Chinese enterprises respond to social challenges Dr. Zhan SU Professor of Strategy and International Business Director of Stephen A. Jarislowsky Chair in International Business Director of GERAC (Research Group on Contemporary Asia)
Faculty of Administrative Sciences Université Laval
“China price” Plastics •“One of my top customers recently got bids from a Chinese producer that were 26% less than what I was selling the product for. That’s 26% delivered, after shipment all the way from China.” Furniture • “China is undercutting US manufacturers’ prices (of wood case-goods furniture) 20-40%“
Tool & Die •“Chinese prices are frequently 50% of what US counterparts charge, and in some instances are 75%.” Electronics • Asian suppliers in China and Taiwan have a 3050% cost differential vs. US plants
New Chinese development strategy: “climbing up the value chain” • • • •
More added value More efficiency More socially responsible More environmental
Objectives:
- Growth: by 2010 double the GDP per capita in regards to 2000 - Efficiency (consumption of energy resources for each unit of GDP): 20% less in 2010 than in 2005 - Innovation capacity: In the top 20 by 2020 - Standards of living: be a developed country by 2050
Evolution: Chinese Demographics
Evolution of Working and Total Population (China)
Evolution of Working and Total Population (India)
China: an old country before a rich country?
Towards the middle of this century, more than 33% of Chinese will be 60 years or more, which represents more than 400 million people.
In 2030, 40% of people in Shanghai will be 60 years or more. Today there are 5.4 active people against one pensioner, this will be 2.5 persons against 1 by 2030 and 1.6 against 1 by 2050 . From the year 2030, reduction of the active workforce will lose 0.7% of GDP per year.
Rural vs Urban Population 1978 17245; 18%
2007 Rural
Rural
Urban
Urban
59379; 45% 72750; 55%
79014; 82%
Chinese « Black Collar » They come from the rural areas, but they are now - not farmers (they no longer work on the fields) - nor city workers (without Huko, without social welfare for city citizens).
They occupy dirty, poorly paid and poorly protected jobs: - 58% of employment in the secondary sector and 52% in the tertiary sector:
- Manufacturing, 68%, - Construction, 80% - Restaurant and domestic household, 90%
Workers from Rural Regions (10,000) 25000
50,0% 40,5% 20412
20000 15000 18,1% 6714
10000 5000 0
7,1% 2182
1978
20,6% 8673
28,2% 12707
31,2% 14965
40,0% 30,0% 20,0%
6,4% 2028
10,0% 0,0%
1980
1985
1990
1995
A
B
2000
2005
Rural Workers in Different Domains
2005
1985 2938; 14%
1946; 29%
2741; 41%
E 1130; 17%
1567; 8%
B C D
463; 7% 434; 6%
A
6243; 31%
3653; 18% 6011; 29%
Others Industry Construction Transportation Commerce
Accidents (Coal Mining) in China
2006
8000 7000 6000
6716
2,5
6434 6027 5986
5797 5670
5000 4403 4000 3000
4746 4143 3639
2720
2,04 2
3082
1,5
3786 3341
1
2976 2446
0,5
2000
0,13
0,09
0,03
0
1000
China Holland South Africa
0 2000 2001 2002 2003 2004 2005 2006 2007 No. Of Deaths No. Of Accidents
.
USA
Labour Conflict 900 800 700 600 500 400 300
No. Of Case
200 No. Of People Concerned
100 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Chinese Population: Education Level 2007
1982 6,6% 0,6%
12,6%
17,8%
6,2% 37,8%
39,6% Others Primary
13,5%
Secondary
35,4%
High School University
29,9%
Productivity Improvement (Yuan per Person)
Countrywise Productivity (USD per Person) . 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0
92270 80997 78678 76650 76393 68145
38604 20224
14408 3505
USA
Italy GermanyCanadaAustralia Japan Korea Mexico Russia China
New Chinese development strategy: “climbing up the value chain” • Since 2004, especially since 2007, the Chinese government adopted a new economic strategy that aims towards a more efficient, more socially responsible and more ecological development. Although it is still early to evaluate the real impacts, it seems to initiate a new phase of Chinese development. Objectives:
- Growth: by 2010 double the GDP per capita in regards to 2000 - Efficiency (consumption of energy resources for each unit of GDP): 20% less in 2010 than in 2005 - Innovation capacity: In the top 20 by 2020 - Standards of living: be a developed country by 2050
Consensus of Beijing vs. Consensus of Washington: A Clash of Civilizations? «Choose your own path, based on your needs and characteristics» - the principle of non-interference and sacralization of the concept of sovereignty; - pragmatism and abandonment of ideology, rejection of the idea of uniform solutions for all situations rather put on trial and error, gradual change, step by step - economic growth and political stability prevail over individual right, the first basic component of human right is the right to survive. « Asianism » The collective interest prevails over individual interest, respect for authority and order, value of work, frugality, ...
