The Price of Development

Modernization has apparently driven prices up in China, so that many of its Taiwanese investors are thinking of pulling out. Don Lee of the Los Angeles Times reports:

Thousands of foreign businesspeople, primarily Taiwanese, helped turn this southern Chinese city into one of the world's busiest export manufacturing centers.

Now, amid rising wage and pension costs, energy shortages, tighter government regulation, traffic bottlenecks and other concerns, some of them are starting to look elsewhere. Their restlessness reflects a dark side to China's economic boom, as growth pains and other issues prompt companies to reconsider starting up or expanding in China.

Chang Han Wen is having second thoughts. He came here from Taiwan in early 1991 when the area was still largely farmland, launching a shoe assembly line with 200 workers. He has since opened five factories, including three shoe plants that employ 3,000 people and produce 1.5 million pairs of specialty boots and high-end shoes a year for export to the United States and Europe.

But his sixth plant, a garment operation, sits empty. Chang has indefinitely postponed its opening, anxious about China's tense trade relations with the West and the threat of more quotas that would limit clothing exports. That's only part of his worries.

This year Dongguan's minimum wage jumped more than 27%. Even with the increase, employers are struggling with worker shortages. Government inspectors are making the rounds at factories, enforcing work-hour rules and pension contributions that officials paid little attention to in the past. Electricity is in short supply, as is fuel.

All in all, Chang says, things have gotten so much tougher that his next investment may be in Vietnam, where many Taiwanese have gone.

"For manufacturers here, the golden period has passed," he said.

China has often tried dangling the carrot of lower capital costs to attract foreign investment from Taiwan. Beyond the obvious uses for modernization, this also tied Taiwanese business closely to Chinese interests, and made Taiwanese investors in the mainland pliable to suggestions that they rein in nascent "indepence" programs. Now that capital flight is happening, the Communists may be losing even more influence in Taiwanese politics.

However, supporters of Taiwanese independence should be careful. Loss of such influence may indicate a willingness on Beijing's part to push its political agenda "by other means", as Clausewitz would have appreciated.

[Cross-posted at Between Worlds, Naruwan Formosa, and Chicago Boyz]

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