. This development has undermined the state’s capacity to plan and direct economic activity. It has also greatly increased the economy’s dependence on the ability of the United States to sustain ever greater trade deficits.

The East Asian Transnational Production Network

East Asian economies are also going through a major transformation, one that has largely proceeded in concert with China’s restructuring. Most economists view this development positively, crediting China’s import dependent growth for generating ever expanding markets and new production possibilities for the other countries in the region. However, this framing masks the real nature of the transformation. In reality, China’s post-reform economic activity and the resulting economic restructuring of other East Asian countries cannot be adequately understood in national or even international terms. Rather, East Asian economies, including China, are being linked and collectively reshaped by broader transnational capitalist dynamics, in particular by the establishment and intensification of cross-border production networks by transnational corporations.

As part of this transformation, all East Asian economies have become more trade oriented, with exports playing an increasingly central role in driving growth. For example, from 1990 to 2004, net exports as a percent of GDP rose from 2.1 percent to 21.4 percent in Malaysia, and from –7.6 percent to 5.1 percent in Thailand. One reason for these large increases is that, unlike in China, growth has not been supported by investment. In fact, as the Asian Development Bank notes, “outside the PRC, widening [trade] surpluses are more closely associated with stunted levels of investment….With the exception of Cambodia, PRC, and Viet Nam, investment rates in East Asia and Southeast Asia are still well below their average pre-crisis levels.”17

More importantly, the transformation has also involved significant changes in both the geographical direction as well as the nature of East Asian manufacturing export activity. As table 2 shows, over the period 1992–2003, Greater China (defined as the mainland and Hong Kong) shifted its export orientation from East Asia, especially developing East Asia, to NAFTA and the EU. Specifically, the share of Greater Chinese exports to developing East Asia fell from 53.8 percent to 30.4 percent. Over the same period, the rest of East Asia shifted in the opposite direction. For example, the six listed members of the ASEAN Free Trade Area (AFTA) increased the share of their exports to East Asia from 36.8 percent to 48.0 percent. And, as table 3 shows, East Asian trade in manufactures is becoming increasingly narrowed to the export and import of parts and components rather than final goods. Looking just at the AFTA countries, trade in parts and components accounted for approximately half of the group’s total increase in manufactured exports and 70 percent of its total increase in manufactured imports over the period 1992–2003. China stands out as one of the few countries whose exports remain largely final goods.

This development reflects the rise of a transnational corporate structured regional production system, with China largely functioning as the final production platform. In other words, the region’s growing focus on trade in parts and components is largely a consequence of China’s new position as an import-dependent producer of high-technology exports. Thus, in 2003, semiconductors and other electronics components accounted for approximately 40 percent of the region’s total exports of parts and components. Adding parts and components related to telecommunication equipment and office and automated data processing machines brings the total to 90 percent.18

Table 2. Destinations of manufactured exports (percent of total exports by region or country)
Exporters Years EA Japan DEA GCH AFTA NAFTA EU
EA 1992 36.6 4.7 31.9 17.1 11.5 30.3 19.6
1996 43.8 7.4 36.5 16.4 15.9 27.6 16.6
2003 45.6 7.4 38.2 22.2 11.6 25.8 15.7
Japan 1992 25.1 25.1 9.0 11.2 32.7 20.8
1996 34.4 34.4 10.7 17.0 30.8 16.2
2003 35.9 35.9 17.8 11.5 28.7 14.9
DEA 1992 44.0 8.6 35.5 23.2 11.0 25.9 17.1
1996 46.8 11.5 35.3 19.0 14.4 24.1 16.0
2003 47.3 10.1 37.2 23.2 11.2 23.7 15.4
GCH 1992 56.4 2.7 53.8 45.3 6.5 19.1 14.7
1996 46.2 8.8 37.4 26.5 7.5 25.9 18.8
2003 39.1 8.7 30.4 19.0 6.9 27.7 20.9
AFTA 1992 36.8 8.8 28.0 7.1 19.3 27.2 19.7
1996 45.0 11.1 33.9 8.2 23.6 23.5 16.0
2003 48.0 10.0 38.0 13.5 21.3 20.7 14.2
Note: The country groups are as follows: EA is East Asia (Japan, China, Hong Kong SAR, Republic of Korea, Taiwan, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam); DEA is Developing East Asia (East Asia excluding Japan); GCH is Greater China (China plus Hong Kong SAR); AFTA is the ASEAN Free Trade Area (Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam); NAFTA is the North American Free Trade Area (United States, Canada, Mexico); EU is the European Union (Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Greece, Portugal, Spain, Sweden, United Kingdom).
Source: Athukorala & Yamashita, “Production Fragmentation and Trade Integration,” 243.

