China's low-cost business model resists reform due to structural incentives
A South China Morning Post opinion piece argues that China's low-cost business model persists despite its diminishing usefulness because of built-in fiscal incentives that discourage reform. The article cites a factory fire where only a handful of hundreds of workers were enrolled in pension and medical insurance, and a fire-safety inspection two days earlier had flagged blocked exits but did not halt production. It explains that labor law enforcement falls to local governments, which depend on low-cost manufacturing for jobs, tax revenue, and growth, making strict enforcement fiscally and politically costly. The obstacle to reform is the entire structure of fiscal incentives at local and central government levels, which reproduces conditions that stifle change.
Key facts
- China's low-cost business model resists reform despite outliving its usefulness.
- A factory fire exposed that only a few of hundreds of workers had pension and medical insurance.
- A fire-safety inspection two days before the fire flagged blocked exits but did not stop production.
- Local governments enforce labor law but depend on low-cost manufacturing for revenue and jobs.
- Strict enforcement of labor law carries fiscal and political costs for local governments.
- The low-cost model is embedded in fiscal incentives at local and central government levels.
- The entire structure of incentives reproduces conditions that stifle reform efforts.
- The article was published in the South China Morning Post.
Entities
Institutions
- South China Morning Post
Locations
- China