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Why Does Everyone Hate Made in China 2025?

On the same day that the Trump administration announced $60 billion in tariffs against China last week, the Office of the United States Trade Representative (USTR) dropped the results of its Section 301 investigation into China’s unfair trade practices. The nearly 200-page report presents a searing indictment of China’s disregard for intellectual property, discrimination against foreign firms, and use of preferential industrial policies to unfairly bolster Chinese firms. Interestingly, the report singles out one Chinese government initiative, in particular, as a prime example of Beijing's egregious behavior: Made in China 2025.

Made in China 2025, originally approved by China's State Council in 2015, is mentioned or cited an astounding hundred and sixteen times. In contrast, China's Cybersecurity Law, which has caused a perennial headache for many U.S. multinationals, is only mentioned thirteen times. And for good reason. Beijing's grand plan to upgrade its manufacturing base has riled governments around the world, confirming their suspicion that China is not looking for a 'win-win' in trade relations as its overseas emissaries often insist. In the saga of the U.S.-China economic rivalry, Made in China 2025 is shaping up to be the central villain, the real existential threat to U.S. technological leadership.

What is Made in China 2025? Made in China 2025 is a blueprint for Beijing's plan to transform the country into a hi-tech powerhouse that dominates advanced industries like robotics, advanced information technology, aviation, and new energy vehicles. The ambition makes sense within the context of China’s development trajectory: countries typically aim to transition away from labor-intensive industries and climb the value-added chain as wages rise, lest they fall into the so-called “middle-income trap.” Chinese policymakers have diligently studied the German concept “Industry 4.0,” which shows how advanced technology like wireless sensors and robotics, when combined with the internet, can yield significant gains in productivity, efficiency, and precision.

However, China’s intention through Made in China 2025 is not so much to join the ranks of hi-tech economies like Germany, the United States, South Korea, and Japan, as much as replace them altogether. Made in China 2025 calls for achieving “self-sufficiency” through technology substitution while becoming a “manufacturing superpower” that dominates the global market in critical high-tech industries. That could be a problem for countries that rely on exporting high-tech products or the global supply chain for high-tech components.

What’s wrong with China setting quotas for self-sufficiency? For one, such quotas violate WTO rules against technology substitution. Made in China 2025 lays out targets for achieving 70% “self-sufficiency” in core components and basic materials in industries like aerospace equipment and telecommunication equipment by 2025. That could devastate countries like South Korea and Germany, where hi-tech sectors constitute a large share of industrial output and exports.

The supply chains for hi-tech products usually span across many borders, with highly specialized components often produced in one country and modified or assembled somewhere else. Rather than abiding by the free market and rule-based trade, China is intent on subsuming the entire global hi-tech supply chain through subsidizing domestic industry and mercantilist industrial policies. Semi-official documents lay out even more specific quotas for Chinese manufacturers. Officials at China's Ministry of Industry and Information Technology (MIIT) insist these targets are not official policy, though a report from the Mercator Institute for Chinese Studies argues that officials are using internal or semi-official documents to communicate targets to Chinese enterprises in order not to openly violate WTO rules.

How is Beijing acquiring advance technology for Made in China 2025? Equally problematic to Beijing’s goal of “self-sufficiency” and becoming a “manufacturing superpower” is how it plans to achieve it. Chinese officials know that China lags behind in critical hi-tech sectors and hence are pushing a strategy of promoting foreign acquisitions, forced technology transfer agreements, and, in many cases, commercial cyber espionage to gain cutting-edge technologies and know-how.

                                          



Labor and Working conditions in China

Workers get a relatively small piece of economic pie: 53 percent in 2007, down from 61 percent in 1990 and compared with two third in the United States. Total Workforce: 795.3 million in 2006. Labor force by occupation: 24 percent industry; 35 percent agriculture; 31 percent services (2005). By 2030 40 percent of the global work force will come from China or India."Source: The Economist

China once boasted it was a workers paradise. Under Communism, the most basic social divisions were between the peasants, mostly subsistence farmers bound to the land, and urban people who worked in factories and in the bureaucracy Modern China has been called “a giant labor-intensive processing factory." Many Chinese still work for the state but their numbers are shrinking while those in the private sector are rising. The vast majority of jobs are created by the private sector.

China has difficulty creating jobs for new job seekers that enter the labor force every year. Measures to deal with the problem include encouraging more start ups and providing retraining for workers with outdated skills. Growth has to produce 24 million jobs a year to sustain the pace of migration. Before the economic downturns in the 2008 that appeared implausible. After that it seemed impossible.

