Time Running Out on China's Boom

China's migrant workers don't have anything like that kind of access to the financial and legal systems. Workers who have filed claims for back pay have been beaten or arrested and charged legal fees so high that they couldn't pursue their claims. That has left them waiting for government action.

Failure at the Local Level

And while the Beijing government has shown a willingness to crack down on employers who stiff migrant workers, it hasn't shown any real willingness to change the basic rules of employment for these nonresident workers. The resident registration system remains firmly in place.

And even when the central government has done something, those moves have been thwarted by local officials, who often have an ownership stake in local businesses employing migrants and want to maintain the flow of profits that come from exploiting migrant workers. So, for example, Beijing has decreed that local governments should provide education for the children of migrant workers. The effect, so far at least, has been to reduce educational access for these children as local governments close private migrant-worker schools and then replace them either with schools charging fees that migrants can't afford or with no schools at all.

In the long term, though, the situation isn't sustainable. Acts of protest are increasing: In 2004 there were 74,000 protests (not all by migrant workers) involving 3.8 million people, up from 10,000 protests in 1994. Some migrant workers are simply going home to protest bad working conditions and a lack of pay, and that has helped create labor shortages in some of China's key manufacturing districts.

Either the Beijing government will find some way to force local officials and employers to share the wealth more evenly, or the costs to the economy -- in protests and workers who vote with their feet -- will continue to rise.

And in the long run, keeping so many workers from sharing in the country's boom will stunt China's economic development. China's long-term prosperity depends on developing a bigger internal market for its own manufacturing industry. Extracting everything you can from your workers may dress up the bottom line for the short term -- and jump-start an export boom -- but it's not exactly a recipe for sustainable growth. Just ask "Chainsaw" Al what finally happened to Scott Paper and Sunbeam.

At the time of publication, Jubak did not own or control any of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column.

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