Japan remains the main driver of the region’s production sharing operations, providing a dominant share of the region’s parts and components. In 2001, for example, 70.5 percent of Indonesia’s regional imports of parts and components came from Japan; the corresponding figures were 53.8 percent for Korea, 52.5 percent for the Philippines, 50.5 percent for Taiwan, 48 percent for Thailand, and 43 percent for China. China’s unique role as the region’s ultimate production platform is highlighted by the fact that it is the only country in the region that runs a regional trade deficit in parts and components. In 2001, for example, Greater China (defined here with the substantial intra-trade between Hong Kong and China netted out) ran a regional parts and components trade deficit of $17.6 billion, split almost evenly between Japan and the rest of East Asia. Japan’s unique position is highlighted by the fact that it ran a regional parts and components trade surplus of $29.3 billion, while the rest of East Asia recorded a regional parts and components trade deficit of $5.8 billion (because its collective deficit with Japan was larger than its surplus with Greater China). Thus, the mirror image of China’s growing surplus in trade with the United States, and secondarily the European Union, is its growing deficit in trade with East Asia.19

Table 3. Parts and components (P&C) in manufacturing trade, in percent
Share of P&C in mfg. exports
Contribution of P&C to growth of mfg. exports
Share of P&C in mfg. imports
Contribution of P&C to growth in mfg. imports
Hong Kong
Rep. of Korea
Note: See the note to table 2 for country groupings.
Source: Athukorala and Yamashita, “Production Fragmentation and Trade Integration,” 239–40.

Overall, East Asia’s growth has become increasingly dependent not only on the export of parts and components, which are largely detached from any national base of production, but also on a select few products in a select few industries as determined by the changing needs of transnational corporations. This development has led to a serious misreading of East Asian economic dynamics. As two prominent Asian trade analysts observe, the growth in the intra-regional trade of parts and components causes a significant double-counting of trade “because goods in process cross multiple international borders in the course of their production sequence. The total amount of trade involving the goods while in process can be a multiple of the final value of that good.” Thus, although total trade figures show a rise in the share of intra-regional trade thereby suggesting greater regional self-sufficiency, figures for final goods show quite the opposite trend. For example: the intra-regional share of final manufacturing trade for Developing Asia fell from 44.6 percent in 1992 to 35.2 percent in 2003. Therefore, along with China, the entire region’s growth is becoming ever more dependent on external sales, especially to the United States and the European Union.20

Moreover, although this regional production system appears to promote higher value added production, it in fact offers limited gains in value added to the various countries that compete with one another to participate in it. For example, an UNCTAD study found that “participating in international production chains” often leaves the host country “locked into its current structure of comparative advantage…thereby delaying the exploitation of potential comparative advantage in higher-tech stages of production.” These limitations have “been causing concern in recent years, even in some of the East Asian countries which have been more successful in exploiting various advantages associated with TNCs [transnational corporations].”21

China’s Labor Dynamics

Although some analysts have begun to acknowledge the problems highlighted above, especially those related to the region’s growing dependence on sales to the U.S. market, few have examined the labor market implications of East Asia’s accumulation dynamics. By contrast, it is widely recognized that in Latin America and Africa, employment growth has been inadequate, so that growing numbers of workers in these regions have been forced to accept irregular work. As the IMF has noted:

With slower GDP growth in the latter part of the 1990s, employment also suffered, particularly for wage earners. The quality of new jobs deteriorated, with many concentrated in micro-enterprises or self-employment at relative low wages. The share of the informal sector—defined as employment without access to social benefits or unemployment protection—rose to about 50 percent of total employment in Latin America.22

It is widely assumed that the situation is different in East Asia where capital accumulation remains robust, especially in China. However, the reality is quite the opposite; workers in China and the rest of East Asia are being forced to battle conditions very similar to those in Latin America. Here we focus on the situation in China.

