By Patrick Nohrden
Note: This article was written in January 2008. Since then, world political and financial conditions have changed.
Now that American factory jobs have all but disappeared, the service industry is about to follow. Citicorp, one of America’s largest banks, and according to Pravda, the largest company in the world, announced on Tuesday that it will cut about 20,000 jobs, the first major job cut this year. Cash-strapped Citicorp also announced plans to sell a $2 billion stake in the bank to the China Development Bank, one of China’s larger state-owned banking institutions.
This is not the largest share of the bank to be sold, that honor going to the Abu Dhabi Investment Authority, who has chipped in $7.5 billion. Naturally, large shareholders would like to see much of the operation closer to home. The lower salaries in China and Abu Dhabi would be instrumental in cutting some of the bank’s overhead, just as it is cheaper to produce most of our consumer products overseas.
Nor it this the first large-scale investment by the Chinese in American financial powerhouses. China has already agreed to invest $5 billion in Morgan Stanley. The irony of a communist country investing in Wall Street is obvious. However, China needs the income that its investments will bring. This will allow China to fund more projects, such as the Three-Rivers Gorge Dam, which has already displaced 1.3 million people. The income will also allow China to modernize its army, the world’s largest, making it the world’s strongest. The currently under-funded Army would then be in a position to enforce its claims on the disputed islands now claimed by Indonesia, Malaysia, the Philippines, Vietnam, and Japan. China would also have the ability to impose further control in the tyrannical governments of Africa with which it is now doing business, all of whom are on America’s “watch list.”
Interestingly, the communist Chinese government has threatened to veto the investment. It seems that our communist friends do not want to see so much American money returning to America. They need our money as much as we do, which is why China has initiated a low-tech industrial revolution to produce all the cheap crap we buy at Wal-Mart and the 99-Cent Store.
After complaining to various business associates about the unbelievably high numbers of factory jobs lost in America due to Chinese imports, the ill-informed responses all seem emanate from some out-of-date economics textbook. These responses were versions of the following:
1. It’s a world economy.
2. The Chinese should be able to work themselves out of poverty by making cheap stuff that we are unwilling to make.
3. It doesn’t make sense for us to invest our resources in industries that have a narrow profit margin when the Chinese are willing to do it.
4. By letting the Chinese make our consumer goods, we have the time and resources available to invest in more profitable enterprises (like mortgage banking?).
If you believe that there is no harm in allowing the average Chinese to make a decent living making goods that we need, then you are living in a dream world. China does not allow just anybody to get rich. To do so in China requires permission from the government, which implies that you must have permission from the Chinese Communist Party. Nor do the workers improve their standard of living when they drop their farming tools and head to the cities to work in the factories.
In 2004, for a few months I lived in Yiwu in Zhejiang Province, near the coast just south of Shanghai, China. Nearly all Christmas decorations, religious figurines, China souvenirs, socks, belts, and other junk are manufactured in Yiwu. Buyers from all over the world come to Yiwu to buy in bulk for resale in their home countries, especially America.
Yiwu is a factory town. Although twenty years ago, there were few factories, and none of them were producing for export. But it grew fast, making just about everything for the worldwide consumer market: plastic basins, fancy thong underwear, socks, electric appliances, baseball caps, and countless other products. Factories were erected so fast that no provisions were made for the use and disposal of water. Because of the factories, the town water supply was so polluted that nothing could be done to make it safe. A resident could not even wash with it, so water had to be piped in from nearby regions. At my apartment, we only had running water every other day for about three hours.
According to my Chinese friends and students, when I told them I was moving to Yiwu, without exception they said that in Yiwu, everybody is rich. The Chinese like to use words like every, all, never, and always. I did not believe them, because I know that not everybody can be rich. Nevertheless, there were many rich people in Yiwu, which was evident by the number of expensive cars I saw there. The private cars actually outnumbered the taxis, something that I was not used to seeing in China. There were numerous Chinese-made Volkswagen Santanas, and a few Soueasts, and a Geely or two, Chinese manufactured cars, but I saw many BMW’s, Mercedes-Benz’s, Lexises, and the like.
But not everybody was rich. Only those people who had the fortune to be blessed by the government were allowed to open their factories. Those people were rich. Most of them were government employees, or relatives of government employees, who used their position in government to acquire the land and buildings to start their factories. They employ people at the barest of wages, often paying them one or two fen per item on a piecemeal basis to make the stuff. A fen is the Chinese penny, which is worth about 1/12th of an American penny.
People looking for work converge upon Yiwu from all over southeastern China, hoping to make a better living than they could working the hectare of farmland allotted to them by the Chinese government. The average farmer in China makes about 75 yuan per month (about $10). The average factory worker in Yiwu makes between 300 and 600 yuan per month ($40 to $80). But they are not registered residents of Yiwu, so they cannot rent a house. If they had the money, they could buy a house, and if they spend at least 75,000 yuan ($10,000), they can change their hukou (their city residence registration) to Yiwu. But bank financing is not available to them, because they are not registered to reside in Yiwu.
As you might imagine, it can take a long time for somebody earning $80 per month to save enough money to buy a house that will cost over $10,000, especially after deducting the cost of living. The cost of living is compounded by the fact that because these workers do not have a house, they do not have a kitchen. They have to eat out a lot.
One evening around 10:00, while riding our bicycles down one long boulevard on the south side of the extremely polluted river running through Yiwu, away from downtown and the nicer residential areas, we saw countless people sleeping in the bushes, along the sidewalks, on the devil-strips separating the road from the bike lane, and in the driveways of businesses. They were spread out on blankets sleeping under the stars. Because of the heat (around 90 degrees Fahrenheit at night) and high humidity, most of these people were scantily clad, subjecting themselves to the vagaries of the swarms of mosquitoes. I saw plastic tarps used as awnings to protect a makeshift kitchen surrounded by a few plastic tables and plastic chairs, an entrepreneurial restaurant devoted to serving meals for these homeless factory workers.
You cannot walk more than twenty feet in Yiwu without being accosted for a handout. At least half of the beggars are children whose parents are begging within the vicinity.
In front of every store that sells DVD’s you will see groups of women holding their infant children trying to sell you pornographic movies. The sidewalks are littered with people selling apples, pears, lotus buds, grapes, and assorted other produce. In front of the building in which I worked, people had small cages with three to six puppies for sale. On my way home in the evenings, a fifteen minute walk, I would see people preparing their beds for the evening on the sidewalks and driveways of the businesses that I passed, moving out of the way only for the police cars that want to park at the massage parlors to collect fees.
Without a doubt, China is getting rich from the closing of our factories. We have been selling piece-meal our American business heritage to a communist government that outlaws labor unions, cares little about the environment, and considers itself a political enemy of the United States. We have lost millions of factory jobs to a country that forces their factory workers to live on the street. Now, Citicorp is trying to sell a large share of its financial service business to China. That sale will cause a reduction of service industry jobs in America. When both our factory jobs and our service industry jobs are gone, what are we expected to do? Go back to farming? Hardly. The next time you buy garlic, check the label. It will likely say “Product of China.”
Patrick Nohrden 