China has gained massive market share in manufacturing over the last 15 years. Cheap labor and a managed currency helped China become the world’s go-to factory. But as the FT reports, China has now lost its edge in labor. Wages in China are now higher than they are in Brazil, Argentina, and Mexico.
What happens to the low-cost producer when it loses its edge on cost?
China could either try to regain competitiveness by devaluing the yuan (a bad choice) or attempt to move up the value chain (a better choice). Whichever direction the country takes, the global economic landscape is likely to take on a new shape.
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 labour 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.
Read more here.
Jeremy Jones, CFA
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