Before looking at job creation, it is important to comment, at least briefly, on employment conditions for those with jobs. For many, including those employed in Guangdong, where approximately one-third of China’s exports are produced, these conditions are far from satisfactory. For example,

base assembly-line wages in the Pearl River Delta, the province’s manufacturing belt, have been virtually frozen at about $80 per month for the past decade, according to a recent survey by the Ministry of Labor 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: China’s 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 demand.23

The situation in Guangdong is far from unique. Migrant workers, who make up a growing share of the country’s industrial workforce, are increasingly responding to these conditions by initiating job actions (including strikes) or quitting and returning to their home villages. Worried companies have been forced to raise wages, but according to one estimate, “even after doubling between 2002–2005, the average manufacturing wage in China was only 60 US cents an hour, compared with $2.46 an hour in Mexico.”24

The central government has begun issuing decrees calling for local governments to raise local minimum wages in line with inflation. But, according to Anita Chan, “in reality the wages of the migrant industrial workers are often considerably lower than the official standards. For one thing, the minimum wage, set by the month, does not reveal the illegally long hours worked by migrant workers to attain that minimum. According to a survey I conducted in China’s footwear industry, the average workday there amounts to about 11 hours each day, often with no days off—that is, about an 80-hour work-week.”25

Moreover, many migrant workers are not even being paid what they are owed. At least one government survey found that 72.5 percent of the country’s nearly 100 million migrant workers are owed wages, especially those employed in the construction and coastal export sector. Non-migrant workers employed by state owned enterprises are not immune from these developments; they are routinely told by their managers that “they must accept a decline in conditions and welfare or be replaced by migrant workers from the countryside.”26

Those analysts that do acknowledge the difficult conditions under which Chinese workers labor, generally view them as a temporary cost that must be paid as China continues its industrial forward march.27 As they see it, what is critical is that, in contrast to much of Africa and Latin America, China’s industrial growth continues to draw more and more Chinese into formal labor-market relations, thereby advancing modernization and a progressive process of development. However, they are wrong.

Recently, several international organizations have reworked sometimes inconsistent Chinese government labor data to create a more reliable picture of Chinese employment trends. Here we rely on the work of the International Labor Organization (ILO).28 The ILO began its study by organizing Chinese enterprises into seven different categories: state and collective enterprises, joint ownership enterprises, limited liability corporations, share holding corporations, foreign owned and operated enterprises, small-scale private registered enterprises, and individual registered businesses. The first five comprise the formal urban sector and the last two the informal urban sector. The ILO then used these enterprise forms to establish four different employment categories: regular formal wage employment (for those employed in urban formal sector enterprises), regular informal wage employment (for those employed in small-scale private registered enterprises), regular self-employment (for those running individually registered businesses), and irregular employment (for those engaged in casual-wage employment or self-employment—often in construction, cleaning, and maintenance of premises, retail trade, street vending, repair services, or domestic services).

Significantly, regular formal wage employment in China’s urban sector actually declined at an annual average rate of 3 percent over the period 1990–2002. Total regular (formal and informal) wage employment remained basically unchanged over this period, registering a zero average rate of growth. Only irregular employment grew, increasing at an annual average rate of 18.5 percent.29

Table 4 provides a more detailed view of these trends. In particular, employment in state and collective enterprises (what the ILO calls the traditional formal enterprises) fell by 59.2 million over the thirteen year period. Despite the country’s rapid growth and the government’s support for new, non-state forms of enterprise, the new emerging formal enterprises (cooperative enterprises, joint ownership enterprises, limited liability corporations, shareholding corporations, and foreign-funded enterprises) generated only 24.1 million jobs. The result was an overall decline in formal sector employment of 34.1 million. Even with the employment contribution of the informal urban sector (registered small privately owned enterprises and individually owned enterprises), the Chinese economy managed an overall increase in regular employment of only 1.7 million workers over the thirteen year period. This was far from sufficient to match the growth in labor supply. Thus, growing numbers of Chinese workers have been forced to accept irregular employment which, with an increase of 80 million, now comprises the largest single urban employment category. A growing share of this irregular work is accounted for by China’s burgeoning sex industry. While the Chinese government says there are 3 million prostitutes nationwide, independent estimates put the figure at up to 20 million (with sex work accounting for up to 6 percent of China’s GDP) once sex laborers in massage parlors, entertainment establishments, and even barber shops and beauty salons are properly included.30

Table 4. Urban employment by type, in millions
1990 139.1 1.6 0.6 6.1 15.3 162.7
1991 142.9 2.2 0.7 6.9 13.7 166.4
1992 145.1 2.8 1.0 7.4 14.1 170.4
1993 143.1 5.2 1.9 9.3 22.6 182.1
1994 141.0 7.4 3.3 12.3 18.3 182.2
1995 140.4 8.7 4.9 15.6 17.0 186.4
1996 139.0 9.4 6.1 17.4 23.9 195.8
1997 135.9 10.8 7.5 19.4 30.5 204.1
1998 107.2 16.3 9.7 22.6 56.8 212.6
1999 99.9 17.8 10.5 24.1 68.2 220.5
2000 93.3 19.3 12.7 21.4 81.3 228.0
2001 86.5 21.4 15.3 21.3 91.4 235.9
2002 79.9 25.7 20.0 23.5 95.3 244.4
Note: TF is employment in traditional formal enterprises (state and collective enterprises), EF is employment in emerging formal enterprises (cooperative enterprises, joint ownership enterprises, limited liability corporations, shareholding corporations, and foreign-funded enterprises), EP is employment in small-scale private registered enterprises, ES is employment in individual registered businesses, and IRR is irregular employment.
Source: Ghose, “Employment in China: Recent Trends and Future Challenges,” 27.

