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Reporter Explains China’s Rapid Industrialization

June 25, 2007 at 6:35 PM EST
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JEFFREY BROWN: “Made in China,” three words that appear on so much of what we buy these days, from the highest end of high-tech to the cheapest of low-tech baubles. What’s behind those words and what are the implications for China and for us? The writer James Fallows is exploring those questions in China in a series of reports for the Atlantic magazine.

His first article is called “China Makes, the World Takes.” He joins us now from Shanghai.

Well, Jim Fallows, the first thing that comes through in your article is just the enormity of it all: 100 million workers, factories, even cities that barely existed not so long ago. Give us some sense of what you’ve seen.

JAMES FALLOWS, Reporter, The Atlantic: There are many things which are surprising to visitors to China, but in a way they’re not surprising, because you’re prepared to think that everything is out of scale here.

I was really finally sort of taken aback when I went down to the Pearl River Delta, north of Hong Kong, especially the city, Shenzhen, where I spent the most time, and just how fast the manufacturing economy is. The way that Europeans must have felt when seeing Chicago or Detroit or Pittsburgh a century ago is the way that I felt in seeing this, where almost as far as the eye can see, for miles and miles and miles, there are tens of thousands of little factories.

There’s one I saw the outside of — I couldn’t get in — where one-quarter of a million people go to work each day. And simply to feed these people, the caterers at the canteen have to slaughter 3,000 pigs every single day to feed them. That’s the biggest one, but there are a lot of other ones, too.

JEFFREY BROWN: And who are all these people? And what are their lives like?

JAMES FALLOWS: I think, you know, there is an image in the United States of these truly slave-labor sweatshops in China, and certainly there are some of them. There’s this hideous scandal going on now in China dominating the news here, about genuine slave labor in some of older, primitive factories in the north of the country.

In the south, where most of the things that we get in the United States come from, it’s a quite different story. The factories are all relatively recently built; over the last, say, five or 10 years has been the boom. And the typical person who works there is often a young woman who’s come from the provinces, from Sichuan province or some place else remote. She comes from a farming or rural family, where people have basically no cash income.

And she goes to work in one of these factories that are producing, you know, radios, TVs, notebook computers, everything else you buy in the United States. Her life is, she typically spends maybe three or four years in this factory town. She makes about $125 to $135 U.S. per month. She works 10 to 12 hours a day. She lives in a company dormitory, which is pretty crowded. She gets three meals a day at the company store.

She goes home once a year to see her family with a couple-day bus ride. And at the end of three or four years of this, she’s basically been able to save enough money, by Chinese standards, that she can go home and she’s on a different plane of life. And so it is a very arduous situation, as manufacturing booms tend to be, but it essentially is a way that peasant people, by the tens and probably hundreds of millions, have gotten onto a different plane of life.

A human face on outsourcing

James Fallows
The Atlantic
The fastest place on Earth now to make most things electronic is China. It's not simply that it's cheaper here -- and it is cheaper -- but it's the place now on Earth where you have the densest concentration of suppliers, and subcontractors...

JEFFREY BROWN: Now, we hear so much about outsourcing. What you've been able to do is try to put a human face on it and take a look at how U.S. and international companies get matched up with factories over there and why. Tell us a little bit about that.

JAMES FALLOWS: You know, I think it's important to maintain -- keep in mind one difference between this and the previous Asian boom we heard about in Japan. In Japan, you often had purely Japanese companies going head-to-head with high-end American companies.

In China, essentially, you have the American companies coming here. And the typical pattern I try to describe in the article involves a matchmaker. I've chosen one, named Liam Casey, who is a young Irishman. He will take an American -- let's say either an established American company, and you can name almost any of them, or a start-up American firm that has something they want to make, and they think they need to get it to market quickly.

And the fastest place on Earth now to make most things electronic is China. It's not simply that it's cheaper here -- and it is cheaper -- but it's the place now on Earth where you have the densest concentration of suppliers, and subcontractors, and people who'll bring the part over that afternoon. You can get things retooled in 24 hours.

So I was describing a hotel in Shenzhen, the Sheraton Four Points, where you have this constant flow of people coming in from the U.S. and Europe. And they have specs in mind; they have brand plans; they have something they want to market six months from now or the Christmas rush next year. And people like this Liam Casey match them up with one of the thousands of little factories that surround this area that will do what they want.

And so you see every day this ballet of thousands of purchasers and thousands of suppliers coming together. And the outcome goes to the Hong Kong airport and is shipped out every day in these vast airfreight flights or from the containers that leave the Shenzhen and Hong Kong ports by the thousands every day.

