China is not a country

In: Uncategorized

15 Oct 2013

Western commentators are often far too quick to draw sweeping conclusions about China on the basis of limited knowledge. I was reminded of this tendency after following discussions about an article in the Financial Times about young Chinese allegedly shunning factory jobs.

The article was based on an interview with Terry Gou, the founder of Foxconn (also known as Hon Hai ), one of the world’s largest manufacturers of consumer electronics products. Although it is not a household name it produces many iconic products including Apple’s iPad and iPhone, Amazon’s Kindle and Sony’s PlayStation 4. The Taiwan-based company employs hundreds of thousands of workers in mainland China as well as having operations in many other countries.

I have no doubt that the FT article accurately quoted the Foxconn chief claiming that in his experience many Chinese workers are moving from manufacturing to services. My quarrel is with the commentators – who I will not name – who were quick to identify this as a trend for the whole of China.

Indeed the article itself hinted that Gou had a vested interest in making his pronouncement by noting that Foxconn is lobbying the Chinese government for tax and other incentives. In other words he stands to gain by emphasising the difficulties involved in employing Chinese workers.

But even leaving this point aside the claim should not be applied too broadly. China not only has a population of over 1.3bn in total but only half of it is urbanised. In other words about 650m Chinese still live in the countryside.

That means that even if some Chinese are switching from manufacturing to services there is still an enormous pool of agricultural workers. In principle there is no reason why a substantial number of these would not want to work in manufacturing if they got the chance. Working on a production line may be tedious but it is generally less arduous and better paid than manual work on a farm.

The picture is further complicated by China’s Hukou system of household registration. This means that an individual’s access to education, healthcare and housing depends on where he is registered. The set-up makes it difficult for those who live in the countryside to move to cities outside their region. It constitutes a barrier to rural-urban migration; in effect constituting an internal passport.

Despite long-standing talk of reform the system is still largely in place. Any progress is likely to be slow.

These features point to two key lessons that western critics should learn about China. First, it retains a large agricultural sector even though it has become one of the world’s leading industrial powers. Manufacturing may be the driver of the economy but agriculture still employs a huge number of people.

Second, in many respects China is better seen as a continent rather than a country. Indeed its population dwarfs that of the whole of Europe and its land area is only slightly smaller. There also remain formidable barriers to freedom of movement within China itself.

This comment was first published today on Fundweb.