This massive increase in irregular employment is even more shocking when one realizes that growing numbers of workers have actually been leaving the urban labor market. For example, the labor force participation rate of urban residents fell from 72.9 percent in 1996 to 66.5 percent in 2002. In addition, outright unemployment also remains a serious and growing problem. As the ILO explains: “A major consequence of the reforms of the 1990s has been the emergence of open unemployment in China’s urban areas.” Official government figures seriously understate the seriousness of the problem in part because of the narrow definition used. For example, the urban unemployed are limited to those persons “with non-agricultural household registration at certain working ages (16–50 years for males and 16–45 years for females), who are capable of work, unemployed and willing to work, and have been registered at the local employment service agencies to apply for a job.” Using more commonly accepted international definitions, the ILO estimates that the 2002 unemployment rate for long term urban residents was in the 11–13 percent range.31

Table 5. Regular manufacturing employment by type, in millions
TF EF EI Total
1990 51.7 1.3 0.9 53.9
1991 52.6 1.8 1.3 55.7
1992 52.8 2.3 1.3 56.4
1993 50.3 4.3 1.8 56.4
1994 48.4 5.9 2.7 57.0
1995 47.5 6.9 3.4 57.8
1996 45.7 7.2 4.0 56.9
1997 42.5 8.3 4.5 55.3
1998 26.2 11.5 5.6 43.3
1999 22.7 12.3 6.0 41.0
2000 19.3 13.1 6.3 38.7
2001 16.2 13.9 7.2 37.3
2002 13.3 15.8 8.2 37.3
Note: TF is employment in traditional formal enterprises (state and collective enterprises); EF is employment in emerging formal enterprises (cooperative enterprises, joint ownership enterprises, limited liability corporations, shareholding corporations, and foreign-funded enterprises); and EI is employment in emerging informal enterprises (small-scale private registered and individual registered enterprises).
Source: Ghose, “Employment in China: Recent Trends and Future Challenges,” 29.

The situation in manufacturing is much the same. As table 5 shows, despite the growing importance of manufacturing over the period 1990–2002, overall regular (formal and informal sector) manufacturing employment actually fell by 16.6 million workers. Once again, employment activity in the new emerging formal and informal enterprises was not sufficient to compensate for the enormous declines in state and collective employment.

Unfortunately, China’s employment crisis is likely to get much worse very soon. Along with the massive pools of job-seekers generated by rural underemployment and state-sector layoffs, the number of jobless university and high school graduates is increasing rapidly. Of the close to 5 million university graduates projected for 2007, nearly 1.5 million will be unable to find work, according to the Chinese Ministry of Education. Similarly insecure prospects are in store for the great majority of the country’s approximately 50 million high school graduates who enter the job market each year.32 In short, it is increasingly difficult to see a fundamental difference in terms of labor market trends between China, a country with dynamic capitalist accumulation processes, and Latin America, a region with acknowledged economic difficulties.

East Asian Labor Dynamics

The employment problems highlighted above are not unique to China. According to the Asian Development Bank, research shows that “employment elasticities across the region are low and that, in general, they decreased in the 1990s vis-à-vis the 1980s.”33 As table 6 illustrates, among the eleven countries examined, seven showed a decline in their employment elasticities, one remained relatively constant, and only three showed an increase. Thus, the employment contribution of growth is clearly diminishing. The negative trends for China, Malaysia, Thailand, and Taiwan are especially striking.
The Asian Development Bank describes the importance of the results for China, “the world’s fastest-growing economy year after year,” as follows:

While in the 1980s it took a 3% growth rate of output to induce a 1% increase in employment, in the 1990s a growth rate of almost 8% was needed to achieve the same result. Estimates by the PRC’s National Development and Reform Commission reveal the challenge that is involved: in 2006 the country will need to generate about 25 million urban jobs to accommodate new entrants into the labor market, workers laid off from state enterprises, and rural migrants. However, urban areas are expected to be able to generate only about 11 million jobs.34

