THE CHALLENGES OF THE CHINA PHENOMENON

Esko Kalevi Juntunen
Municipal manager
Doctor of Social Sciences, Docent
He has been as lecturer in many seminars in different countries

Every community, company and product has a lifespan with stages for the birth, the growth, the becoming known, the matured stage and eventually the final, ending, stage of the lifespan. The trajectory after the birth stage will emerge fast when the product has reached the markets. After that the sales and the activities increase fast. At that stage the price to be obtained from the product and the success of the company will be good. The further the lifespan stretches, the harder the competition becomes and the profits to be obtained from the product fall. The development need for the strategies of the companies will become demanding at a later stage of the lifespan. At the mature stage of the lifespan the competition will harden and the company must take all the possibilities into consideration to survive in the international competition. In this situation the company moves some of its functions or on the whole to the countries at a phase of development suitable to its own functions.

What does the China Phenomenon refer to?

The China phenomenon has become stronger after the opening of China's borders thanks to the huge market area there. Finland and the Western countries will be at the saturation stage of the lifespan or at the wealth centered stage which is marked with the workers' attitude to their work: the workers' attitude changes from entrepreneur intensive to a functionary intensive, the willingness to take risks decreases and the productivity of the companies cannot keep pace with the rising salaries. The desire to work in the industry decreases and the appreciation for practice-oriented education drops. The taxation of wealth of the society reduces the entrepreneurs' willingness to invest and the investments are rather directed to the financial assets than to the real property. The amount of mergers increases and with the help of them one wants to reduce the competition and to increase the own stability of the company. The social development programmes and social programmes already exceed solvency. The recession stage of the national economy holds until an event compels to look for radical solutions to raise the economy.

The economy of China is at a growth or investment stage which is marked with growing employment figures and the improvement of the citizens’ economic circumstances. Later the degree of organisation will increase which causes pressure to a rise in the wage and production factor costs. The tolerance of the changes in the foreign exchange rates of the state of China improves and the significance of the government is important. The companies will invest in the developing of the production factors and in a modern basic structure. The wages are relatively low.

The starting points for the globalisation can be examined with the differences between a Keynesian and monetarist economic theory. The core of the Keynesian theory is the searching of the full employment, the efficient use of production resources which is balanced by the financial policy of the public sector. In the monetarism it is thought that by regulating the central bank money a balanced economic development is reached. The development of the value of the money and the prevention of the inflation are the most important factors in the management of finances. The monetarism is based on the strong significance of the markets and to the belief in the money as the regulating factor in the development of the economy. All in all, one wants to abolish all kinds of control of the society and to prevent any new control mechanisms. Between these two trends of ideas is social politically the significant fact that the Keynesians aim at the full employment which means a 3% unemployment in practice. Whereas the monetarists aim at the generally acceptable unemployment under the dominion of which the inflation will not step up. In that case the unemployment figures are settled around 10 per cent.

How is the China phenomenon possible?

The emergence of the Chinese phenomenon is based on the politics of the open doors of Deng Xiaoping in which he has laid the foundation for the rise of the economy of China. Deng gave to the Chinese people the guidelines in his famous reform speech in 1976 by speaking in riddles which is so typical for the Chinese way of action that ‘becoming rich is honourable’. He opened the gates also to foreign capital flows and investments by stating allegorically that 'it doesn't matter what colour the cat is as long as it catches mice'. Capitalist or communist whatever, as long as they both benefit China. Deng also saw the dangers of the opening of the economy – the environmental pollution, the growth of criminality, the prostitution, the use of drugs and the smuggling. He veiled these in the allegory: ‘When the windows are opened, the fresh air lets also the flies in’.

How is the China phenomenon to be seen?

The economic globalisation is seen as the worldwide dependences and areas of operation of the economy: the jobs disappear in the countries of the cheap labour and the large-scale enterprises proceed to different countries with the help of the information technology without government or political control. The liberation of money markets goes in the vanguards of this development. With the ecological globalisation the environmental effects of the actions of the human beings spread from one country to another. With the cultural globalisation the new trends, entertainment, youth fashions, ways, habits and also their impacts on the local culture proceed. With the political globalisation the western influence, such as the USA'S and the industrialised Western countries' impact which reaches to nearly every corner of the globe, increases.

