On Sharing and Keeping in China

The Financial Times Web site just ran a fascinating story filed by Kathrin Hille from Shanghai:

In the industrial town of Kunshan, Thermos, the manufacturer of vacuum flasks, is among the lucky few. Revenues jumped more than 30 per cent last year, and record-low steel prices could make 2009 its most profitable business year yet.

But the company has other worries. It has to hand over part of its profits to help soften the impact of the global economic crisis on others.

As factories in this manufacturing hub near Shanghai, hit by the sudden collapse of export orders in the past few months, fail by the dozen, the government of the district of Lujia is scrambling for financial aid to pay off thousands of laid-off workers. It has turned to the few flourishing businesses in town for help.

“We were approached for a sum of Rmb5m [$740,000, €540,000, £490,000] to Rmb8m,” says Lin Chao Min, deputy chairman of Thermos (China) Housewares.

For Kunshan, home to the largest cluster of Taiwanese-owned manufacturers in China, this is a drastic turn in its fortunes. The arrival of manufacturers from the island in the mid-1990s, which quickly built profitable export bases for everything from computer components to furniture, made the city the first in China with tax revenues exceeding Rmb1bn.

This might be called "A Tale of the Fundamental Law of Economics in a Time of Crisis." Recall the simplest statement of this law:

People are willing to share poverty, but they would prefer to keep wealth.

The ideal of socialism had been intended to sustain the enormous population of China through insufferable poverty. Whether or not it ever succeeded, it was put to its most severe test when China finally began to emerge as an "engine of wealth creation," particularly when, under the new game rules of globalization, that wealth would accrue to those who invested in China as well as (instead of?) the Chinese population.

Hille's story provides us with an account of how China wants to deal with the problem of a spanner (might as well use Brit-speak to honor the source) thrown into the works of that wealth creation engine. Once again menacing ghosts of poverty are rearing their heads; and with them comes the socialist ideal of sharing wealth (for which Barack Obama took so much flack when he tried to explain the principle to Joe the Plumber). China knows just how ugly poverty can be, so we can understand why they should appeal to this ideal. Unfortunately, the principle is being applied to a Taiwanese business that decided to "follow the money" and build its manufacturing facility in China. One can imagine how the owners of that business are reacting; however, as I learned while living in Singapore, whatever your principles may be, your practices remain bound by the laws of the country in which you live. If those Taiwanese do not like their current situation, they should not take it out on the Chinese; they would do better to direct their wrath towards Tom Friedman, who served them the "globalization Kool-Aid" in the first place!