Conditions are far worse than even these low and declining elasticities would indicate since these studies do not distinguish between formal and informal employment. While countries generally have different criteria for what constitutes formal as opposed to informal sector work, what is striking is that the gains in employment in most of these countries, as in China, have largely been in the informal sector. Indeed, the ILO estimates that approximately two-thirds of all new jobs currently being created in Southeast Asia are in the informal sector. Thus, in the region with the most dynamic capital accumulation, not only are the employment effects of growth declining, but the jobs being produced are increasingly ones that offer the least protection and stability and the lowest earnings.35

Table 6. Employment elasticities
1980s 1990s
Bangladesh 0.550 0.495
People’s Republic of China 0.330 0.129
Indonesia 0.435 0.379
India 0.384 0.312
Republic of Korea 0.223 0.225
Malaysia 0.683 0.406
Pakistan 0.406 0.553
Philippines 0.535 0.731
Singapore 0.375 0.711
Thailand 0.315 0.193
Taiwan 0.242 0.139
Note: The elasticities show the percentage increase in employment resulting from a percentage increase in GDP
Source: Felipe and Hasan, “The Challenge of Job Creation in Asia,” 1.

For example, in Indonesia, the employment share of the informal sector in total non-agricultural employment grew from 65.4 percent to 70.8 percent over the period 1998–2003. Similar but less dramatic increases took place in Thailand, the Philippines, and Vietnam. In India (the newest poster country), the employment share of the informal sector grew from 80.5 percent to 83.2 percent between 1993–94 and 1999–2000. Over that same period, Indian GDP per capita grew by approximately 4.7 percent a year. As the Economist observed: “Despite [Indian] manufacturing’s remarkable success, the number of jobs in its ‘organized sector,’ i.e., firms employing more than ten people, has hardly changed since 1991, at just above 6 million, out of a total of about 48 million in manufacturing as a whole.” Even in OECD-initiate South Korea, the self-employed and their unpaid family members now account for more than one-third of the total workforce.36

Beyond the high and rising share of informal work, there are also changes in the nature of formal sector employment which are undermining its status. Generally, formal labor status involves regular or long-term employment with an enterprise that is registered and thus regulated by government mandated labor laws. However, this is changing as registered enterprises are increasingly making use of temporary or contract workers while shedding permanent workers via explicit layoffs and forced or semi-forced “retirements.” As a result, a growing share of formal sector employment no longer includes employment security or other benefits previously associated with regular employment. In South Korea, for example, the percentage of wage workers with irregular labor status rose from 42 percent before the 1997–98 crisis to 55 percent in 2003, and these irregular workers receive on average only 53 percent of the hourly real wages paid to regular workers. Similarly, the share of contract labor in India’s formal sector manufacturing rose from approximately 7 percent of total person-days worked in 1984 to 21 percent in 1998. The share of non-regular workers in Filipino establishments with ten or more workers increased from 20.51 percent in 1991 to 28.20 percent in 1997. In short, as the Asian Development Bank explains, “the distinction between formal and informal sectors in terms of desirable job characteristics (from a worker’s perspective)…has become somewhat blurred.”37

As in China, a growing number of workers in the other East Asian countries suffer from open unemployment or involuntarily part-time employment. Official unemployment rates in Singapore, Taiwan, and South Korea have recently exceeded 5 percent, meaning that hundreds of thousands of workers in these countries have been unable to find any work at all. And, as the Economist admits, “those figures do not include the legions of underemployed.” Younger workers are disproportionately afflicted by this unemployment and underemployment. Workers between ages 15 and 24 account for only a fifth of the workforce but half the unemployed in Asia as a whole, according to the ILO. In South Korea, about 5 million workers aged 20–34 are either wholly or partially unemployed and dependent on their parents for support. The overall official unemployment rate of about 9 percent for South Korean workers aged 15–29 thus represents only the proverbial tip of the iceberg.38

The Dynamics of Capitalist Accumulation

How do we explain these labor market outcomes? According to the Asian Development Bank, they are a result of “the interplay of three factors, namely, globalization, technical change, and competition.” Specifically, this interplay leads to the adoption of “inappropriate technology.” As East Asian companies compete to produce exports for sale in developed capitalist countries, they are increasingly relying on technologies imported from those countries. Thus, “the modern sector in developing countries is not much different from those in industrial countries in terms of capital intensity. The problem is that given the supply of labor available, and given the rate of investment, the more capital intensive the techniques, the less employment will be required.”39

However, this framing, which pins the blame for employment stagnation simply on the rising capital intensity of production, leads to a false understanding of, and misdirected response to, the problems facing working people. For example, the common response by mainstream economists is to target government policies (and/or trade unions) for keeping wages at “artificially” high levels compared to the “price of capital.” Yet, this obviously makes no sense in the case of China or other East Asian countries like Indonesia where wages are abysmally low. Capitalists do certainly mechanize production in order to reduce labor costs. But the fact is that given the nature of the products produced, it is often—even usually—the case that mechanization lowers unit costs even at very low wage levels. In fact, given the nature of the output, more labor intensive production processes may not be physically feasible at all.