One can very well say that the Chinese phenomenon is the next phase of the globalisation development in the intensifying of the production: the capital and the companies move to their most advantageous location in relation to the labour and the markets. The income differences between the areas even out so that the new areas will become wealthy fast. The old industrial countries cling to the former and try to retain their gained benefits. The Western countries have benefited from the developing countries and have been able to lengthen their own lifespan and their welfare by absorbing the development power and growth of the developing countries. The companies have naturalised their profits to their home country where it has been possible to pay high salaries to the strategic experts of the head office, to the designers, the ADP experts, the management, the bankers, the personnel of the research and development sector. In the future these differences will dwindle when the age structure of the Western countries ages and the creativity powers weaken.

The transfer of the functions of the global companies to the countries at a different phase of development can be described as today's accepted colonialism the resources of the developing countries are absorbed to the western owners in a civilised manner. This is another consequence from the inflexible western labour markets.

The China phenomenon in China

The average age of China's population is low compared with the Western countries. The development of the country has differentiated in different areas. Economical and the welfare differences are huge. Coastal China goes through a hectic one through the industrialisation and there the building industry has overheated the market. Custom free areas create favourable conditions to international investors’ investments. The companies want to get to the Chinese markets because of the market potential in them. The Chinese way to let others to their markets has created an ever more accelerating operations model because the foreign company must take a part of its production abroad in which case China's export industry also grows. Chinese experts and workers must be employed in the companies in which case the know-how of the foreign company is also conveyed to the Chinese actors and remains to enrich the local know-how.

The economy of China begins to cough as a consequence of the development of its own economy. There are many reasons such as the fixed money, yuan. When the economy overheats in a non-transparent country where presents are received which the Western countries call corruption, the effectiveness of the economy is questionable. In the economy of China the problems of the bank and bond and debenture markets caused by the economic crises of the past years have still not been solved. The balance of China's balance of current payments has been financed to a great extent by private foreign investors.

The 14 developing countries of the globe get 95% of the direct investments so the upswing of the developing countries is not broad yet. This has social political consequences. In China people's division into the super wealthy and to the poor of the fringes of the countryside and of the towns has deepened fast and the international idea of the division of wealth in a relation of 20:80 may be still deeper in China. It has been said that China's income distribution resembles that of Brazil. The income level of the ones owning capital, of the professionals and experts rises. The businessmen exploit the untrained country population unscrupulously. The unemployment figure is around 5 per cent officially when it in reality is probably around 20-30 per cent. China's quick development challenges the long Chinese traditions seasoned with the western development and culture. In the cultural and social political sense big and developing problems can be perceived in China. With the rising income level the individuality increases and the family size to be looked after has become smaller than before. It brings the dissatisfaction with the unemployment and for the uneven development of income but also the demand of the freedom of the opinion and the time is approaching when China's communist dynasty falls. The society cannot operate for long so that the economy will function with its own help and that the decisions of the party will come lagging behind as a so-called blessing. All the signs are gathering for the changing of the dynasty.

During the about 15 last years the effects of the freeing of the markets have been seen as crises in the developing countries. Are they a consequence from poor politics, lifting of the barriers or is there a basic trend such as transparency and corruption which has caused the crisis in them? The global availability of the new information forms, such as the Internet and the television have given the people information about the development differences and welfare of the different countries. At the same time they cause culture shocks and pressure to the internal hierarchical culture of in the different countries. The development from the agriculture-dominated country that had been patriarchally governed to the ideals of the western society and moral can take place too fast. It is good for us to remember our own slow development process and our history. The export of the idealism can cause big conflicts.

The challenges of the China phenomenon to the welfare states

The globalisation appoints the welfare states to the competition against each other. The pressure to intensify increases as the consequence of the tax competition. This gives birth to different kinds of privatisation and intensifying claims for the services. The effects of the China phenomenon and globalisation vary depending of the different examination levels. When speaking from the advantages or drawbacks, the effects on the economic zone, on the country, the municipality, the company or the individual must be kept apart. Even though the national product rises, the number of those who are getting rich is small and the income differences deepen, the demands to outsource the public services to private enterprises such as the health care and the social security, become louder. In the way of thinking the old saying of each of us making our own happiness becomes more apparent, in other words every one is responsible by himself, for his life and employment.

