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China: Economic Development and Employee Wages

By Li Yin and Denis Collins

Li Yin is a doctoral student in the School of Economics and Business Administration,

Beijing Normal University, in Beijing, China. Denis Collins is a Professor of Management in the

School of Business at Edgewood College in Madison, Wisconsin.

I. Introduction

A. Case Synopsis:

China is undergoing a remarkable economic transformation and has had the world’s

fastest growing economy the past three decades. This case examines the evolution of economic

development and worker wages in China. Beginning in 1949, the nation evolved from feudalism

to socialism under the dictatorship of the Communist Party, which emphasized achieving income

equality. In 1978, government policy shifted to a socialist market economy with a greater

emphasis on private and foreign-owned enterprises. The economy grew rapidly, as has income

inequality. These changes have been accompanied by an increasing number of labor disputes. In

2010, a string of suicides among workers at Foxconn Technology Group and a general strike by

Honda employees aroused wide attention. What should Chinese government officials and

Foxconn executives do about the labor problems?

B. Case Objectives:

To become aware of Chinese history

To understand China’s economic transition from semi-feudal society, to

socialism/communism, to adopting free market amendments

To analyze changes that have taken place in China since 1978, two years after the

death of Mao Zedong

To critically evaluate what the Chinese government and Foxconn should do about

current labor problems

II. Classroom Management

A. Outline for a 1-hour class

Introduce the case by noting that in 1960 China was among the poorest nations in

the world and by 2010 it had the second largest economy in the world. [5

minutes]

Students summarize the main facts of the case. [5 minutes]

Students meet in small groups to reach consensus on answers to the four

analytical opinion-based questions at the end of the case. [10 minutes]

Facilitate discussion among student groups case question answers. [30 minutes]

Update on latest newspaper reports on the evolution of labor issues in China [5

minutes]

Summary and lessons learned [5 minutes]

B. Current economic information about China [from CIA World Factbook, available at

https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html, accessed

10/12/10.]

GDP (purchasing power parity): $8.748 trillion (2009 estimate in US dollars); country

comparison to the world: #3

GDP (official exchange rate): $4.909 trillion (2009 est.)

GDP – real growth rate: 9.1% (2009 est.)

GDP – per capita (PPP): $6,600 (2009 est.); country comparison to the world: #128

GDP – composition by sector:

services: 42.6% (2009 est.)

Labor force: 813.5 million (2009 est.); country comparison to the world: #1

Labor force – by occupation:

agriculture: 39.5%

industry: 27.2%

services: 33.2% (2008 est.)

Unemployment rate: 4.3% (September 2009 est.); country comparison to the world: #38

Population below poverty line: 2.8%; note: 21.5 million rural population live below the official

“absolute poverty” line (approximately $90 per year); and an additional 35.5 million rural

population above that but below the official “low income” line (approximately $125 per year)

(2007)

agriculture: 10.6%

industry: 46.8%

Budget: revenues: $1.002 trillion; expenditures: $1.111 trillion (2009 est.)

C. Questions

1. Summarize economic development in China from 1949 to the present.

China, with a population exceeding 1.3 billion people in an area approximately the same

size as the United States, is one of the world’s oldest civilizations.

By 1900, China had become primarily a poor semi-feudal and semi-colonial society.

In 1912, the Republic of China was established.

Mao’s first step was land reform as the nation needed to feed a huge population. The

victorious Communist Party confiscated land from previously abusive landlords and gave

it to the poverty-stricken peasant households who farmed the land. Land shares were

distributed equally, which often meant that the plot of land was too small for farmers to

achieve self-sufficiency.

Mao nationalized the banking, energy, and communication industries, along with

foreign-owned businesses. In 1955-1956, the government bought out the remaining

private businesses. In urban areas, most citizens were employed by state-owned

enterprises and worker cooperatives.

In 1980, the government initiated an “open door” policy for international investors by

creating a Special Economic Zone in Shenzhen that offered tax incentives and flexible

regulations, such as favorable export and import policies.

The adoption of more modern technology and management techniques also impacted the

agricultural sector. The new machinery made many farm laborers, already experiencing

poor living standards, expendable. An estimated 200 million displaced farmers have

migrated to cities looking for work and competed against previously laid off workers for

low paying jobs.

Chinese employees do not have real union representation because the ACFTU is

controlled by the government and does not engage in collective bargaining. Laborers

express their dissatisfaction with wages and working conditions through strikes and

public demonstrations, which make local Communist Party officials and trade union

leaders look bad. The government officials encourage the strikers to go back to work and

address the issue through labor arbitration.

2. Would you want to live under the communist economic system? Why?

This is an opinion question. Most students would not want to live under a communist

economic system. Push the students to clarify why that is the case. Each time a student

3. Is China’s one-party rule ethical? Should China change from one-party rule to

democracy? Why?

This is an opinion question. Most students will probably believe that one-party rule is

unethical, but may struggle trying to articulate why they believe that is the case. Note that

the Chinese government claims that its one-party rule is much more efficient than the

4. What is contributing to increased labor unrest in China?

5. Is Foxconn’s treatment of laborers ethical? Why? What should the Chinese

government do about the labor problems? What should Foxconn do about the labor

problems?

Most students will likely note that Foxconn’s treatment of laborers is unethical because of

the very low pay and inappropriate working conditions. But some maintain that labor

6. Should consumers in other nations boycott products made in Chinese factories until

pay and working conditions improve?

This is an opinion question. Briefly discuss the history of boycotts. Ask is any student has

D. Update Information and Relevant Websites

This case concludes with October 2010. Conduct a Google search for more recent information

about labor issues in China. In particular, search:

Newspapers

New York Times: www.nytimes.com

Wall Street Journal: www.wsj.com

China Labor Issues

All-China Federation of Trade Unions: http://www.acftu.org.cn/template/10002/index.jsp

China Labor Watch: chinalaborwatch.org

China Labor Bulletin: clb.org.hk/en

China Law Blog on New Labor Laws: chinalawblog.com

Facts and Details – Chinese Labor Rights and Unions:

http://factsanddetails.com/china.php?itemid=363&catid=9&subcatid=60

Foxconn

Foxconn website: http://www.foxconn.com/

Foxconn “2009 Corporate Social & Environment Responsibility Report” available at

http://www.foxconn.com/ser/2009%20Foxconn%20CSER%20Report.pdf

Foxconn Suicide Videos

http://www.youtube.com/watch?v=aBoFxpM1UY0

http://www.reuters.com/news/video?videoId=92812503

E. Concluding Question: What did you learn from this case?