C&B Notes

Wage Inflation in China

While a rise in wages has been good for the Chinese economy and the companies offering goods and services in the country, the increase in labor costs is eroding China’s economic advantages for manufacturing.  Productivity gains have enhanced the value of man-hours, but total cost considerations (including shipping costs) will continue to lead manufacturers to look elsewhere for production.

Average wages in China’s manufacturing sector have soared above those in countries such as Brazil and Mexico and are fast catching up with Greece and Portugal after a decade of breakneck growth that has seen Chinese pay packets treble.  Across China’s labor force as a whole, hourly incomes now exceed those in every major Latin American state apart from Chile, and are at around 70 per cent of the level in weaker eurozone countries, according to data from Euromonitor International, a research group.  The figures indicate the progress China has made in improving the living standards of its 1.4bn people, with some analysts arguing that increases in productivity could push manufacturing wages even further beyond what are traditionally seen as middle-income countries.  But the fast-rising wage levels mean China could also start to lose jobs to other developing countries willing to undercut it.  The data also highlight the problems facing Latin America, where wages have stagnated and sometimes fallen in real terms, and Greece, where average hourly wages have more than halved since 2009, according to Euromonitor.  “It’s remarkable how well China has done compared to everybody else,” said Charles Robertson, global chief economist at Renaissance Capital, an investment bank focused on emerging markets.  “It’s converging with the west when so many other emerging markets haven’t.”

china-inflation-chart

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