Is Low Wage Manufacturing in China Disappearing? Who will be the world’s next workshop?
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. In this brief we found that China’s wages remain very competitive against many other emerging market economies. Moreover, Chinese manufacturers, unlike those in many other developing economies, like Vietnam and India, possess many other advantages (like higher productivity and deep supply chains) that have largely offset the rapid wage gains in recent years. The study also finds that China’s working-age population will not peak until around 2020, providing China with sufficient labor input.
The highlights from this month’s brief 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 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 research 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 labor-intensive sectors, such as apparel, to become uncompetitive, forcing relocation to new venues, such as Vietnam and Bangladesh.