Is Low Wage Manufacturing in China Disappearing? - is a new research of SKOLKOVO

Growth in Chinese manufacturing has been the critical element in that nation’s ability to achieve average annual real GDP growth rates of approximately 10 percent since the early 1980s. And it has been “cheap labor”, more than anything else, which has fueled China’s competitiveness and growth in this sector. Higher profile strikes and rapid wage gains in China over the past year have given analysts speculation that the era of cheap labor may finally be coming to an end.
While China is bound to eventually lose its competitive advantage as a low-wage producer as it continues developing and moves toward higher “value-added” manufacturing and the production of services, the fact remains, however, that it is far from reaching that stage. And this is fortunate because China currently lacks real advantages in higher education, efficient markets and enterprise and a capacity for innovation and still requires low wages to drive economic growth.

The study also finds that China’s working-age population will not peak until around 2020, roviding China with sufficient labor input.
The highlights of the report include:

• Taking into account the increasingly large number of workers employed in the “informal” economy, China’s average wage levels in manufacturing currently remains competitive against most other Asian developing countries.
• SIEMS’ estimate for the average hourly compensation in China’s manufacturing sector is RMB 7.1 in 2010 (or $1.05 at the current exchange rate), with the corresponding monthly compensation running RMB 1,652 ($244).
• Chinese real wages in manufacturing, after accounting for inflation and labor productivity gains, are actually lower now than they were in 2001.
• While China’s supply of 15-24 year-old workers (the ideal age for the lower-end manufacturing that China’s has specialized in) has recently peaked at 228 million in 2010, the total labor supply in this age cohort is estimated to be a solid 200 million by 2015, more than they numbered in the year 2000.
• China’s working-age population (16-59) will not begin falling until 2020, providing China with sufficient surplus labor and keeping a lid in the growth in labor compensation over the next decade.
• China’s “interior” provinces, possessing lower wages than the coastal regions and endowed with a large labor reserve, is likely to become the most immediate recipient of global manufacturers looking for competitive locations.

That said, the report also notes that China’s labor share of nation income, now at record lows, is poised to begin rising rapidly over the next decade. These gains will eventually cause some of China’s most laborintensive sectors, such as apparel, to become uncompetitive, forcing relocation to new venues, such as Vietnam and Bangladesh.

Examining the export structure of various emerging economies, researchers contend that the threat of some emerging economies to China’s world manufacturing workshop status may be exaggerated.

You can read a full text of the research here