China Labor Protests and Wages

Because the rise of China is the greatest story of our time, news events in the Middle Kingdom—good or bad—tend to take on epic proportions in the public consciousness. It's worth keeping that in mind when thinking about the recent stories of labor strife in China. Strikes in the south, at a Honda components plant, and suicides at Foxconn, one of the world's largest electronics manufacturers, have been followed by double-digit pay raises, further unrest at other factories, and speculation that wages may rise exponentially in China, threatening the country's—and the world's—prosperity.

It won't happen. In fact, there's an argument to be made that what looks like social instability is actually just the opposite. As Leslie Chang, author of Factory Girls: From Village to City in a Changing China, recently pointed out in a special paper for the brokerage firm CLSA, these were not strikes by the downtrodden (Honda employees in particular were among the worker elite). Their demands were not broad-based but local and specific, and the workers were not antigovernment (indeed, the local government mediated the disputes). The large pay increases were also not as atypical as you might think. A recent International Labor Organization survey showed that wages just in the manufacturing sector in China have risen by 14.3 percent per year since 1987.

It's all part of a huge shift in China's trajectory, from an immature export economy, growing like a weed, to a more mature and balanced economy, prospering at a more stately pace. The following story, by Morgan Stanley emerging-market expert Ruchir Sharma, explains why this sea change is upon us, and how it will change the investment world. For the rest of the planet, a slowdown in China's blinding growth, from double digits to 6 or 7 percent, could mean that it becomes a much less disruptive force. A China that is less of a one-dimensional, low-end factory to the world, and more of a normal consumer society, will be "an excellent thing for a more balanced world economy," says Goldman Sachs's chief economist, Jim O'Neill.

Slower growth in China won't end the defining trend of this age—the global shift of wealth and power to East—but it will soften the shock to the world. More sustainable development could mean less upward pressure on oil prices, less air pollution warming the planet, a possible dampening of China's ambitions to become a regional military power, and less voracious consumption of natural resources. All those trends are likely to quiet the nerves of neighbors and rivals who have watched China's rise with concern. The obvious downside is that China's great progress in lifting a large segment of the world's population out of poverty will slow, but this need not cause trouble. "A more mature China doesn't have to grow as fast to support social stability," notes Morgan Stanley's Stephen Roach. Explosive growth is not necessary to stop a social explosion. Merely fast is enough.

With Isaac Stone Fish in Beijing