Bruce Rockowitz, President of Li & Fung (Trading) Ltd., was very much of the opinion that putting more money into the pockets of workers was without doubt a good thing for China – economically, socially and politically.
Mr Rockowitz noted that over three decades of economic reform, until very recently, China had simply been a production base for consumer goods exported to countries, such the United States, that could no longer afford to produce them domestically. This global model kept prices low but that, as Mr Rockowitiz pointed out, was not necessarily good for business or the economy as a whole. A little bit of inflation can be healthy, he said.
And that is certainly what is happening in China, costs are going up and, in response, businesses are moving away from the southern coastal regions that have been the engine room of the country’s economic growth for the last 30 years. They are going to other Asian countries such as Bangladesh and Vietnam as well as China’s inland provinces, but that did not mean the factory of the world would fall apart. Rather, Mr Rockowitz predicted, business in southern Guangdong would move up the value chain, with more automated production and more hi-tech, high quality products.
Mr Rockowitz seemed bullish on the prospect of China becoming a consumer as well as producer but he did not really specify or elaborate on who exactly he thought those consumers would be. We all know about the high-end luxury market in China but there is little evidence to suggest that ordinary workers, despite their pay raises, are spending significantly more on consumer goods and services.
When I go to factory towns in the Pearl River Delta, I don’t see workers flooding into shops, restaurants and hair salons. Rather I hear them complaining that as soon as they do get a pay increase, that increase is quickly eroded by higher food, accommodation and transportation costs.
Moreover, not all young factory workers are the spendthrift and carefree consumers written about endlessly in the domestic Chinese media. Many still send regular remittances to their parents back home or try to save enough to send their children to school, start their own business or simply make sure they have sufficient money stashed away for a rainy day.
And for all the massive advances in China over the last three decades, there are still millions of people living in small towns and villages for whom the promise of a consumer paradise is just a fantasy. I suspect that will continue to be the case for many more years to come.