China’s one-child policy has contributed to a demographic structure in which the working-age population isn’t growing fast enough to sufficiently support economic growth.
Companies are struggling to fill positions, and the ones that can find candidates have to pay up because of worker shortages.
This is bad news for a company that is as big as and is growing as fast as China.
Currently, the average economist expects GDP growth to slow to 7.5% in 2013 and 2014.
However, the economists at Deutsche Bank are a big more optimistic. They’re convinced China will grow at an 8.5% rate in 2014.
Among other things, they note that while wages continue to rise, the pace of wage growth has also slowed significantly.
And this has come as the demand for goods has also deteriorated, essentially offsetting the unfavorable effects of tight labour supply.
Here’s an excerpt from the report published by Deutsche Bank’s Peter Hooper, Michael Spencer, Torsten Slok, and Thomas Mayer:
However, consistent with the finding above that growth has slowed to below potential in recent years, wage growth has been markedly slower since the crisis despite the government’s minimum wages mandates. After peaking at about 19%yoy in 2007 and averaging 15% between 2002 and 2008, growth in average urban wages has decelerated to around 12% in 2012 and the first few months of 2013. In inflation-adjusted terms, real wages grew about 13% pre-crisis and have been growing about 9% for the last two and a half years. Strikingly, wage growth so far this year in both nominal and real terms is lower than it was in 2009.
This deceleration in wage growth has occurred as labour force growth has essentially stalled. Cyclical weakness in demand has offset structural weakness in supply.
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