In many ways, China is reworking the manufacturing-intensive economic model that enabled it to become the ‘factory floor’ of the world.
BEIJING: For close to 30 years, an economic wind of gale force intensity called China has been blowing across the world. In terms of both creative and destructive impact, it has few parallels in world history, and in its influence, it is virtually matchless.
Yet, after three gusty decades, during which period the country lifted an estimated 400 million people out of the pits of poverty, what’s blowing in China today are the gentle winds of change.
In many ways, China is reworking the manufacturing-intensive economic model that enabled it to become the ‘factory floor’ of the world.
A variety of contributory factors — from the country’s changing demographic profile that is pushing up wages, to the perceived importance of moving to a value-added economic orbit, to a growing sensitisation to the environmental cost of economic growth — are responsible for this policy reorientation.
UBS chief Asia economist Jonathan Anderson, says, “The biggest story in China’s manufacturing today is wage pressure and labour shortage.”
China isn’t running out of workers, adds Anderson: but it is running out of young workers. And as China becomes a more expensive place, it should benefit India’s manufacturing industry.
“The era of cheap manufactured goods from China is coming to an end,” says JP Morgan’s China Equities CMD Jing Ulrich. Simultaneously, a labour shortage is becoming manifest in the manufacturing hubs.
In addition, China’s labour force is peaking sooner than expected — by 2008. The proportion of China’s population in the 15-24 age group will shrink by 31% in 10 years.
The number of women of child-bearing age is beginning to shrink due to the one-child policy. However, “this isn’t entirely bad news for China,” says Ulrich. For China’s manufacturers, the emphasis will shift from quantity to quality, from the low end to the high end.
China is also at a stage where it is reorienting its relationship with capital: it is moving from being a capital importer to an exporter.
Also in its sights will be western companies that have technology and brands — which are difficult for Chinese corporations to grow organically.
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