The magnificence and limits of China/Asia's ascent

Residential housing going up in Shanghai.

Three FTs, one WSJ and a Bloomberg BW.

Here's my linking:

The FT op-ed from David Pilling celebrates "unruffled Asia" and its economic ascent, the big danger being overheating.  Still largely export-driven growth, hot money flows in from the West.  Everybody is bullish on Chinese growth.  These flows put pressure on China's central bank, which holds the money because of China's controls on currency exchange (the yuan is not convertible).

As a result, inflation is growing inside China, with housing prices leading the way in the 12-13% range.  The same is happening, to a lesser but still significant extent, on food.  As one Credit Suisse banker puts it, "Virtually everything is on the rise in China."

Meanwhile the Chinese consumer continues to spend more, as do Asian ones in general.  Since the 3Q 2008, total cumulative consumption growth in Asia sits at 7%.  In the West, it's been negative.  And that's with private consumption still under 40% of GDP in China, compared to 71% in the US.

As this "rising" means wages have gone up, resulting in a labor shortage that is "trimming margins for exporters," according to Bloomberg.  As one factory manager notes, "Wal-Mart won't raise what they pay us."

Welcome to globalization, my friend.

Workers are getting uppity allright:

As costs climbed in Taiwan two decades ago, Ben Fan moved his lighting factory to take advantage of China's cheap labor. Now, with Chinese wages on the rise, he's moving again. "It's just like what happened in Taiwan," says Fan, chairman of Neo-Neon Holdings, which sells lamps and lighting fixtures to big retailers including Home Depot (HD), Target (TGT), and Wal-Mart (WMT). "Chinese don't want to work in factories anymore."

Ah, but Chinese state capitalism is so different, yes?  It can ignore these market realities and command where jobs appear and who fills them?

The yin and the yang:

Over the past two years, millions of jobs have moved to China's interior [yang!] or elsewhere in Asia [yin] as factory owners try to cut costs. In Guangdong, the mainland's top exporting province, wages have almost doubled in the past three years, and more than half the factories can't find enough workers. The number of migrants who traveled to coastal provinces for work fell by 9 percent last year, to 91 million. "This lack of labor will only get worse," says Willy Lin, chairman of the Textile Council of Hong Kong, a trade association.

Factory owners complain that the higher wages are devastating profits, especially as their customers continue to squeeze them for lower prices. 

That's the globalization price, as I noted in Great Powers.

You can say this is a problem of success, and it is.  Lotsa growth = labor shortages, and so does success in the one-child policy.

Already, many corporations are talking about keeping certain, more sophisticated production in eastern China while peddling the lower ends of the chain elsewhere.  That means China is ascending all right--up the production chain, and the further it goes, the less it controls--and the less labor advantage it holds.