Organizing a dispersed economy

James Fallows
The Atlantic
You have a little mom-and-pop operation from the countryside where a woman is sitting there with 10,000, you know, Ethernet cables around her.

JEFFREY BROWN: Another colorful place you describe -- and it sounds like an astounding sight -- is an electronics market.

JAMES FALLOWS: There's a place in downtown Shenzhen called the SEG Electronics Mall, which is like nothing I have seen in my life. It's a great, big, cavernous place, you know, the size of a big convention center, seven floors tall. And essentially you have all of the electronic components on Earth piled into there. Somebody estimated to me there were hundreds of millions of capacitors that were in this one place.

And what was astonishing is not only that you see all of the guts and components of anything electronic in their most dissembled form -- it would be as if you could see every tiny bone of the human body in one place -- but just the volume and kind of atomization of it. You have a little mom-and-pop operation from the countryside where a woman is sitting there with 10,000, you know, Ethernet cables around her, and she's selling Ethernet cables.

There's this kind of very small-scale, dispersed economy that somehow gets coordinated, and pulled together, and ends up in the computers we use every day.

A beneficial relationship

James Fallows
The Atlantic
If we don't like the way our distribution of jobs and income in the United States is working out, if we don't like the kinds of technology we're able to promote, that is our problem and our responsibility and not China's.

JEFFREY BROWN: Now, of course, this relationship, the whole idea of outsourcing, this is very controversial stuff. You say in the article that you've changed your mind about a key point, and you write, "So far, America's economic relationship with China has been successful and beneficial, and beneficial for both sides." Explain your thinking.

JAMES FALLOWS: Yes, and my argument there -- I do place some stress on the "so far." And to just summarize the main points, has this arrangement been good for China? It certainly has been. And you can argue that the most effective anti-poverty effort of the last half-century has been this factory boom in China, where many, many, many tens of millions of peasants have sort of gotten a leg up through these factory jobs.

For American companies, surprisingly and, again, in contrast generally with Japan, it's American companies that are reaping the overwhelming share of the benefit of the manufacturing done here. The Chinese have a concept which I won't go into all the details of, but essentially it estimates that, if you pay $1,000 dollars for, let's say, a laptop computer that's bought in the United States, and every bit of it is made in China, only well under $100 of that total $1,000 stays in China. Most of the rest stays with the American designer, the American brand, the American retailer, the American service technician. So for the companies, it's been a large source of profit, and significantly it's mainly American companies that are driving this outsourcing, and not Chinese ones.

Then, for the balance of society in the United States, this is a more problematic issue, certainly. The actual jobs in China would not themselves be done in the U.S., just because they are so labor-intensive and low-skill. But, clearly, if China weren't available, there would be a different manufacturing pattern in the U.S.

What I ended up arguing in the article is, number one, in the long run, as China becomes much richer and tries to move up the value chain, this can be problematic for the U.S., but, number two, China itself is not really doing anything wrong in this encounter. If we don't like the way our distribution of jobs and income in the United States is working out, if we don't like the kinds of technology we're able to promote, that is our problem and our responsibility and not China's. So China, as far as I could tell, is playing on the whole a pretty normal and unobjectionable role in the process.

Bringing in industrial design

James Fallows
The Atlantic
They're trying to bring in here more of the high-end design process, the industrial design, and the other things where the actual money goes, and now goes to American firms, so that's something where Americans need to keep ahead of them.

JEFFREY BROWN: And that's the key two words you said, "so far," in terms of who benefits?

JAMES FALLOWS: Yes, the "so far" is the Chinese are trying as hard as they can -- and who can blame them? -- to move up from this very low-value work to being able to do more of the profitable work themselves, to have the brands of computers. You know, right now, Intel and Microsoft and Apple and others, they make tremendous profit for their brand name. China would love to replicate that.

They're trying to bring in here more of the high-end design process, the industrial design, and the other things where the actual money goes, and now goes to American firms, so that's something where Americans need to keep ahead of them.

Also, there is the question of, as a traditional bulwark of American middle income -- that is, relatively low-skilled, but high-paying American manufacturing jobs -- as that is eliminated inevitably, the U.S. has to find some ways to have a different source of a fair income distribution internally. But I think that what's important in times of talking about the China menace to say that, at least until now, as far as I've been able to determine, at least until now, it's not been a China menace but a fairly symbiotic relationship economically.

JEFFREY BROWN: All right. And we will try to keep up with you as your reports continue. James Fallows is in China for the Atlantic magazine. Thanks very much for talking to us.

JAMES FALLOWS: Thanks very much, Jeff.