Shifting premises: a drive inland for China's labor force

Historically, the coastal provinces have underpinned China's status as an international  trade power. Expatriate communities of overseas Chinese are still disproportionately represented by Cantonese-speaking emigrants from the coastal south. In the late 1980s, with the dismantling of the communes, paramount leader Deng Xiaoping chose port locations as his four seedbeds for capitalist experimentation. Throughout the 1990s and the 21st century's first decade, the provinces nearest the sealanes have sustained the lion's share of China's growth.

Now, however, that pattern may be changing. There has been a growing income inequality between the prosperous coast and the backward hinterlands, but much of this is predicated on the availability of cheap labor. A spate of industry actions at foreign firms' factories in the southern province of Guangzhou suggest that China's coastal workers are growing more vocal in demanding their own spoils of growth: higher wages and improved working conditions.

Image copyright of TheTransportPolitic.com

Against this backdrop, the hinterland provinces – long held as trade-poor backwaters – are drawing increased interest as industrial bases. In a 2010.08.04 article, Geoff Dyer and Zhao Xue of the Financial Times report that inland provinces such as Anhui, Jiangxi, and Hunan are seeing a boost in industrial growth. The main factors spurring this are: a) uncertainty about sustainability of coastal growth rates (especially given recent industrial disturbances), b) government stimulus spending to counteract the global recession, and c) recent completion of high-speed road and rail links, reducing the cost of doing business with the interior.

The benefits are clear. Market forces may accomplish what the post-command economy has struggled to enforce – the narrowing of the wealth gap between coast and interior, with the attendant reduction in social tensions. Additionally, the traditional movement of hukou-unregistered vagrant workers from the poorer areas to the wealthy coastal cities may reverse: with better prospects for employment back closer to home, migrant workers may shun the higher wages and costs of living in the cities for a wage-earning post nearer their families and ancestral homes. As worker income rises and stable jobs retain local hands, the demand for homes rises too. FT cites the opening of major foreign supermarkets Tesco, Carrefour, and Wal-Mart, as well as mid-management bank HSBC, in Anhui province's capital of Hefei as a sign of growing consumption growth.

Economically, too, there have long been fears that China's exports-driven economy has neglected to build a domestic consumer base, leaving it vulnerable to fluctuations in foreign trade. A redirecting of wealth into inland households may give millions of citizens the wealth they need to establish just such an infrastructure.

These are not without their risks, however. In the wake of the growing costs of labor in coastal regions, foreign firms are considering the interior as only one of several options, and Vietnam and Bangladesh are cited as possible rivals. Additionally, much of this growth reflects the effects of the government stimulus plan – which is rapidly coming to an end.


In a sidebar, the reporters examine the effects of urbanization. Noting that the much-maligned hukou registration system, tying a citizen to a given city for education and health care, has helped to avoid much of the shantytowns that plague other developing nations, the article nevertheless identifies hukou laws as a major area for legal reform. Residents working outside the ambit of their hukou permits currently risk forced relocation, police harassment, economic exploitation – and surrender most claims to state health and education support. The existence of this unofficial stratum of second-class citizens within their own country fuels significant social tensions.

The household of Chongqing resident Wu Ping, after a 3-year
standoff with local developers over land use compensation.

Additionally, the authors note the issue of public repossession of household lands as a serious issue. As urbanized areas grow, the traditional method of raising state funds is through land grants. Given China's communist past, few of the residents currently living on the granted parcels have legal title to the lands. In American legal terms, this taking would be similar to eminent domain takings. In China, where private property laws only came into effect in the last four years, and where conflicts between developer and homeowner can wax intractable, these households get by with an earthier nickname – "Protruding Nail Houses".


Update: in an op/ed piece Watch China's coasts not the currency, Yukon Huang (of the Carnegie Endowment) states that China's currency peg does not notably contribute to China's economic development, nor does it slow global growth. Rather, domestic growth owes its greatest debt to Deng Xiaoping's focus on the "three D's": a) density of economic activity restricted to a few coastal areas, b) distance reduction by expanding transport services, and c) division reduction by eliminating barriers to the movement of goods.

Huang refers to the positive effects of the migrant worker labor force, crediting it with raising 500m people out of poverty and contributing to double digit annual GDP growth. He holds currency policy as only a bit player in overall growth, especially as compared to saving and investment rates, pointing out that when China allowed its currency to appreciate in the 2005-08 period, China's trade surplus grew rather than shrank.

Huang believes that the Chinese leadership, having secured its goals of economic growth in the coastal provinces, will now switch priorities towards rebalancing the wealth between hinterland and coast, down from the current imbalance whereby the coastal households have triple household income of the interior households. Inflated wages and property prices on the coast will spur a move inland, helping restabilize income disparities.

Huang hypothesizes that an appreciation in the currency as the West is calling for would do more harm than good, contributing nothing to a shift inland nor to a rise in consumption. Much of his analysis pits the more recent focus by economist Paul Krugman on China's currency against Krugman's own earlier economic theories, which would suggest the currency issue is less significant.