Industrial capital accumulation is not a process that, if unrestrained by regulations and/or worker-organizations, tends toward an equilibrium with labor force growth so as to ensure productive and regular employment for all. Far from it. As Karl Marx explained, the “industrial war of capitalists among themselves…has the peculiarity that the battles in it are won less by recruiting than by discharging the army of workers. The generals (the capitalists) vie with one another as to who can discharge the greatest number of industrial workers.” This war is especially intense in East Asia, where more and more production is being structured under the control of and according to the logic of competing transnational corporations (and their local subcontractors) operating through cross-border production networks. It is the real force underlying the recent statement by Singapore’s labor minister, responding to the seventeen-year high 6.3 percent official unemployment rate, “that the boom years of near-full employment would not return as Singapore faced competition from low-cost rivals in the region.” Similarly, explaining why India’s economy needs to grow at least 8 percent per year just to keep unemployment from rising, the Far Eastern Economic Review noted that the basic problem is that “companies are shedding workers and increasing productivity in the face of new competition.”40

More generally, much of the underemployment and unemployment in China and the rest of East Asia can best be understood as the result of the ongoing separation of workers from access to the conditions necessary for their production and reproduction, what Marx called “primitive accumulation.” David Harvey has recently coined the phrase “accumulation by dispossession” to describe this process—the change in terminology rightly emphasizing that this kind of separation and disemployment (creation of a pool of exploitable labor power) is not limited to the early history of capitalism on a global scale, but is rather integral to the system’s ongoing historical development especially in its latest, neoliberal phase.41

Even the “flexibilization” of employment that is promoted by governments in response to neoliberal market pressures can be viewed as a variant of accumulation by dispossession insofar as it involves erosions of workers’ job rights. This is obvious, for example, in the case of state-enterprise industrial workers in China, but it is also true for workers in other East Asian countries where capitalists—domestic and foreign—have responded to unionized worker struggles by locking out and then replacing them with contract workers and other temporary laborers. In Indonesia, for example, upsurging unionization, strikes, and wage-gains in the immediate post-Suharto period were followed by dismissals of workers (and replacements with contingent workers) exceeding 100,000 per year in 2002 and 2003. As Rustam Aksam, president of the Indonesian Trades Union Congress, observed, “Every country is now competing to reduce worker rights….We’re racing to the bottom.”42

In sum, the employment problems of China and East Asia need to be seen as part of “the growing failure of capitalism…to solve the elementary and, in the long run, the very survival requirements of the vast majority of those living under its sway.” Of course, this failure is multi-dimensional. Alongside these employment problems, there is also “the unprecedented scale and speed of the deterioration of the natural environment.”43 That working people in the most dynamic centers of accumulation are also suffering from this crisis is an indication of its deep, intensive, and above all system-wide character. Under capitalism, universal access to productive employment—including jobs in education, health care, and other areas oriented toward improving the conditions of human development—is always seen as an inefficient diversion from the business of competitive money-making. Better to maintain a massive reserve army of unemployed and underemployed as a check on workers’ bargaining power and as a source of cheap labor to service the consumption needs (servile, sexual, and entertainment-wise) of the capitalist class and its various professional functionaries. Seen from this perspective, it is clear that the answer to worker problems in Africa, Latin America, and elsewhere for that matter, is not to be found in supporting policies designed to replicate capitalism’s so-called Asian success stories. Rather it lies in building national and international movements with an accurate understanding of, and a commitment to overcoming, the dynamics of contemporary capitalism.

