Macroscope | Opportunities as well as costs as China’s economy adjusts
Rising wages have fuelled higher consumer spending
Globalisation is perhaps exemplified by China’s development into an economic behemoth that is now hard-wired into the world’s supply chain. But that also means that as China’s economy evolves, there will be costs felt locally and globally but also opportunities to be taken.
Transitioning to a “new normal” where China’s economy is more domestic consumption-based than driven by investment and exports, entails a slowdown. While that “will have negative consequences for some countries, it is also creating opportunities for others”, Asian Development Bank (ADB) chief economist Shang-Jin Wei wrote last month.
On the plus side, “despite slower growth, China’s household consumption has been rising and the country’s market remains one of the world’s most promising”, Wei said.
Rising wages in China have fuelled higher consumer spending but rendered obsolete the old image of the Chinese economy as being driven by an industrious but poorly paid workforce producing competitively priced goods for export and whose productivity was enhanced by investment from foreign capital seeking better returns than were on offer elsewhere.
In fact, “China’s labour cost has risen by more than 100 per cent in the last 10 years, leaving many other countries – not just Vietnam or India, but also other populous countries like Bangladesh and Myanmar – with much lower relative labour costs”, Wei noted.
Because the Chinese economy is so much larger now, even 6 per cent growth today would contribute more to world output than 10 per cent growth before the global financial crisis
Consequently, “Bangladesh, for example, has already begun to take advantage of China’s withdrawal from the low-end segment of the garment market”, he said.