06/25/2005, 00.00
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China must re-evaluate wages, not currency

Beijing (AsiaNews/Agencies) – Increase the wages of Chinese workers instead of revaluing the currency: this is the hypothesis currently under scrutiny in China. Meanwhile, the US is urging Beijing to review its currency: adoption of "a flexible, market-based exchange rate" – to quote John Snow secretary of the US Treasury – may be in the pipeline, which would make China's export material less competitive.

But Chinese scholars insist that if Beijing increases the value of the yuan, the negative social consequences in the country would outnumber the positive. The buying power of money would increase, as would the importation of luxury goods, but a sharp drop in exports would also be on the cards. Foreign businesses would search for more economical labour, and this would push the standard of living among Chinese workers even lower.

To avoid this, in the second half of 2004, the government introduced taxes on the exportation of fertiliser, copper, aluminium and other materials, to increase the cost of these products and to reduce the quantity of their exportation. But at the beginning of June, Beijing revoked the tax on textile products, after the USA and the EU reintroduced the highest importation quotas. An agreement was later reached with the EU to reintroduce a ceiling on exportations in the sector, but this means a significant reduction in textile production, with drops in profits for firms and loss of places of work. With the USA, the spectre of a trade war is looming.

There is a way out of the situation which has not been considered: increasing the wages of Chinese workers. This would increase the cost of "Made in China" products without rocking trade relations. Today the main reason behind the competitiveness of Chinese products lies in the mass availability of a cheap work force. Salaries are meager, especially of 88 million peasants who are forced to migrate from their home villages to work in industrial settlements. In Dongguan, for example, a worker toils for 100 hours per week – all seven days of the week are working days – but he will earn no more than 900 yuan at most (around 88 Euros).

Such workers are deprived of health insurance and they are not compensated in cases of accidents at work. However, no one speaks about their conditions. Sacrificing workers' rights for greater competitiveness cannot constitute a lasting strategy, nor can it lead to a stable development of the Chinese economy. The increase in strikes and demonstrations highlights the emergence of a work-capital struggle. If the situation does not change, there will be more serious consequences in the future, even to the point of threatening political stability even further.

In contrast, increasing workers' salaries will give them greater buying power and boost internal demand. The development of a Chinese market cannot be based only on the conspicuous shopping of the elite: today a handful of Chinese can afford luxury cars or new homes, while the great majority can barely meet their daily needs.

Most migrant workers leave their families in their homeland and send them their entire salary once a year, when this is paid them: frequently, employers deny workers their wages, or put off paying them for years. A worker's job does not generate enough money to maintain a family in the large, more developed cities on the southern coast. If migrants could set up in these cities, instead of leaving their families behind in rural areas, this would give consumption a significant boost, creating greater demand and more places of work.

The government is subject to great pressure from the international community to revalue the yuan, but a drop in exports could be attained in other ways. The nation should gradually reduce its dependence on exports and diversify the economy through an increase in internal consumption and more balanced development. If Beijing makes workers' pays more secure, and if it respects their capacities, then it could really bring about stability and development in Chinese society.

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See also
US Parliament: Beijing must revalue the yuan within three months
India and China draw overseas capital with research and innovation
New textile deal reached between Beijing and Europe
China rules out any further exchange rate changes
Still no agreement on textiles between Beijing and the European Union


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