1. We discuss these points in detail in Martin Hart-Landsberg and Paul Burkett, China and Socialism (New York: Monthly Review Press, 2005); “China and the Dynamics of Transnational Accumulation, Causes and Consequences of Global Restructuring,” Historical Materialism 14, no. 3 (2006).
2. Indeed, many believe that China’s emergence as a world economic power is creating a progressive alternative to the U.S.-dominated regime of neoliberal economics and military unilateralism.
3. Ajit K. Ghose, “Employment in China,” Employment Analysis Unit, Employment Strategy Department, Employment Strategy Papers, 2005/14, ILO, 1,
4. Hart-Landsberg and Burkett, China and Socialism, 48; OECD, Economic Surveys: China (Paris: OECD, 2005), 133.
5. John Whalley and Xian Xin, “China’s FDI and Non-FDI Economies and the Sustainability of Future High Chinese Growth,” National Bureau of Economic Research, Working Paper Series, Number 12249, May 2006, 5. Hart-Landsberg and Burkett, China and Socialism, 121; Steven S. Roach “What if China Slows,” Global Economic Forum, Morgan Stanley, May 23, 2005. There is a similar trend with imports; in 2004, foreign invested enterprises accounted for approximately 60 percent of China’s total imports. Whalley and Xin, “China’s FDI,” 5.
6. Whalley and Xin, “China’s FDI,” 9. However, some analysts regard these figures as upper bound estimates. See, for example, Lee Branstetter and Nicholas Lardy, “China’s Embrace of Globalization,” National Bureau of Economic Research, Working Paper Series, Number 12373, July 2006, 19.
7. Stephen S. Roach, “China’s Control Problem,” Global Economic Forum, Morgan Stanley, July 21, 2006.
8. Jephraim P. Gundzik, “What a US Recession Means for China,” Asia Times Online, September 27, 2006,
9. Gundzik, “US Recession.”
10. David Lague, “China Overtakes U.S. as Tech Supplier,” International Herald Tribune, December 12, 2005; , “China’s high-tech export grows 43.5% in past five years,” January 29, 2006. Approximately 42 percent of China’s electronics and information technology exports are sold in the United States; beginning in 2002, China became the largest exporter of these products to the United States (Branstetter and Lardy, “China’s Embrace of Globalization,” 36).
11. Branstetter and Lardy, “China’s Embrace of Globalization,” 37–38.
12. Branstetter and Lardy, “China’s Embrace,” 38. The computer industry is a noteworthy example. Approximately 80 percent of the world’s notebook and desktop computers are assembled in China, but most of the production is controlled by Taiwanese firms operating as original design manufacturers (ODMs). As a consequence, eight of China’s top ten exporters are Taiwanese companies that supply “branded PC sellers such as Dell with unbranded computers and components.” These Taiwanese firms may produce on the mainland but most of their components are supplied by other smaller firms that operate in other countries. As one analyst explains, “Almost all mainland China brings to the industry is cheap land and even cheaper labor. China is the manufacturing center of the global computer industry, yet it adds little value and therefore makes little profit.” According to another, “There are no Chinese ODMs and there are no significant Chinese suppliers to the Taiwanese ODMs or to their suppliers.” Tom Miller, “Manufacturing That Doesn’t Compute,” Asia Times Online, November 22, 2006,
13. Branstetter and Lardy, “China’s Embrace,” 39–40; George G. Gilboy, “The Myth Behind China’s Miracle,” Foreign Affairs (July–August, 2004).
14. People’s Daily Online, “Nearly 90 pct of China’s Electronics Exports are from Foreign Ventures,” April 15, 2006.
15. Economist, “The Struggle of Champions,” January 6, 2005, 59–61; Gilboy, “The Myth Behind China’s Miracle.” For example, as a result of its 2005 acquisition of IBM’s PC unit, Lenovo became the world’s third largest PC brand by volume. However, its profits have been on the decline. More importantly, “Like its rivals, Lenovo employs Taiwanese ODMs in the mainland to manufacture its branded computers….The company’s headquarters have moved to the United States, and US engineers are largely responsible for developing new products (in conjunction with their ODM suppliers).” Tom Miller, “Manufacturing That Doesn’t Compute.”
16. Barry Naughton, “China’s Emergence and Prospects as a Trading Nation,” Brookings Papers on Economic Activity, no. 2 (1996); Economist, “The Struggle of Champions,” 61.
17. Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries 2006,; Asian Development Bank, Asian Development Outlook 2006, 3,
18. Prema-chandra Athukorala and Nobuaki Yamashita, “Production Fragmentation and Trade Integration,” North American Journal of Economics and Finance, 17 (2006): 241.
