The Shanghai Squeeze : Part 1

Fast Boat to China: High-Tech Outsourcing and the Consequences of Free Trade: Lessons from Shanghai
by Andrew Ross, Ph.D.

Most Americans today are aware that jobs are being outsourced to China, India, and other nations at an alarming rate. From factory jobs to white-collar, high-tech positions, the exporting of labor is one of the most controversial issues in America.

Yet few people know much about the other end - about the people who are actually working these jobs and how their own lives have been throw into tumult by these new economic forces. Andrew Ross spent a year in China, interviewing local employees and their managers in Taiwan, Shanghai, and the far western provinces. In this engaging and informative book, he shows how the Chinese workforce has inherited many of the same worries as American workers, such as job instability, long hours, and awareness of their own expendability. He reports on the daily reality of corporate free trade and explores the growing competition between China and India. This is an eye-opening exploration of an unseen side of our globalized world.

Chapter 1

Corporations have been moving jobs and capital out of countries like the United States since the late 1960s. But in the public mind it is only recently that China has become the most likely destination. Almost overnight, it seems, the given wisdom is that if China's breakneck growth continues, its inexhaustible labor pool, its burgeoning high-tech skills, and its investment opportunities could effortlessly absorb the livelihoods of workers and professionals in every corner of the world. Worries are also mounting about how the world's resources are being drained to service this growth, but they do not yet compare to the widespread anxiety about the flight of industry and capital: in Mexico, whose NAFTA-based manufacturing sector has been hemhorraging jobs to Asia; in Japan, Taiwan, and Korea, where leading technology industries have come to depend on manufacturing on the mainland; in the United States and Western Europe, where offshore job transfer is sprinting up the value chain into the realm of professional services; in the offshore sites of Eastern Europe and North Africa that are increasingly less profitable than Asian locations; and even in countries like Cambodia, Thailand, Vietnam, Burma, and India, whose low labor costs are now undercut by the comparative advantages of producing in the heartlands of the jumbo China market.

Workers everywhere tend to perceive the mercurial growth of China's economy as a threat. Most owners of mobile capital, by contrast, see only an investors' bonanza. This discrepancy is not surprising, but it is rare to come across a stark divide on such a scale and with so many far-flung consequences. One of the general aims of this book is to explain how these contrasting perceptions came about, whether they are justified, and what conditions are likely to change them. Is China's growth a timely outcome that will help to stabilize the world economy, or is it a textbook illustration of the lopsided benefits conferred by corporate globalization? How do offshore employees - among the presumed beneficiaries - fit into this equation, and how can their onshore counterparts - among the presumed losers - join with them to help remedy any imbalance? In the plunder-happy world of free trade, what are the responsibilities of governments, either in the West or in key cities like Beijing and Shanghai, to try to equalize the distribution of gains and offset the environmental damage?

My inquiry into these questions took me to the factories and offices of Shanghai's booming metropolis, neighboring cities in the Yangtze River Delta and other parts of China, and, ultimately, to Taiwan and India, but it begins here with a brief historical account of how the commercial traffic between the United States and China evolved.

How Outsourcing Became a Way of Life

Before the early 1990s, the bulk of job and capital flight to China was obscured by the maze of contracting chains that snaked all over East Asia. When export-processing zones were first established in the 1980s in South China, most of the suppliers to U.S. and European manufacturers and retailers were Taiwan-, Macao-, or Hong Kong-owned factories (registered in the Cayman or Virgin Islands) that operated with a low profile and with equally low operating capital. In most cases the only contact with the onshore firm was through a Hong Kong agent, and the identity of the parent manufacturer was generally not disclosed. Indeed, the system was designed to be nontransparent, making it difficult to trace the connections between the head and the tail of the chain. Because the U.S. apparel industry was the first to see the offshoring of labor-intensive operations, garment unions had the longest record of tracking the flight to Asia, dating back to the 1960s. Labor advocates in the industry also had the longest experience of protesting substandard conditions in the factories - first in Japan, and then in Hong Kong and Taiwan - that supplied the apparel majors. Consequently, the concept of the Asian sweatshop producing for Western consumers was established early in the public imagination. The reality took on a more ominous profile when low-end assembly operations swept onto mainland China itself, all but concealing the factories and shops from international scrutiny.

The initial surge of job traffic to the export zones slowed after the 1989 crackdown in Tiananmen Square. International sanctions took their toll on most trade relations with China. Bill Clinton subsequently campaigned on a promise to take a firm stand against the "butchers of Beijing," and initially he tied the approval of China's Most Favored Nation (MFN) trading status to the improvement of Beijing's human rights record. But his fighting words soon dissolved in the face of pressure from the powerful U.S.-China trade lobby. His first administration approved Beijing's MFN status in 1994 over and above a barrage of complaints about appeasement.

Offshoring corporations developed a tight understanding with the governing class that each would press for the global liberalization of trade and investment. This entente among financial and political elites was part of the Washington Consensus, and its advocates promoted the doctrine that free-trade policies would bring wealth to all participants. Benefits flowed to those who profited from trade deregulation and privatization, but the more numerous "losers of globalization" were hard-pressed to see the silver lining. Rising inequality appeared in every poor country that lifted trade and investment barriers. Domestic protests surfaced wherever corporate-led free trade left its uneven footprint. Toward the end of the 1990s, a far-flung protest network - the global justice movement - was advocating a bottom-up vision of globalization, geared to human needs and sustainable development, rather than to short-term corporate profits. With its scant domestic freedoms, and limited international exchange (though not for businesspeople), China emerged as the weakest link in the network, and the largest single obstacle to global cooperation on labor and environmental standards.

Partly as a result of this stepped-up global opposition to free-trade policies, a much fiercer fight over worker and human rights preceded congressional approval of China's Permanent Normal Trading Relations (PNTR) status in 2000. The granting of PNTR, which was the prelude to China's accession to the WTO in 2001, opened the door wide for production shifts from the United States to the mainland. The exodus began in earnest. In the years that followed, the majority of China's ballooning exports were produced with foreign investment, and most of the goods were destined for the American market. Consequently the U.S. trade deficit with China soared (by 30 percent in 2004 alone, to top $162 billion), along with anxiety about the loss of livelihoods in the United States.

After PNTR was approved in 2000, Congress established a bipartisan commission (the U.S.-China Economic and Security Review Commission) to assess the economic and security implications of the worsening trade deficit with China. The first study to be commissioned on domestic employment impact reported a sharp escalation in production transfers out of the United States in the six months after the granting of PNTR. In this short period, more than eighty corporations announced plans to shift production to China. According to the survey, these were large, well-known, and highly profitable companies, and the majority of them were not producing for the China market. Moreover, the pattern of their investment in China showed a clear move away from low-skill light manufacturing toward more complex, value-adding industries like electronics, chemicals, machinery, metals, and financial services. The lost onshore jobs in these industries were more likely to have been unionized with higher wage and benefit packages than in labor-intensive sectors.

Copyright © 2006 by Andrew Ross.

About the Author

Andrew Ross is Professor of American Studies at New York University. He is the author of seven books, including No-Collar: The Humane Workplace and its Hidden Costs, The Celebration Chronicles: Life, Liberty and the Pursuit of Property Value in Disney's New Town and Low Pay, High Profile: The Global Push for Fair Labor. He has also edited six books, including No Sweat: Fashion, Free Trade, and the Rights of Garment Workers, and, most recently, Anti-Americanism.