In what is supposed to be a land of unlimited cheap labor — a nation of 1.3 billion people, whose extraordinary 20-year economic rise has been built first and foremost on the backs of low-priced workers — the game has changed. In the past decade, according to Helen Qiao, chief economist for Goldman Sachs in Hong Kong, real wages for manufacturing workers in China have grown nearly 12% per year. That's the result of an economy that's been growing by double digits annually for two decades, fueled domestically by a frenzied infrastructure and housing build-out — one that, for now anyway, continues apace — combined with what was for a time an almost unquenchable thirst for Chinese exports in the developed world. Add to that the fact that in the five largest manufacturing provinces, the Chinese government — worried about an ever widening gap between rich and poor — has raised the minimum wage 14% to 21% in the past year. To Harley Seyedin, president of the American Chamber of Commerce in South China, the conclusion is inescapable: "The era of cheap labor in China is over."Regionally speaking, there are beneficial effects. Dearer labour in traditional manufacturing hubs located near Eastern ports makes hiring those in the interior more attractive. A recurring story of Chinese inequality has been that of uneven development between interior and coastal provinces; this new fact of labour life may spur Chinese wage rebalancing of a sort. Plus, there may be less pressure for itinerant workers to travel far to find work:
But higher wages have also improved things in China's western region, where the government has long tried to encourage investment. In the past year, many multinational and Chinese companies have expanded or relocated inland, where labor is still cheap.Lastly there's an interesting inversion underway according to American MNCs operating in China from AmCham surveys. Whereas three-quarters used to believe their China operations were there to serve export markets, the same proportion now believes they are there to sell in domestically in the PRC. A welcome change in helping alleviate global economic imbalances, I say:
From China's perspective, that's exactly the sort of trade-off it seeks. As Andy Rothman, chief China macro strategist at CLSA Securities in Shanghai, says, "People in Sichuan or Henan or wherever can stay closer to home and find a good-paying job" instead of having to flood east each year to live in a company dormitory far away from their families. "How is this a bad thing?"
Many multinationals, meanwhile, have long since begun to focus their China manufacturing operations on the vast Chinese market. That HP factory in Chongqing produces its laptops only for the home market. In a survey eight years ago, the American Chamber of Commerce in South China found that 75% of its members were focused mainly on export markets. By last year, that number had flipped: 75% of 1,800 respondents now say their manufacturing operations in China are focused on serving the Chinese market. That's mainly because China's workers are steadily getting richer. For them, and pretty much everyone else concerned, that's the rarest of commodities in a troubled global economy: good news.I have some quibbles with the generalization that Chinese workers are steadily getting richer. Returns to labour in relation to other factors of production leave much to be desired, but more on that later. Still, time moves on.