There are two factors that may potentially slow down China’s export expansion.
One of these is the possible appreciation of the value of the Chinese currency
Yuan, by at least 10 to 20 percent in the near future.
The other factor is the rise in wages. During the rapid economic growth periods
in Japan, Taiwan and Korea, land prices, wages and retail prices rose simultan-
eously. In China, though land prices in urban areas have generally increased,
retail prices and wages have not kept pace with this increase. However, this is
changing. If we compare the annual nominal GDP growth rate and annual
increase in the nominal wage in urban areas, we see that since 1998, the annual
rate of increase in wages has surpassed the nominal GDP growth rate. It is to be
noted that this happened 20 years after rapid economic growth started in China
in 1978. Such a long delay in rise in wages was possible because China had a large
surplus labor in rural areas.
Until 1998, wages rose only for high-class staff or skilled laborers, or in new
industries, such as finance, real estate, and media, but not in manufacturing. The
wage levels in export industries, such as textile, miscellaneous industries, and
even electronic appliances, have remained unchanged. With the beginning of
the twenty-first century, this situation has changed. A general labor shortage is
surfacing. This represents the effects of China’s one child policy and the spread
of compulsory education. If we check out official projections about incremen-
tal labor supply in China up to the year 2010, we see
a gradual decline leading to a negative value in 2010. Anecdotal evidence also
points to the emergence of a situation of labor shortage in certain parts of China
For example, in 2004, the regulated minimum wage was
raised by 20 percent to 40percent in many cities. Most observers agree that since
2002 Guangdong area has been experiencing a shortage of young labor, and this
shortage is gradually spreading to the Shanghai economic zone.
These two factors, namely the appreciation of yuan and the increase in
wages will surely raise the cost of export unless China is able to implement
technological innovation at a sufficient pace. China is now at a turning point,
where it may no longer be possible to increase exports on the basis of low
wages alone.
