Dynamics of Special Economic Areas in South China - Industrial Upgrading and Improving Working Conditions

Abstract Since the late 1970’s, China has rapidly increased its exports of industrial products and inflow of foreign direct investment (FDI) through the use of special economic areas (SEA), which offer special benefits to foreign investors and export producers. Common criticism against these SEAs, usually states that these areas show persistent low-standard working conditions and wages to remain competitive in the global and local markets. Much of this criticism is based on an assumption that industry and foreign investment is highly sensitive to increasing costs associated with improving working standards and wages and that incentives to upgrade industry are low, if production is mobile. In this paper, it is found that the cities in the study have been able to rapidly up-grade industry to include modern sectors and the use of skilled labour has become more important. This industrial advancement has brought stronger incentives to train and retain workers in the company through various incentives. Industrial upgrading, corporate codes of conduct, consumer pressure, national competition for workers and rising prices in the coastal areas have contributed to some improvement of wages and working conditions, also in more traditional and labour-intensive industries. The vast reserve of workers from rural areas and the Chinese household registration system have persistently contributed to keeping wages from rising. This, and the fact that the relatively labour-intensive industries still contribute significantly to employment, and arbitration in implementation of labour laws, has created a situation where wages and working conditions differ very much, also within a small geographical area. The high level of integration between the relatively well controlled SEAs, and the host economy, permits better working conditions in zones, partially due to sub-contracting of simple industrial processes. Of the three cities, Shenzhen reveals a relatively developed, export-based economy, with pioneering labour management reforms. Dongguan resembles the former, with similar export dependant sectors, but has not yet reached the same level of development in terms of industrial advancement, productivity and wages. Guangzhou stands out as the most diverse economy, resting on the socialist heritage from before the open door policy. All locations show progressing working conditions and industrial advancement alongside traditional production in labour intensive industries. Dongguan remains the location most associated with poorer working conditions