One of China's problems is that while it produces lots of low skill factory jobs it isn't creating enough good job for college graduates. Many economists feel that China may be reaching the “Lewisian turning point” named after the late Nobel-Prize-winning economist Arthur Lewis who described how developing countries eventually exhaust their pool of cheap labor and have to evolve into a more developed economy.

Labor is ruled by the same forces of supply and demand that govern consumption. At the moment China has a huge supply of labor so companies and employers can dictate the terms. If a worker is unhappy that pay is too low or the conditions are too harsh, he or she can easily be replaced: there are millions of other waiting in line for the job. The details of labor costs are a carefully-guarded secrets in China but analysts estimate that the wages and benefits per factory workers are about a tenth of what they are in the United States.

Garment Workers

The garment industry exemplifies the challenges of global manufacturing: low wages, "flexible" contracts (or no contracts), and sweatshop conditions. Informal garment and textile workers, a huge workforce in some countries, are often invisible — especially those who work in their homes. But garment workers are organizing, and national and international policy gains are being made.

Complex Global Chains and Cheap Labour. Garment production can be easily dispersed. This means that firms in developed countries can outsource to developing countries, while those in developing countries can move production within and between countries in search of cheaper labour. Individuals and small enterprises, however, don’t have this mobility, so they must compete for work in an insecure environment.

Garment production in poorer countries offers needed investment and employment, but there is a competitive requirement “for poorer countries to offer the cheapest workers and the most flexible (unregulated) conditions”

Force Achieving gender justice to tackle poverty

Every day, in every country in the world, women are confronted by discrimination and inequality. They face violence, abuse and unequal treatment at home, at work and in their wider communities – and are denied opportunities to learn, to earn and to lead.

Women form the majority of those living in poverty. They have fewer resources, less power and less influence compared to men, and can experience further inequality because of their class, ethnicity and age, as well as religious and other fundamentalism. Gender inequality is a key driver of poverty. And a fundamental denial of women's rights.

Gender inequality in numbers 

Women make up less than 22% of the world’s parliamentarians and 5% of its mayors.

On average, women are paid 24% less than men for comparable work, across all regions and sectors.
Nearly two thirds of the world’s 781 million illiterate adults are women, a proportion that has remained unchanged for two decades. 153 countries have laws which discriminate against women economically, including 18 countries where husbands can legally prevent their wives from working.

Worldwide, 1 in 3 women and girls will experience violence or abuse in their lifetime.

Achieving gender justice to tackle poverty. 

Force understands gender justice as the full equality and equity between women and men in all spheres of life, resulting in women jointly, and on an equal basis with men, defining and shaping the policies, structures and decisions that affect their lives and society as a whole.

Further improvements in legislation and policy are necessary but not sufficient. We believe that transforming gender and power relations, and the structures, norms and values that underpin them, is critical to ending poverty and challenging inequality.

We believe that women taking control and taking collective action are the most important drivers of sustained improvements in women's rights, and are a powerful force to end poverty not only for women and girls, but for others too.

Putting women’s rights at the heart of all we do. 

Whether we are responding to an emergency, working on long terms projects with communities, or campaigning for lasting change, we tackle the inequality and deep-rooted discrimination that makes and keeps women poor. We work closely with women’s rights organizations as partners and allies in order to address gender inequalities effectively.

Supporting women’s access to resources. 

We support women in their fight to have equal opportunities to secure jobs and fair pay as men, and have an equal chance to work their way out of poverty.

Raising women’s voices.

We support women in their efforts to take part in decision-making at all levels and promote leadership and participation of women.

Ending violence against women and girls.

We work with partners in over 40 countries to stop violence against women by changing laws and challenging culturally accepted practices that treat women as second-class citizens.

Striving for gender equality in emergency response.

We’ve seen the difference that equal job opportunities, equal healthcare and education, equal decision-making power and freedom from violence can make. We’ve seen the difference when women and girls are able to make their own choices and exercise their collective voice, and when institutions address their needs and interests.

Achieving gender justice is not only a matter of basic rights. It’s also a key means of achieving fairer societies and overcoming poverty. And we all have an equal part to play in making it happen.

That's the way to do it

Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy. Positive marginal utility is when the consumption of an additional item increases the total utility. Negative marginal utility is when the consumption of an additional item decreases the total utility. Economists use the concept of marginal utility to measure happiness and pleasure and how that affects consumer decision making. They have also identified the law of diminishing marginal utility, which means that the first unit of consumption of a good or service has more utility than the next units of consumption.


