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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
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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)
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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.
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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.
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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.
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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
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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
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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?
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