Labor unrest is part of life in China's factory towns, and yet there is something different about this summer's strife that will have broad implications for the global economy. It will take years for the changes to take hold. But we are witnessing nothing less than the beginning of the end of China's role as the sweatshop of the world.
Over the past month, key foreign firms have agreed to hefty pay hikes for their Chinese employees. Workers at a plant in Foshan, Guangdong province, that makes transmissions for Honda won pay increases of 24% to 34% after going on strike for two weeks. That was followed with a walkout at an exhaust-parts factory partly owned by a Honda subsidiary and another strike at a plant that makes mirrors and lock mechanisms for the Japanese auto giant. Foxconn, which produces electronics for Apple, Hewlett-Packard, Sony and others, announced hikes totaling more than 100% of base pay after a series of worker suicides this year put the Taiwanese company under intense scrutiny.
In the past, labor disputes were typically resolved out of public view with the intervention of local governments or the state-backed All-China Federation of Trade Unions. But the current strife and the successful wage increases obtained are all over the Chinese media and that's not all. Workers' aspirations for better conditions appear to have the guarded support of the highest levels of the Chinese government. Without commenting directly on the strikes, Chinese Premier Wen Jiabao told migrant workers in Beijing on June 14 that their labor was "a glorious thing" and that society should treat them as "their own children."
The likelihood of a summer of copycat strikes is thus high, creating the potential for a cascade of pay increases at foreign and locally owned enterprises. In an effort to head off worker demands, about 30 cities and regions in China are expected to raise minimum wages this year. Although price increases should be small, as labor comprises a fraction of the overall cost of manufacturing goods in China, this means consumers around the world will eventually have to pay more for Chinese products.
Look upon it as a good thing. To see why, consider another epochal shift in the development of a rising economic power. In 1914, Henry Ford decided to double the pay of rank-and-file workers in his factories to $5 a day. He was praised for his generosity, but the American industrial pioneer had some self-serving goals in mind. He wanted to reduce employee turnover while boosting the number of people who could afford Ford automobiles. Nearly a century later, similar pay increases will help China develop its own, more prosperous working class. Average workers at Honda's Chinese plants might not be able to buy Accords anytime soon, but they will be able to spend more, thus increasing domestic consumption. And that's positive for both China and the rest of the world. As the country becomes less reliant on exports for economic growth, frictions with trade partners like the U.S. and Europe should ease.
What's driving the shift? Since the 1980s, Chinese workers' wages as a share of the total economy have declined as corporate profits and government revenue have risen. It's an unsustainable trend, and one that won't be tolerated by a new generation of workers who have a higher sense of entitlement than their predecessors. The number of young people those most desired for factory work is also expected to fall over the next decade. They can be choosier when it comes to employers.
Last fall, I interviewed several factory employees as representatives of the Chinese worker one of the runners-up for TIME's 2009 Person of the Year. The oldest was just 36. But the difference between her generation and the teenagers just entering the workforce was marked. The youngsters listened in awe as older colleagues described life in sweatshops, enduring fumes, high temperatures and blinding lights for weeks without rest, all to save a little cash to send home. By Western standards the young workers still have it tough, with long hours and few rest days. But when I asked why they went to the coastal boomtown of Shenzhen for work, they invariably said, "For fun."
That, paradoxically, is part of the reason why China can expect a long hot summer of industrial action. The current generation of workers wants a greater share of the good times, and their leaders are beginning to understand that. Churning out cheap toys, jeans and sneakers has done wonders for China, but if the world's next superpower is to fulfill its real potential, it will have to lift its people out of the sweatshops. That journey starts now.