Stability is the Name of the Game

Another perhaps baffling policy shift by the Chinese government:

China to Limit Exports of Labor-Intensive Products

This title is misleading because in many ways the real shift in policy is to encourage development of industry and investment in the interior:

Manufacturers can be exempted from the exports limit if they shift their production to inland provinces including Shaanxi, Xinjiang and Gansu further away from the Chinese coast, part of a plan by the government to close the income gap between the wealthy coastal cities and the interior, Wang said today.

“Processing trade manufacturers can alternatively move to central or western regions from the south and east coasts to be exempted from the export restrictions,” she said. “Production and labor costs are relatively low.”

If you were a government worried that too many workers had already moved to Guangdong, you too might consider giving incentives for capitalists to build their factories elsewhere. Regional inequality is a threat as China-on-the-coast looks increasingly like a different country than China-in-the-interior. Encouraging development in the interior could take two forms: incentives to invest there (and it has to some extent) or of increasing costs on the coast. Choosing the latter means that the companies pay the cost rather than the government. Either companies pay the fees, filling central coffers to finance transfers to the interior, or there are new factories in the interior.

China is not trying to maximize growth or profits or anything. China doesn’t act. The PRC government tries to maximize the chances that the CCP stays in power, and that means ensuring social stability, in the short and long term.

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