China's changing forces of labour
Dan Steinbock says that while the changing face of China's workforce cannot be ignored, demographic trends can be altered with proactive policies, given the huge population
Since the economic reforms and opening-up policies, China's role in the world economy has been steadily on the rise. Even before the global crisis of 2008-2009, the mainland's contribution to global growth exceeded that of the United States or Europe.
In the coming years, China's economic dominance will continue to increase, assuming there is sustained internal cohesion and a peaceful international environment. However, the nature of this growth is shifting, and the pace of change may be significantly faster than anticipated.
China is moving closer to the Lewisian turning point. In 1954, Sir Arthur Lewis published a highly influential analysis on economic development with unlimited supplies of labour, which contributed to his Nobel Prize a quarter of a century later. It can be read as a story of the rise and decline of rapid growth. In East and Southeast Asia, all successful industrialisers have experienced it, in one way or another.
In the Lewis story, a "capitalist" sector (read: manufacturing) evolves by taking labour from a backward non-capitalist "subsistence" sector (read: agriculture). Initially, there seems to be "unlimited" supplies of labour from the subsistence economy, which allows the capitalist sector to expand without rising wages. Things change dramatically when the supply of surplus labour from the countryside tapers off and industrial wages begin to rise rapidly.
In China, the debates over the Lewisian turning point began in the early 2000s. The coastal export regions were experiencing migrant labour shortages, while there was anecdotal evidence of soaring migrant wages. Consequently, some observers concluded that the huge reserves of supply labour had been exhausted. After all, the growth of the working-age population was also slowing on the mainland.
At the time, I argued that what these observers saw in China was an evolving reality in some coastal regions, but the generalisations did not apply at the national level. Industrialisation had taken off in the first- and second-tier megacities of the coastal export regions. But it had barely begun in the lower-tiered cities, inland and the west.