China has been campaigning for more than a decade to “develop the west,” as part of a stated aim to develop the inland region of Western China. Ever since China adopted market friendly economy since 1978, the rapid industrialization has been mainly concentrated in southern coastal provinces like Shenzhen, Guangdong and Zhejiang. As a result of rapid urbanization and industrialization, people from the western provinces migrated to the coastal provinces in search of job opportunities, thus, providing cheap labor to the factories in the coastal region. The cheap labor thus available mostly due to migration, has helped the southern region attract billions of dollars of FDIs.
This was actually a result of the policy preached by the then supreme leader of China’s Communist Party, Deng-Xiao-Ping. He determined that China should “allow first some people to become rich, who would latter provide resources to make the rest of the country rich.” This made the southern provinces more crowded and prices of properties, like housing and land, have shot up beyond the reach of even rich middle classes. The western and Northern provinces of China have been deprived of industries, jobs and related developments due to the concentration of industrial activities in southern and eastern coastal provinces.
Inland Relocation of Industries
The worst economic crisis since the great depression of the 1930s has pushed the Chinese government to drive aggressively for agglomeration of industries in the central and western provinces. The Chinese version of the cabinet, the state council called the “Central People’s Government,” the highest executive organ of State power has issued directives stressing the importance of relocating industries to the central and western inland provinces to keep manufacturing competitive and encourage job growth closer to the homes of China’s vast rural population.
“The international and domestic division of labour is now undergoing profound adjustments, and the pace of industry relocating from our country’s eastern coastal regions to central and western regions is accelerating,” said the document released late on Monday, 6th Sept. Last month, Taiwan’s Hon Hai Precision Industry Co Ltd, a device maker for the world’s top tech brands, said it will raise its total Chinese workforce by over 40 percent by next year but shift expansion inland and away from its plant in far southern Shenzhen.
Saturation Conditions in Matured Economies
This acceleration has been accelerated since the financial crisis as it was revealed that China can no longer depend on exports to the developed economies. Because the matured capitalist economies of the US, the EU and Japan have reached a saturation point where the enormous capital, accumulated through decades of war economy of the US, globalized financial operations of the financial giants of the US and the EU, cannot find equally enormous outlets for its consumption as capital. This very situation led unavoidably to the eruption of a ‘Global Financial Crisis.’ It is well known that the 2007 global crisis is not the first one and not even the last one.
Many economists are predicting a double dip recession for the U.S. Eminent U.S. economist Nourial Roubini, who became famous for his accurate forecasts of the financial crisis of 2007, has been suggesting that the US is on the brink of a ‘double dip recession.’ The US slipping into recession means there would be a definite impact on Asian giants China, Japan, India and Korea. As the EU and the US are interdependent, the EU cannot escape from the impact which is already at odds due to Debt Crisis.
Development of Domestic Market
If China continues being export dependent on the US and other Western economies it may be at the receiving end in case of a double dip. These factors prompted China to strive to close apparent gaps in its economy. That’s why it is aggressively advocating shifting some of the industrial activities to the central and western provinces. It was also the reason that the Chinese government has kept silent even as the workers in many factories took to the streets demanding higher wages and better working conditions. Recently Chinese Premier acknowledged that the time had come for the Chinese workers are better paid.
China’s government suppressed thousands of strike actions with brutal force recently. It has never allowed workers to form their own workplace unions. Every worker is supposed to be part of the trade union affiliated with the Chinese Communist Party that always stood with factory management. But the government is now willing to increase the wages of workers, to develop the domestic market and to avoid dependence on overseas markets. Of course, it doesn’t mean China is entirely wary of export dependence. This is how economic trends in China are have been transformed in the last decade.
The new directives are not intended to force industries and investors to relocati. Tax policy, financial incentives, investment and land policy would be used to encourage that effort. An interesting directive said “Adhere to a market orientation and cut down on administrative meddling.” It implies that China cannot keep away from FDIs and other foreign countries’ activities in China as it has already integrated into the world’s economy, making it impossible to remain an independent economic decision maker as in the past. the ‘Socialist Economy’ has a long history in China, but now it is time for ‘the free market economy,’ to rule the roost there.