The real leading indicator of China's power

Apologies for no post for two days. I was in DC and busy.

FT story here on how the demographics are already playing out in China: fewer workers entering the work force can be choosier and more demanding on wages. That sends wages skyrocketing in China along the coast. Companies have two choices: go inland for cheaper Chinese labor - but then accept the higher transpo costs, or they go to neighboring states - all of which are just now on the cusp on a very big and long demographic dividend that will make their labor cheaper than China's from here on out. Those neighbors are basically all of Southeast Asia and especially India and Bangladesh.

So the subheader here says it all: "Demographcis and Beijing policy on workers' pay mean manufacturing is relocating in Asia."

Won't change a whole lot about America's trade deficit with Asia. It was large when "factory Asia" was just Japan and South Korea and ASEAN, and it got bigger when China cleverly inserted itself at the top of that assembling chain and consolidated the region's trade suprlus with America into its massive foreign currency holdings. And it won't go away when others displace China increasingly.

But it does mean that China's days of "inexhaustible" cheap labor are already ending.

And it means that India's eclipsing of China as the next big thing - to include all the soft power that goes with that (which will be greater for democratic India than authoritarian China) - has already begun.

Comments

[Michael]

Actually, the transport costs aren't so extreme if the production if for domestic consumption--which umpteen gazillion economists say the Chinese economy needs more of anyway!

Just occurred to me; another problem I've seem mentioned repeatedly is the outdated residency system which keeps inlanders from establishing permanent residency on the coast. Recruiting them to provide the already-skilled core of a workforce in their home regions might reduce two problems at once.