Motors for future Chinese economic growth? - Growth in domestic consumption (especially by the rural population) - Urbanisation (40% vs. 60% in Asia) - Growth in service sectors (40.7% vs. 70% and more) - Development of high technology sectors - Development of “green” sectors - Improving the competitiveness of Chinese products on the international market (productivity, quality, labour costs …)
Composition of GDP 100% 90% 40,1%
80% 70% 60%
76,7%
68,1% 69,4%
72,8% 76,9% 70,8%
64,0%
54,8% 57,2%
56,4% 67,2%
Tertiary Srcondary
50% 40%
Primary
48,6%
27,7%
30% 20% 10% 0%
22,0%
30,9%
30,2% 29,7%
USA
39,6% 29,5%
26,2% 20,9% 26,9% 11,3%
1,3% 1,7% 0,9%
38,0% 17,5%
1,0% 2,2% 2,3% 5,1% 5,6% 3,3%
Japan Germany China England France
Italy
Brazil
Russia
Spain
3,2% India
Korea
Employment: Chinese Economic Structure % 1978 4890; 12%
%
2007
Primary Secondary Tertiary
24917; 32%
6945; 17%
31444; 41%
28318; 71%
20629; 27%
Reform of employment system in state-owned enterprises 1: 1982 to 1986: workstation according to performance, remove non-performing employees 2: 1986 to 1992: End of lifetime employment and implementation of employment contract 3: Since 1992: Lay-off and creation of the labor market 4: Since the end of 90’s: transformation of enterprises into stock companies and workers became employees protected by the social protection system and were recruited into the labor market
Employment: Different Category of Players %
% Peasant
1978
2007
2048; 2827; 15; 5% 0%7%
15090; 20%
State Owned Individual Private Others Rural
7451; 19%
32550; 43%
27811; 69%
14317; 19% 4581; 3310; 6% 4%
6424; 8%
Growth of Annual Average Salary 30000 25000 20000 15000 . 10000 5000 0 1978
1980
1985
1990
1995
2000
2005
2006
2007
Chinese Family Income (Yuan) 13785,8
14000 11759,5
12000 10493
10000 8000 6000
B 4283
4000
3254,9
3587
4140,4
2253,4
2000 0
A
6280
343,4 477,6 191,3 133,6
1978
1980
1510,2 739,1 686,3 397,6
1985
1990
1577,7
1995
2000
2005
2006
2007
Family Consumption as Percentage of GDP 2005 80,0% 70,3%
60,0%
65,3% 59,3% 58,9%
58,3% 57,4% 57,1%
40,0%
55,3% 50,0% 37,7%
20,0% 0,0% Usa England Germany Italy
India
Japan France Canada Russia
China
Average Medical Expenditure per Person (USD) . 6000
5274
5000 4000 2631
2476
3000
2348
2222
2031
1995
2000 577
1000 63
30
China
India
0 Japan
Korea Canada
USA
France Germany England Australia
.
Total Medical Expenditure as % of GDP . 16%
14,60%
14% 12% 10% 8%
10,90%
9,60%
9,70%
7,90% 5,80%
9,50% 7,70%
6,10%
.
5,00%
6% 4% 2% 0% China
India
Japan
Korea Canada
USA
France Germany England Australia
Expenditure per Student as % of GDP per Habitant 90,0%
85,5% 86,4%
80,0% 70,0% 60,0% 50,0% 41,2%
40,0% 30,0% 20,0% 10,0%
12,1%
23,2% 20,9% 17,1% 15,2%
31,7% 29,6% 26,2% 29,0% 25,3% 24,5% 21,7%
University
25,8% 23,2% 16,2% 14,1%
7,3%
0,0% China
India
Japan
Korea
Italy
USA
Secondary
France GermanyEnglandAustralia
Major Chinese labour law • Labour Contract Law • Employment Promotion Law • Law on Mediation and Arbitration of Labour Disputes • ……
SA8000 vs HM3000 SA8000 is based on the Universal Declaration of Human Rights of the UN, on the International Convention of Child Rights and other conventions of the International Labor Organization (ILO). SA 8000 covers the following areas of social responsibility: • • • • • • • • •
Child labor Forced labor Health and Safety Organizational practices Discrimination The right of assembly and speech (unions) Working time Remuneration The HRM (human resource management)
Challenges of Global Governance Legality
Illegality
Legality
Illegality 38
Is China’s manufacturing dominance sustainable? • Some of China’s advantages are not sustainable – China is going to reevaluate its currency. – China’s government will be required to focus on costly social and environmental measures. – The influences of the Chinese government on economic activities should be reduced.
• But the basic export-oriented, mercantilist model appears sustainable
China’s labour cost advantage will remain China has a very large pool of skilled and unskilled Low labor cost workers (20 million young urbanites enter the workforce each year; a surplus of 200 million people in rural areas) In 2003, the average urban Chinese worker had an average annual income of 1708 US$. Even if salaries raised by 10% a year, it would take 30 years to reach the average American salary in 2003 (17.75 US$ per hour). In fact, the average annual raise in salaries is 6% in China and 3% in the United States, therefore it would take 100 years for the cost of Chinese labour to equal that of the United States. China is an atypical developing country, because it has at the same time the absolute advantages with regards to costs, the comparative advantages with regards to productivity and the competitive advantages in several high-tech sectors. According to a study by McKinsey (2002), in several industrial sectors, the productivity of Chinese workers is already 20% greater than most European countries.
China: an atypical developing country The absolute cost advantages, the comparative productivity advantages and the competitive advantages in several segments of the technology sector
• 29% of the products exported in 2005 were high-tech, of which 90% were produced by foreign firms working in China; • Investments in R&D: 0.6% GDP in 1996, 1.1% in 2001, 1.4% in 2005, 2% in 2010 and 2.5% in 2020 (3.13% in Japan, 2.7% in the United States, 1.8% in the EU in 2004); • More than 1 million Chinese students are studying abroad; • From 1985 to 2000, the first million patent applications in China, in March 2004, the second million; in June 2006, the third million • 253 high technology development zones • Increasingly, MNE are setting up their R&D centres in China (already more than 900).
Motors for future Chinese economic growth? - Growth in domestic consumption (especially by the rural population) - Urbanisation (40% vs. 60% in Asia) - Growth in service sectors (40.7% vs. 70% and more) - Development of high technology sectors - Development of “green” sectors - Improving the competitiveness of Chinese products on the international market (productivity, quality, labour costs …)
