Saturday, April 10, 2010

Five myths about China's economy - Arthur Kroeber

ark photo apr 08-1_head shotArthur Kroeber by Fantake via Flickr
Leading economic analyst Arthur Kroeber tackles in the Washington Post five myths many people have about China's economy. Some of the misunderstandings: China will overtake the US economy very soon. China is holding the US hostage through its huge amount of treasure bonds.
And the last one:
5. China's economy has grown mainly through the cruel exploitation of cheap labor.
Every time a developing economy starts growing fast, richer countries accuse it of "cheating" by keeping its wages and exchange rate artificially low. But this isn't cheating; it's a natural stage of development that comes to an end in every country, as it will in China. China has grown in much the same way as other economies we now view as mature and responsible success stories -- including Japan, South Korea and Taiwan. Those nations invested heavily in infrastructure and education, and quickly moved their workers from low-productivity jobs in rural areas to more productive jobs in cities. When rural labor was abundant, wages were low, but they rose rapidly after those surplus workers joined the urban labor force.
China is hitting that spot now: The number of young people of workforce entry age (15 to 24) is projected to fall by one-third over the next 12 years. With young workers more scarce, wages have nowhere to go but up. This is already happening: Last month, Guangdong province (China's main export hub) raised its minimum wage by 20 percent.
China still has plenty of workers moving from the countryside to the cities, but the age of ultra-cheap Chinese labor will soon be gone.
More arguments at the Washington Post.

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Arthur Kroeber is a speaker at the China Speakers Bureau. When you need him at your conference, do get in touch.
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