Southeastern China should put more resources into developing heavy industries than light.

IntroductionThe bulk of my case revolves around the decline of favourable locational factors for light industries, and the rise of favourable locational factors for heavy industries. In other words, I'll show that the heavy industries have more potential than light, and should therefore have more resources devoted to them.C1) LabourThe labour markets in China are no longer well-suited for labour-intensive industries.In terms of quantity, in recent years, coastal cities in China have been experiencing what has been called a mingonghuang, an excess demand for workers with structural causes. The effects of the family planning policy are getting clear. At one point, China had an impressively low dependency ratio with few children, but not any longer: The population is ageing and are fewer young workers. (1) Chinese cities have been benefiting from rural migrant workers (RMWs) with poorly-protected labour rights since the economic reforms, but the flow of workers has been slowing down. In fact, China is said to have reached the Lewis Turning Point (the curve is the dependency ratio, and the vertical line the Lewis Turning Point): (4) Improvements in education have reduced the number of high school graduates who immediately enter the labour force. (1) To make matters worse, the wage in SE China is growing fast. Refer to this chart of Guangdong's wages (blue bars are average yearly wages, yellow line is the nominal growth) (5): This is happening even to RMWs. Refer to this diagram for RMW wages in recent years (2): The increase in wages can also be explained by the increase in education level. Second-generation RMWs are said to hold 'three high, one low' attitudes towards work: high education level, high job expectations and great material and spiritual enjoyment. (3) None of these are well-suited for the light industries, which tend to be highly labour-intensive.An addition repercussion of the family planning policy is gender imbalance. The light industries generally prefer girls to boys as girls tend to be more obedient and careful, and there are fewer girls than boys is unfavourable for their development. (1)Dongguang, once the world's light industry centre, has faced a dramatic increase in factory shutdown, driving some SME owners to suicide. (6) From 2008 to 2012, 72000 enterprises folded. (7)C2) Developments in Iron and Steel (I&S) IndustryBecause of historical reasons, most of China's heavy industry is concentrated in the east and the northeast. This is largely due to the agglomeration of the iron and steel industry there - Angang and Baosteel have been around longer than most I&S firms.Yet this situation is changing. SE China is rapidly expanding I&S industries. Baosteel, for example, owns an I&S enterprise in Guangdong (with a yearly demand for steel of 50 000 000 tonnes), and has set up a factory and a logistics company in Zhanjiang. They own ports and can directly transport products to Brazil and Australia. (8) Nor are Fujian or Guangxi left out. Wuhan I&S set up plants in Fangchenggang, Guangxi, projected to produce 8 500 000 and 9 200 000 tonnes of steel annually respectively. (9) In fact, it was just announced today that over 10 000 000 000 yuan have been invested into it. (10) While Fujian's been behind in this wave of new I&S plants in SE China, a plant is also planned in Ningde. (11) Not that Fujian does poorly in I&S in the first place (red bar = export volume in 10 000 tonnes, blue line = average price in USD/tonne): The new plants have easy access to raw materials. Near to the coast, it is not hard to obtain iron ore and coal through import. With the development of the electrical furnace, in fact, scrap iron can replace pig iron, and the large cities in SE China can certainly provide a great deal of that. They are also capable of exporting their products to overseas. Iron and steel is the backbone of all industries: other heavy industries like construction materials, automobile and shipbuilding also depend on it. If SE China can develop I&S well, these other heavy industries can follow, agglomerate and create external economies of scale. It is not hard to see why SE China should devote more resources to the heavy industries than light, given the optimistic situation.C3) Facilitate socioeconomic progressionThe development of heavy industries will eventually benefit workers. Heavy industries generally cannnot tolerate high labour mobility as the cost of replacing labour is higher. According to the efficiency wage hypothesis, heavy industries thus offer higher wages, often twice that of light industries. The development of heavy industries will allow more semi-skilled working-class citizens to climb the social ladder, allowing SE China to create a larger, healthier and more vibrant middle class. (12)According to an analysis by Chen Feipeng of the University of Tongji, many of China's light industry markets are already saturated, while the markets for durable consumer goods produced by heavy industries, such as the car industry, remain relatively undeveloped. It takes a development in heavy industries to stimulate aggregate investment expenditure. (13) We can also imagine that, with the stronger middle class created by the heavy industries, the demand for cars will increase as well, creating a virtuous cycle for economic development and propelling SE China to a more advanced heavy-based economy.Heavy industries will also provide valuable raw materials for other industries, including light industries, as well as create greater demand for factors of production. In fact, given the current situation, the only way to develop the light industries is to develop the heavy industries. SE China is currently responsible for downstream production processes like fabrication and assembly and it is hard to change this. Yet we can develop our heavy industries to allow machinery for light industries, ships for transported light industry products, etc. to be produced locally. This can push down costs in the light industry, which is going through cost inflation as we've seen above. (14)Chen also wrote that the level of development of the heavy industry is closely related to an economy's place in the international production chain, and thus its role and competitiveness in international trade. Developing heavy industries can raise China's competitiveness. (13) Given the importance of steel and how SE China can rapidly expand steel exports, we can definitely see this coming.There's a final subpoint to bring up. These graphs should speak volumes about China's rapid urbanisation. The first (16) is of China's percentage of urban population over the years. The bars in the second (15) are Guangxi's urban population, and the line shows the change in urbanisation rate. With rapid urbanisation in SE China, there is a great demand for roads, buildings and so forth. To import iron and steel from other countries is expensive, and developing more efficient heavy industries locally will allow SE China to industrialise at a lower cost.(1) http://www.curb.com.cn...(2) http://www.111job.cn...(3) http://media.workercn.cn...(4) http://www.bzrk.gov.cn...(5) http://tinyurl.com... (6) http://news.163.com...(7) http://money.163.com...(8) http://www.baosteel.com...(9) http://www.gx.chinanews.com...(10) http://www.gtgqw.com...(11) http://ft.bmlink.com...(12) http://www.xcf.cn...(13) http://www.macrochina.com.cn...(14) http://www.xcf.cn...(15) http://news.163.com...(16) http://www.cnad.com...;