19. Francis Ng and Alexander Yeats, “Major Trade Trends in East Asia, What are their Implications for Regional Cooperation and Growth?” Policy Research Working Paper 3084, World Bank Development Research Group, June 2003, 60. The rest of East Asia includes Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand.
20. Athukorala and Yamashita, “Production Fragmentation,” 246–47.
21. UNCTAD, Trade and Development Report 2002 (New York: United Nations, 2002), 75.
22. Anoop Singh, et al., Stabilization and Reform in Latin America, occasional paper no. 238, International Monetary Fund, February 2005, chapter 2, 7,
23. Neil Gough “Trouble on the Line,” Time Asia, January 31, 2005.
24. John S. McClenahen, “Outsourcing,”, July 1, 2006.
25. Anita Chan, “A ‘Race to the Bottom,'” China Perspectives, no. 46, (March–April 2003): 43.
26. Ching Kwan Lee, “‘Made in China,'” presentation at the 2004 Mansfield Conference, The University of Montana, Missoula, April 18–20, 2004,, 2; Hong Kong Confederation of Trade Unions, Chinese Labor and the WTO, 2004, , 22.
27. For a more complete examination of the social costs inherent in China’s growth as well as a refutation of arguments that present these costs as temporary, see Martin Hart-Landsberg and Paul Burkett, “China and Socialism: Engaging the Issues,” Critical Asian Studies 37, no. 4 (December 2005).
28. Studies done by the ILO, Asian Development Bank, and IMF all present very similar employment trends. See Asian Development Bank, Labor Markets in Asia (Manila: Asian Development Bank, 2005), and Ray Books and Ran Tao, China’s Labor Market Performance and Challenges, IMF Working Paper, WP/03/210, 2003.
29. Ghose, “Employment in China,” 6.
30. Howard W. French, “Letter from China,” International Herald Tribune, December 14, 2006,
31. Ghose, “Employment in China,” 8, 12, 13.
32. Edward Cody, “Students Grow Desperate Over China’s Tight Job Market,” Washington Post, November 24, 2006; Guan Xiaofeng and Wang ShanShan, “Job Shortage to Affect Graduates,” China Daily, November 29, 2006, .
33. Asian Development Bank, Labor Markets in Asia, 22.
34. Jesus Felipe and Rana Hasan, “The Challenge of Job Creation in Asia,” Asian Development Bank, ERD Policy Brief, Economics and Research Department Series No. 44, April 2006, 2.
35. Some countries limit the definition of informal employment to only self-employed and unpaid family workers, while other countries also include wage workers at small and/or unregistered enterprises. Indonesia is an example of the former, India of the latter. Asian Development Bank, Labor Markets in Asia, 18. Gianni Rosas and Giovanna Rossignnotti, “Starting the New Millennium Right,” International Labor Review 144, no. 2 (2005): 144. Southeast Asia is defined to include Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
36. Asian Development Bank, Labor Markets in Asia, 18, 20: Simon Long, “Now for the Hard Part: A Survey of Business in India,” Economist, June 3, 2006, 10; “The Self-Employed in Plight,” Korea Herald , February 12, 2005,
37. Sang-hwan Jang, “Continuing Suicides Among Laborers in Korea,” Labor History 45, no. 3, 2004, 280–81; “Labor Group Seeks Equality for All Workers,” Korea Herald, January 16, 2003, For details on forced retirements as a method of lowering labor costs, see Samuel Len, “Job Cuts Follow Recovery in South Korea,” New York Times, December 9, 2003; Joonmo Cho and Sunweong Kim, “On Using Mandatory Retirement to Reduce Workforce in Korea,” International Economic Journal 19, no. 2 (June 2005): 283–303; Data on India and the Philippines comes from Asian Development Bank, Labor Markets, 19, 56.
38. Kim Jung Min, “Victims of Efficiency,” Far Eastern Economic Review, January 29, 2004; Keith Bradsher, “After an Exodus of Jobs, A Recovery in Taiwan,” New York Times , March 19, 2004; Trish Saywell, “A Question of Jobs,” Far Eastern Economic Review, January 15, 2004; “The Jobless Boom,” Economist, January 14, 2006, 47.
39. Felipe and Hasan, “The Challenge of Job Creation in Asia,” 5; Asian Development Bank, Labor Markets in Asia, 30;
40. Karl Marx, Wage-Labor and Capital (New York: International Publishers, 1976), 45; Saywell, “A Question of Jobs”; Joanna Slater, “The Dangers of Jobless Growth,” Far Eastern Economic Review (May 6, 2004).
41. See David Harvey, The New Imperialism (New York: Oxford University Press, 2003) and A Brief History of Neoliberalism (New York: Oxford University Press, 2005).
42. Wayne Arnold, “In Indonesia, Unions Hit a Roadblock,” New York Times, May 21, 2004.
43.Harry Magdoff and Paul M. Sweezy, Stagnation and the Financial Explosion (New York: Monthly Review Press, 1987), 203, 205.


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