Example of Marginal Utility

The following example illustrates the concept of marginal utility. Consider a person has four bottles of water and purchases a fifth bottle of water. Next, imagine that a second person has 50 bottles of water and purchases one more bottle of water. The first person buying the fifth bottle of water will get far more utility from that fifth bottle of water because of its proportion to the total. This fifth bottle increases the total water by 25 percent. The second person gains far less utility from purchasing a 51st bottle of water, precisely because its proportion to the total is so low. This 51st bottle of water increases the total water by only 2 percent. As a person purchases more and more of a product, the marginal utility to the buyer gets lower and lower, until it reaches a point where the buyer has zero need for any additional units of the good or service. At that point, the marginal utility of the next unit equals zero.

The idea of marginal utility resulted from 19th-century economists attempting to explain the economic reality of price, which they believed was driven by a product's utility. This, however, led to a paradox that is commonly known as the "the paradox of water and diamonds," which is attributed to Adam Smith, author of The Wealth of Nations. The paradox states that water has a value far less than diamonds, even though water is vital to human life and diamonds aren't. Since marginal utility and marginal cost are used to determine price, the paradox is that the marginal cost of water is much lower than that of diamonds.

Labor theory of property and Marginal productivity theory

After Marx, dissenting economics almost always used ‘the labor theory’ as a theory of value. This paper develops a modern treatment of the alternative labor theory of property that is essentially the property theoretic application of the juridical principle of responsibility: impute legal responsibility in accordance with who was in fact responsible. To understand descriptively how assets and liabilities are appropriated in normal production, a ‘fundamental myth’ needs to be cleared away, and then the market mechanism of appropriation can be understood.

On the normative side, neoclassical theory represents marginal productivity theory as showing that (a metaphorical version of) the imputation principle is satisfied (‘people get what they produce’) in competitive enterprises. Since that shows the moral commitment of neoclassical economics to the imputation principle, the labor theory of property is presented here as the actual non-metaphorical application of the imputation principle to property appropriation. The property-theoretic analysis at the firm level shows how the neoclassical (and much heterodox) analysis in terms of ‘distributive shares’ wholly misframed the basic questions. Finally, the paper shows how the imputation principle (modernized labor theory of property) is systematically violated in the present wage labor system of renting persons.

Consumer Theory

Consumer theory is a theory of microeconomics that relates preferences to consumer demand curves. The link between personal preferences, consumption, and the demand curve is one of the most complex relations in economics. Implicitly, economists assume that anything purchased will be consumed, unless the purchase is for a productive activity.

Preferences are the desires by each individual for the consumption of goods and services, and ultimately translate into employment choices based on abilities and the use of the income from employment for purchases of goods and services to be combined with the consumer’s time to define consumption activities.

Consumption is separated from production, logically, because two different consumers are involved. In the first case consumption is by the primary individual; in the second case, a producer might make something that he would not consume himself. Therefore, different motivations and abilities are involved.

The models that make up consumer theory are used to represent prospectively observable demand patterns for an individual buyer on the hypothesis of constrained optimization.

Model setup

For an individual, indifference curves and an assumption of constant prices and a fixed income in a two-good world will give the following diagram. The consumer can choose any point on or below the budget constraint line BC. This line is diagonal since it comes from the equation . In other words, the amount spent on both goods together is less than or equal to the income of the consumer. The consumer will choose the indifference curve with the highest utility that is within his budget constraint. Every point on I3 is outside his budget constraint so the best that he can do is the single point on I2 that is tangent to his budget constraint. He will purchase X* of good X and Y* of good Y.



Income effect and price effect deal with how the change in price of a commodity changes the consumption of the good. The theory of consumer choice examines the trade-offs and decisions people make in their role as consumers as prices and their income changes.

Substitution effect

The substitution effect is the effect observed with changes in relative price of goods.
These curves can be used to predict the effect of changes to the budget constraint. The graphic below shows the effect of a price increase for good Y. If the price of Y increases, the budget constraint will pivot from BC2 to BC1. Notice that because the price of X does not change, the consumer can still buy the same amount of X if he or she chooses to buy only good X. On the other hand, if the consumer chooses to buy only good Y, he or she will be able to buy less of good Y because its price has increased.

To maximize the utility with the reduced budget constraint, BC1, the consumer will re-allocate consumption to reach the highest available indifference curve which BC1 is tangent to. As shown on the diagram below, that curve is I1, and therefore the amount of good Y bought will shift from Y2 to Y1, and the amount of good X bought to shift from X2 to X1. The opposite effect will occur if the price of Y decreases causing the shift from BC2 to BC3, and I2 to I3.



If these curves are plotted for many different prices of good Y, a demand curve for good Y can be constructed. The diagram below shows the demand curve for good Y as its price varies. Alternatively, if the price for good Y is fixed and the price for good X is varied, a demand curve for good X can be constructed.




