There is no doubt that China is one of the most important base for manufacturing. Christmas is coming, and this reminds people that the even higher majority of world Christmas decoration is coming from China. Even the Christmas tree – if it is artificial – may come from China.
Goods in China are cheap. There are arguments of the quality (Well. I will talk about that part in the future). My question to answer today is, why China’s good is cheap?
Labor is the Key
I would say the labor is the key. In Southeast China’s Guangdong province, the average wage for workers in factories are 40 US cents per hour, a fraction of U.S., even 1/6 of New Mexico. Why that?
There is a theory of “Population Dividend” in China. I first heard about it from King. It describes the situation of China – with the huge population, and huge base of “available” labor, China and the world is enjoying the benefits of these population.
Imagine, in the last few years, with the shutdown or reform of state owned enterprises, 45 million people lost their old jobs, and have to find new one. This is just a very small amount comparing to the 800 million peasants in China. Many farmers lose their land in the process urbanization, they don’t have land, and they are ready to pickup any job that pays them salary.
Take Shanghai as an example, the newly born children in villages don’t have land when they are born, while in the past, all peasant’s children must be peasant – there is no way to change it. The up-side-down change in policy forces the new generation to find a job.
Often, 40 cents per hour is way much higher than the money they can earn at home.
Continuous Supply of Labor
The promise for wage increase is not high in the near future. The key is, although the demand is increasing in the country, the employed workers are still far from all of the abundant labors.
For example, if someone ask for 41 cents per hour to their factory, the boss may say, there are millions of people waiting out side the gate, and they are willing to take your job at the same or lower salary…
So when does this situation change? Only after majority of the “abundant labors” find their job, and there is not so many people wandering outside the gates of the factories, and there will be some kind of labor shortage, and the wage would surely increase. At that time, the population dividend is used up.
China after Population Dividend
The world is flat. When all the labors in China is used up, countries like Vietnam is not. Then the world factory will shift to other countries. Hopefully at that time, the domestic consumption of goods, and the hi-tech sector start to boom, and China can be still strong in exporting, and go to another “right path” for development. If not, it is dark cloud on the future sky of China.
Just my few cents about this big topic.