Monday, June 28, 2010

The China Hope

"Victors can afford to be generous."

--Suffragette Katharine Dexter McCormick (1920)

China’s generosity impresses me as a sign of strength. China has allowed direct flights and shipping between China and Taiwan, a boon to an island that sends 41% of its exports to China, and has 4% of its population living on the mainland. So today Shanghai is an hour and 20 minute flight from Taipei; it used to take a day to get there, via Hong Kong.

Now the two areas are taking another big step toward ending their 61-year-old separation. They will initial—in Chongqing, wartime capital of the Chinese Nationalists who currently rule Taiwan—a trade agreement reducing tariffs on 800 types of exports, and opening up 11 Chinese service sectors, including banking, accounting, aircraft maintenance, insurance and hospitals, to Taiwanese companies.

The agreement means much more economically to Taiwan than China. Taiwan’s exports to China last year reached $62 billion, while imports from the mainland amounted to just $24.5 billion. Taiwan needs an economic boost; its economy shrank by 10.8% last year as a result of the recession. And China’s conclusion of a free trade agreement with the 10-country Association of South East Asian Nations (ASEAN) threatened to hurt Taiwan still more by giving ASEAN preferential access to China’s market. Now Taiwan is back in the mix.

China of course may realize significant political benefits, if Taiwan’s population continues to warm toward its big neighbor. As mentioned earlier, Chinese President Hu Jintao would love to move toward reunification with Taiwan before he retires in 2012.

In another example of Chinese generosity, AP’s Tini Tran reports from Beijing that China’s leadership has reversed policy on labor strikes, now encouraging them as a way to promote worker wage gains. According to Liu Shanying, an analyst at the Chinese Academy of Social Sciences' Institute of Political Science, China wants to restructure its export-driven economy into a more self-sustaining one driven by consumers with more cash to spend. Workers' salaries as a share of China's economy declined for the last two decades, dropping from 57% of GDP in 1983 to just 37% in 2005. So the leadership is reportedly allowing carefully-controlled strikes aimed at foreign-owned companies, as long as the strikes are contained within a factory site, focus on wage increases and working conditions, don’t spread to the streets, and don’t involve units larger than a single firm.

The reported labor unrest is in southern China, where workers have become more valuable since the leadership successfully directed investment toward China’s interior, thereby keeping workers at home who used to migrate to the coast. As a result of workers’ success in a labor-shortage environment, the minimum monthly wage in southern Guangdong province rose in March to between $135-$150. Elsewhere, it is as low as $95.

The moves to help Taiwan’s people and southern China's workers suggest leadership strength, and thereby offer hope China is headed for a peaceful, prosperous, generous future.

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