The Economist Intelligence Unit (EIU, of The Economist magazine) believes china wage inflation fears are overdone relative to manufacturing competitiveness.
Despite massive wage inflation, China will remain a leading manufacturing economy for the next 100 years due to the economies of scale set up within the nation, the huge domestic market, plus the ability of manufacturers to move up the value chain.
The key point is that China already has more expensive labour costs than Vietnam; its real bread-and-butter of the future won’t be the low-end manufacturing many people like to imagine is the heart of China’s competitive advantage.
“A lot of people tend to think when you can just head further inland you start hitting upon these bottomless pools of surplus labour enabling you to hold costs down indefinitely. We really don’t see that happening,” said van Kemenade.
The analyst added that the manufacturing emerging in the major inland cities such as Chongqing did not tend to be companies seeking ever cheaper labour but often those looking to set up advanced manufacturing facilities aimed at producing goods for the China market.
“The major investment, much of it foreign, that you have seen in these inland cities has not been the type that typically follows the cheapest sources of labour. It has been fairly high value-added advanced manufacturing,” he said.
They’ll move into ever-higher value products, and already are.
Still, note how wage inflation has been enormous over the last decade (The Beijing percentage figure appears to be an error):
China still remains far cheaper than India, due to India’s inefficient business environment: