JP Morgan released a report on the state of China’s labour market this morning and the results are clear: China is in trouble.
There’s a high demand for labour in China right now with the ridiculous amount of stimulus money being pumped into the real estate market.
As a result, labour is scarce and is becoming very expensive to acquire.
But if you thought this was just a short-term problem connected to real estate, better think again:
JPM: There is no doubt that the supply of surplus labour in rural China has been falling continuously during the past decade, shrunk by the strong expansion in the industrial sector and continued urbanization. In addition, as the government builds the social welfare system in rural areas, and as the steady increase in agricultural product prices and favourable agricultural policies raises the opportunity cost of working in the cities, wages of migrant workers have been following a steady upward trend, with monthly wage growth averaging 14.8% since 2000.
This, coupled with recent news that Jiangsu province, a major export hub in China, raised its minimum wage 13%, has increased market concerns that wage growth could fuel further inflation pressure and raise the risk of a upward spiral in headline inflation.
Imagine the effect of a 13% minimum wage hike here in the United States. Employers would be forced to undertake rapid cost cutting measures to keep their business afloat. The same goes for China. If these issues aren’t addressed in a quick and concise manner, China’s real estate bubble may pop quicker than expected.