Rising Wages in China = Re-Valuing China's Currency
NEW YORK TIMES -- "Just a year after laying off millions of factory workers, China is facing an increasingly acute labor shortage. As American workers struggle with near double-digit unemployment, unskilled factory workers here in China’s industrial heartland are being offered signing bonuses. Factory wages have risen as much as 20 percent in recent months (see chart).
Some manufacturers, already weeks behind schedule because they can’t find enough workers, are closing down production lines and considering raising prices. Such increases would most likely drive up the prices American consumers pay for all sorts of Chinese-made goods. Rising wages could also lead to greater inflation in China.
Reasons for the labor shortage?
For one, the Chinese government has rapidly expanded postsecondary education. Universities and other institutions of higher learning enrolled 6.4 million new students last year, compared to 5.7 million in 2007 and just 2.2 million in 2000. At the same time, China’s birth rate has been sliding steadily ever since the introduction of the “one child” policy in 1977. Labor shortages have returned quickly in recent weeks as these long-term trends have collided with a recovery in overseas demand for Chinese goods.
Consumer spending is also rising briskly; auto sales more than doubled last month from a year before, and this has created many jobs in retailing, restaurants, hotels and other inland businesses.
Though the wage boost increases the prospect of inflation, it may have another more salutary aspect. The Obama administration has been pushing China to let the renminbi rise against the dollar, which would erode some of China’s formidable advantage in export markets. Rising wages in China have the same effect — while also giving Chinese families more spending power."
HT: Lyle Meier