Income effect
Another important item that can change is the money income of the consumer. The income effect is the phenomenon observed through changes in purchasing power. It reveals the change in quantity demanded brought by a change in real income (utility). Graphically, as long as the prices remain constant, changing the income will create a parallel shift of the budget constraint. Increasing the income will shift the budget constraint right since more of both can be bought, and decreasing income will shift it left.



Depending on the indifference curves the amount of a good bought can either increase, decrease or stay the same when income increases. In the diagram below, good Y is a normal good since the amount purchased increased as the budget constraint shifted from BC1 to the higher income BC2. Good X is an inferior good since the amount bought decreased as the income increases.



is the change in the demand for good 1 when we change income from m’ to m, holding the price of good 1 fixed at p1′:



Price effect as sum of substitution and income effects

Every price change can be decomposed into an income effect and a substitution effect; the price effect is the sum of substitution and income effects.

The substitution effect is a price change that alters the slope of the budget constraint but leaves the consumer on the same indifference curve. In other words, it illustrates the consumer’s new consumption basket after the price change while being compensated as to allow the consumer to be as happy as previously. By this effect, the consumer is posited to substitute toward the good that becomes comparatively less expensive. In the illustration below this corresponds to a imaginary budget constraint denoted SC being tangent to the indifference curve I1.

If the good in question is a normal good, then the income effect from the rise in purchasing power from a price fall reinforces the substitution effect. If the good is an inferior good, then the income effect will offset in some degree the substitution effect. If the income effect for an inferior good is sufficiently strong, the consumer will buy less of the good when it becomes less expensive, a Giffen good (commonly believed to be a rarity).



In the figure, the substitution effect, , is the change in the amount demanded for when the price of good falls from to (increasing purchasing power for ) and, at the same time, the money income falls from m to m’ to keep the consumer at the same level of utility on :



The substitution effect increases the amount demanded of good from to . In the example, the income effect of the price fall in partly offsets the substitution effect as the amount demanded of goes from to . Thus, the price effect is the algebraic sum of the substitution effect and the income effect.

Labor-leisure tradeoff

Consumer theory can also be used to analyze a consumer’s choice between leisure and labor. Leisure is considered one good (often put on the horizontal-axis) and consumption is considered the other good. Since a consumer has a finite and scarce amount of time, he must make a choice between leisure (which earns no income for consumption) and labor (which does earn income for consumption).

The previous model of consumer choice theory is applicable with only slight modifications. First, the total amount of time that an individual has to allocate is known as his time endowment, and is often denoted as T. The amount an individual allocates to labor (denoted L) and leisure (l) is constrained by T such that:



or



A person’s consumption is the amount of labor they choose multiplied by the amount they are paid per hour of labor (their wage, often denoted w). Thus, the amount that a person consumes is:



When a consumer chooses no leisure (l = 0) then T − l = T and C = wT.

From this labor-leisure tradeoff model, the substitution and income effects of various changes in price caused by welfare benefits, labor taxation, or tax credits using a calculator can be analyzed.

Strategic Indicators for Higher Education on the African Continent

For several decades, donor institutions have placed great emphasis on primary and, more recently, secondary education in their development assistance to Sub-Saharan Africa. But they have neglected tertiary education as an added means to improve economic growth and mitigate poverty.

This paper challenges beliefs in the international development community that tertiary education has little role in promoting poverty alleviation. It reviews evidence about the impact that tertiary education can have on economic growth and poverty reduction, with a focus on the countries of Sub-Saharan Africa. Enrollment rates for higher education in Sub-Saharan Africa are by far the lowest in the world. Currently, the gross enrollment ratio in the region stands at only 5 per cent.

Because of a belief that primary and secondary schooling are more important than tertiary education for poverty reduction, the international development community has encouraged African governments’ relative neglect of higher education. For example, from 1985 to 1989, 17 per cent of the World Bank’s worldwide education-sector spending was on higher education. But from 1995 to 1999, the proportion allotted to higher education declined to just 7 per cent. Higher education in Africa has suffered from such reductions in spending. Many African countries struggle to maintain even low enrollment levels, and the academic research output in the region is among the world’s lowest.

Recent evidence suggests, however, that higher education can produce both public and private benefits. The private benefits for individuals are well established, and include better employment prospects, higher salaries, and a greater ability to save and invest. These benefits may result in better health and improved quality of life.

Public channels, though less well studied, also exist. One possible channel through which higher education can enhance economic development is through technological catch-up. In a knowledge economy, tertiary education can help economies gain ground on more technologically advanced societies, as graduates are likely to be more aware of and better able to use new technologies.

Our analysis supports the idea that expanding tertiary education may promote faster technological catch-up and improve a country’s ability to maximize its economic output.