The globalisation raises the significance of the social income distribution, control and social strengthening at the regional and global levels. It gives birth to the discussion between the global actors (the UN, the IMF, the WB, the WTO, the G-7) about the national and supranational social policy of the future. Social policy’s future rests on the need to participate in the design of the contents of the policies with supranational organisations so in the operation of the different organisations like between them.

The running into debt of the developing countries weakens the possibilities of governments to offer education, health care and social security. In many countries the volunteer NGO actors offer already a partial safety network. The globalisation threatens the national capital of the developing countries and standard of living because it has lured communities to sell their property nearly at any price in order to be able to lure capital in the country. The cheap labour is used as a bait for getting capital to the country and it takes place by ignoring the treatment of the international labour, the environmental and social regulations that have been agreed upon.

Reforms of the management of the public sector as an impact of the China phenomenon

A welfare state can reach the saturation, in other words a saturation point in which case the inputs that have been made to the welfare state no longer produce the respective advantage but the productivity falls and the harmful effects become more emphasized. The individuals do not want to make unpleasant, heavy or monotonous tasks. Only the pleasant, comfortable and satisfying tasks suit them. Here the basic principle is forgotten that the one who has ordered the job pays the worker for carrying out the task at the given time. This also is a very important matter in the light of the lifespan theory: The costs of the affluent society increase, the favouring of the acquaintances, the party friends and of the familiar friends increases and the most qualified will not be chosen for the task (cf. nepotism). The courage to operate against the prevailing conditions and to do new and crucially important matters is nearly totally missing. The consensus is striven for in nearly all the matters in which case only minor changes in the matters are accepted. Everything is seen from the point of view of the gained benefits.

Different methods have been required for the intensifying of services: lightening of the administration, increasing of the productivity, a cusomer – producer model, genuine competition to the public sector for example through privatisation. This way it is believed in the production that is more efficient, of higher quality and more user-friendly.

The advantages have to be eliminated and the possibilities of the societies to produce them have dwindled. It easily brings about the discussion about the priorisation of all the services, only not for the health care services. In the present shaped globalisation just one country is not able to fight against the mainstream but the world develops on the conditions of the mainstream of capital. In the different media a discussion has now been going on that also in Finland one should define how far an individual is responsible for his welfare and to what extent the society bears the responsibility. The demarcation (drawing the line between) of the private and public services will go anew. The tasks are set to an order of importance and are proportioned to the existing allowances.

Similar kind of priorisation discussion and discussions of the adequacy of the money as well as discussions of the productivity are taking place in Germany where the economy has lost its competitiveness. The high wage level of the Germans and the long holidays have put pressure on the cutting of the labour costs. This is justified with the patriotism as an alternative to the China phenomenon which is already being utilised by many companies.

The enlargening of the EU is an attempt to a controlled globalisation

Not even the enlargening of the EU does not seem to be stopping the desire of the companies to go to China's markets. In the light of the lifespan theory the enlargening of the EU can be considered as a means to prolong the lifespan and to keep the companies in Europe and in the new member countries. One can ask if the enlargening took place too late?

The political decision-makers' way to accuse companies of the China phenomenon seems Pharisaic because they themselves have initiated it due to their decisions because, the lifting of the barriers, the freeing of the capital flows and the joining to the European Union are exactly those actions which make the so-called China phenomenon possible. The companies use those possibilities which the law allows.

When different kinds of China phenomena are discussed, the international actors' role in which the common rules are taken care of, is emphasised ever more. Can be that the next China phenomenon is right behind the eastern border when Russia’s safety and reliability improve. It seems that the WTO is soon becoming a basic organisation similar to the European Coal Union in connection of which an organisation is being built to repel the violent changes and drawbacks because otherwise the development differences give birth to inequality, to crises, to hatred, to terrorism and the wars. Each country fights their own delay tactics against the changes due to the international competition but because the big international companies are transferring their capitals no other alternatives are left but adapting. However, there have been thoughts circulating in Finland and in many Nordic countries to sell a Finnish cost restriction to the global markets rather than that the Finns would try to attempt to adapt themselves. How long do the Western countries last within their intensifying pressure and pressure for change inside their borders because the share of the middle class is getting thin with the inequality development trend. In that case one development line will be a rise of the borders between the countries or the blocks again. The world will show symptoms to the rising of a new stage of development and productivity examined in the light of the lifespan theory as long as it is only able to take care of its citizens.