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The Asian side of the world

Jean-François Sabouret

Part one. Regional dynamics and globalisation

Who benefits from Chinese factories?

Jean Ruffier

Texte intégral

1December 2008

2China’s industrial take-off took economists by surprise, but with the industrial growth rate still above 10%, it has now lasted for twenty years. China has become much bigger. The country has become rich and its pollution has risen, as is the case all over the world. Is it possible, however, to analyse this growth that has changed the industrial landscape of the planet as a whole? The size of the country – a fifth of the world’s population –, the strength, variety and dynamism of its economy make appraisal difficult, and there are nevertheless winners and losers – the latter mainly being the forecasters. No one had anticipated China’s take-off, while researchers, including myself, were driven to despair at witnessing this under-developed country succeeding in an autonomous industrial take-off. Everyone knows that fortunes have appeared in China and we also know that factories have closed in Europe, apparently due to Chinese competition. Does China’s happiness thrive on our misfortune? It is true that everything is interconnected, but the ties are more complex than they seem. It is a matter that I will delve into by using the manufacture of jeans as a basis of analysis.

3Jeans are an item of clothing that has always had universal success. They are made all over the world. Their production techniques are simple: cotton, dye, weaving and sewing machines. Jeans, however, were practically abandoned by all the so-called developed countries, and the so-called intermediary countries abandoned their production mainly due to the competition with China. Let us examine how the cost and profit are distributed in China in terms of the manufacture of jeans.

4The Chinese central government is certainly the winner. Around 50 to 70% of the jeans made in China are exported. The Chinese government cashes in on currency exchange and converts the money into the local currency. The government has thus accumulated enough currency to be able to buy back all the banks that are bankrupt, if it so desires. It has become economically indispensable; no economic world order can be created without it from now on.

5Very few people, maybe a thousand who determine all the rules that subsequently governs a fifth of humanity, control the Chinese central government. This illustrates the level of power, and the element of the unknown that it represents. Although omnipresent in the Chinese media, it actually lives in a genuine Forbidden City. It is part of a government policy, but nobody is in a position to explain the real reasons behind the decisions made. We know nothing; we only know the result of these decisions. This power uses a part of the profits gained from its growth to strengthen the country’s industry. It buys large quantities of foreign technologies, develops the country’s infrastructure, funds a genuine industrial policy, plays a major role in the large deficits of the state’s companies and makes restructuring from the public to private sector easier. It can also be noted that out of calculated self-interest or helplessness, this power provides local authorities with freedom of action, enabling them to manage development policies that are sometimes very different from those declared by the central government. China’s emergence owes much of its gratitude to these local authorities for their initiatives, which are often on the sidelines of Chinese law, rather than to the intelligence of a policy put forward by the central government.

6Other actors who have benefited from the Chinese industrial take-off are the workers (the Mingongs) and not so much state workers who have seen their importance decline and sometimes even their financial situation deteriorate when their company became bankrupt. Some of them continued to enjoy an “iron rice bowl” – a sheltered life supported by a company that ensures that they have a bed, meals, hospital and education. The real beneficiaries are, however, the new workers, who have left the countryside for the cities. The figures show that most of the factories’ turnover has gone towards paying the wages of their employees. They are therefore the main beneficiaries. We are often reluctant to say so because we would not like to be in the same situation as them. To make jeans, it is as simple as recruiting some of the rural population, training them over the course of a few weeks and giving them a sewing machine.

The Mingongs

7Many Chinese rural workers, known as Mingongs, have been interviewed. They call to mind the immigrant workers who mad the “glorious years” possible in France. They are not working in a foreign country, but theoretically, they still did not have the necessary permits to work in cities whose language and traditions were unfamiliar to them. Despite this, they still came. They did not give up. If they were offered jobs that involved travelling for eight days, they still came. It must not be believed that the remote countryside benefits as much from the urban take-off as the towns. The research papers that I have read have revealed that migrant workers send money back for about two years and then they stop.

Western brands

8Western brands are the big winners in the outsourcing game. When the cost price of a pair of branded jeans is broken down, less than 5% goes towards Chinese manufacture. The brands justify the prices paid by consumers for quality, i. e. less than 5% of the price and design, which rarely represents more than 1% of the price paid by the consumer. Western brands take advantage of the industrialisation progress that has lowered the manufacturing and marketing prices, making buyers want to buy more expensive products. Most of the large investments have been spent on carrying out market studies and advertising campaigns. This works out well for French employees who prefer to have these sorts of jobs rather than making clothes, especially since it offers them a more attractive salary in brand manufacturing than in the manufacturing of actual jeans. The profit earned by Western brands, however, will be increasingly difficult to justify. They are mainly dependant on advertising. Saviano, which is now a well-known book on the Camorra of Naples, shows that it managed to obtain better profits from trafficking jeans than trafficking cocaine. It only has to manufacture good counterfeit branded jeans and sell them on to the shops of these brands, which it controls secretly without paying anything for the brands themselves.

9In concluding this round of winners in the globalisation of jeans, let us spare a thought for those who lost out. Consumers hardly gained anything from the industrialisation progress, or from the reduction of production costs brought about by outsourcing. The employees of the so-called intermediary countries such as Mexico, Turkey or Tunisia have suffered tremendously from the rise of Chinese competitors; they have seen their salaries fall and their factories close down.

Private Chinese entrepreneurs

10It is quite interesting to look at the situation of private Chinese entrepreneurs in the clothing industry to which the Chinese industrial take-off owes much of its success. From 1982 to 2007, these entrepreneurs saw a remarkable increase. They often started out without any capital or security, dragging their employees into the adventure with menial tasks and themselves working continuously to earn far less money than their counterparts from rich or intermediary countries. The first generation of capitalists had ideas and behaved differently to the Communist ideology that was enmeshed in their childhood. They are rebels, stray-aways who have often already paid a heavy price for behaving abnormally. China’s opening was an opportunity for them to come out on top; they were almost offenders and then they became modern heroes who were not afraid of taking risks. Legally speaking, capital cannot be made in a socialist society. They cheated and bribed civil servants, and charmed many friends so that they would not be sent to prison out of jealousy. In most cases, they are the sons of the rich, like the entrepreneurs of many rich or intermediary countries. They therefore accepted much lower profit margins than in other countries. This is something that we do not fully realise. With their Mercedes E or S classes, private Chinese entrepreneurs are often poor. They are incapable of finding the necessary funds to modernise their factories. They are unable to conduct good market studies. In other words, they do not have any luck in competing with Western brands, as their brands are small. Furthermore, they are experiencing difficulties today. They face competition from manufacturers in Vietnam, Cambodia, Laos and even sub-Saharan Africa, who have managed to strike a lower price by paying the lowest salaries. They are shocked by the central government’s new industrial policy that obliges them to pay minimum legal wages, social security contributions, and anti-pollution equipment, thus reducing their already low margins.

11The die has not been cast. Chinese manufacturers can continue trying to conquer the local market and gradually set up Chinese brands there. Some of them can be seen embarking on such strategies with success. If they reconquer only the Chinese market, they will become big contenders, capable of canvassing Western countries at a later stage. The model of Western companies, involved in marketing, is rather fragile. How can we guarantee quality, and innovate with high-return products if we no longer know how to manufacture them because we have delegated this unprofitable operation to others? Today, a direct relationship between the sum attributed to a publicity campaign for jeans and the price that the consumer accepts to pay for such jeans can be seen. What will we do when consumers refuse to pay what André Gorz called the price of their “alienation”?

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