Nick Yates AU

American production lines dependent on Chinese suppliers might take note of recent labor trends in China.

It may be that labor costs will be rising dramatically soon for Chinese suppliers, due not only to China’s peculiar demographics but also its current stage of development and a resultant steady rise in labor costs there.

The booming Chinese economy of recent decades has been partly driven by cheap labor from rural areas where under- and unemployment were a fact of life. Now there are growing signs that the once almost inexhaustible supply of cheap rural laborers is at last diminishing.  The one child per family policies in effect for decades in the Middle Kingdom has hastened the inevitable.  So have the decades of rapid industrialization along with its ever-increasing hunger for laborers.  The percentage of China’s populace in the key 20-29 year-old bracket has steadily declined over recent years, and economists now predict labor costs will begin to sharply rise as China comes fully to grip with a tightening labor market.

This will translate into rising costs for Chinese producers and therefore also for those whom they supply overseas.  It may also serve to slow China’s industrial growth from today’s blistering nine-percent rate to something lower.

And while rising wages do promise improvements in the living standards of China’s overall population, they may foreshadow problems for overseas firms dependent on lower priced goods from China, and soon make necessary the search for lower-cost suppliers elsewhere.  The process has long ago been played out in Japan, and was then in turn seen to occur in Taiwan and South Korea.

American firms should even now be scouting fresh opportunities in developing economies beyond China’s familiar borders. This has been Nick Yates with another business update.

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