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2014’s Next Big Things that weren’t.3, Part 4: China’s “new normal” and competitiveness

China’s rulers are fond of talking about the “New Normal,” and the idea does have some downsides. Some  of those downsides might impede the garment industry’s competitiveness. But they haven’t yet – and I’m convinced Westerners exaggerate their likelihood

1. The Forecasts

Depending on who you listen to in the West, there are seven things going on:

  1. Wage rises are soaring
  2. Industrial unrest is breaking out all over China
  3. There’s any number of bubbles which will soon burst (credit and real estate are the two mentioned  most often) and bring businesses down with them
  4. China’s relations with its neighbours are going to rebound on the peace needed for China’s economy to work and for its exports to reach their customers
  5. China’s repression of free speech will create mass insurrections
  6. China’s repressing its Muslim population, and that’s inevitably going to make the country unsafe
  7. China’s ruining its textile and garment industry through a hopelessly mismanaged policy of cotton subsidies

2. What Happened

Chinese media explained in November what their President means by the New Normal. It includes greater interest in profitability than growth for its own sake: it makes no mention of relaxing the Communist Party’s grasp on the country, or reducing the powers security forces have to defend that grasp.  I think too many Westerners believe they’re really what Chinese people want, and that if China doesn’t do something about it, there’ll beb a revolution. To my mind there’s hardly any evidence for this. Let’s take the seven alleged vulnerabilities:

a. Wage rises are soaring.

In China, they’re  not – at any rate by Asian standards. A third of Chinese regions failed to increase minimum wages in 2014, and those that did increased wages at the lowest rate for several years, the China Labour Bulletin reported on December 16. We show repeatedly on this site how what wage increases there are in the garment industry still allow prices to drop, partly because productivity investments are working faster than pay rises.

b. Industrial unrest is breaking out all over China. As a result of which garment factories are going to be subject to the same unrest as factories in Bangladesh or Cambodia, goes the argument.

But, of 38 monitored “strikes and worker protests” monitored in China’s garment and textile industry in the last three months of 2014, all but two were over wage or social security arrears, almost always after the firm had gone bust. Most Chinese workers unhappy with their terms or conditions just move to another job – and as long as  there’s a shortage of labour and business conditions allow, there’ll be another job to go to.

c. There’s any number of bubbles which will soon burst (credit and real estate are the two mentioned  most often) and bring businesses down with them. That’s what seemed to be happening during 2014 in the garment or textile industries in Shandong, in Fujian and in Hangzhou. But it now looks as if the bubbles burst, damaged a few companies – but failed to infect more than a handful. On the evidence of 2014 so far, the not-quite-crises in Shandong, Fujian and Hangzhou prove my theories about Chinese businesses’ resilience more than they give cause for fearing more imminent business collapses.

d. China’s relations with its neighbours are going to rebound on the peace needed for China’s economy to work and for its exports to reach their customers.  Early in 2014, US trade associations explained how China’s ability to upset its neighbours risked making trade routes through the South China Sea unsafe. April’s anti-Chinese riots in Vietnam, and the Hong Kong protests at the end of 2014 seemed to support this view – but they now look to have been quickly smoothed over by an outbreak of common sense. China’s still pursuing other routes for its exports to take, though. Just in case.

e. China’s repression of free speech will create mass insurrections. Nowhere in all the official propaganda about “New Normal” is there anything about free speech – and there’s very little evidence in the past year of much appetite for it in Mainland China. There’s a sad little anecdote, though, in our news story about the New Normal about he last day of 2014. Celebrations in shanghai brought crowds out onto the waterfront, the crowds were mishandled – and 38 people died.  The episiode shows no greater incompetence on the part of the Shanghai authorities than similar disasters all over the world show several times a year. Uniquely, though, the Shanghai police arrested anyone criticising them on the internet.   Practically everyone alive in China has no experience of living without free speech being repressed.

I don’t think many Chinese wake up each morning thinking “if only we had free speech.” I think, when they hear about Bangladesh or Cambodia (if they do) most thank the spirit of Chairman Mao China hasn’t got problems like that – and think doing without free speech instills much the same kind of discipline in their fellow-countrymen a certain sort of English person once thought cold showers did.

f. China’s repressing its Muslim population, and that’s inevitably going to make the country unsafe. Our review of activity in Xinjiang concludes pretty firmly that China IS repressing its Muslim population. It’s hard to see that’s making the rest of China unsafe – certainly compared to the emotions Islamism raises in the US, France, Germany, Holland or the UK. I certainly think China’s treatment of the indigenous Uighur population in Xinjiang makes the $20 billion the government’s planning to invest in the province very risky indeed, and I’m very sceptical of plans to defend China’s textile or garment leadership by relying more on new facilities in Xinjiang.

I also think China’s Xinjing policy makes its declared plans for transport routes through the province through Pakistan and Muslim Central Asia unlikely to get anywhere. But I really disagree that means Eastern China’s industrial heartland is going to be made unsafe by terrorist bombs.

g. China’s ruining its textile and garment industry through a hopelessly mismanaged policy of cotton subsidies. Again, I disagree. China’s wasting billions on paying Xinjiang farmers (many, in practice, Han generals) twice the world cotton price – and that’s partly (and I think, ineffectually) to keep Uighur unrest at bay.

The policy is damaging lots of cotton growing, spinning and weaving businesses around the world. But it’s also contributing to negative inflation in garment making, which China’s hyper-productive garment makers are probably better able to live with than many other parts of the global supply chain.

China’s government’s sitting on cash piles that I’d rather spend on better education, pensions and healthcare for China’s poorest if I ran China than growing cotton in a desert. But I don’t run China. Its people aren’t agitating for the social welfare transfers we Britons expect, and I think it’s pointless deluding ourselves they will in our lifetimes. Most seem to believe our system’s sapping our virility, and think cash spent on giving Uighurs jobs is a much better idea (even if it doesn’t actually do that.)

3. Why did that happen?

I think this review backs up my belief in Chinese resilience. China is such a vast and complex economy, it seems able to absorb most things that go wrong without causing too much collateral damage.

Just as important, its population have spent the past 15 years living through the greatest explosion of mass affluence anywhere, ever. And they haven’t achieved that through the right to strike, freedom of speech or human rights. Most Chinese would probably say self-discipline and competent management have a lot to do with it.

They’re probably as sceptical of their rulers as most Westerners are of theirs: but few see an alternative philosophy they think works better.

The New Normal isn’t going to happen without mistakes. But it’s naive of Westerners to think the Chinese are going to use those mistakes as excuses for mass insurrections. Or even real public debate, or unrestricted rights to strike.