Last week, The Wall Street Journal published an article regarding China's shift to an era of slower growth. What was more interesting to me were the descriptions of soaring costs.
DASHIMEN VILLAGE, China—In this corn-growing hamlet in northern China, signs are emerging that the nation's supercharged economic growth may be reaching its limit.
A bottomless pool of inexpensive migrant labor has long been one of China's greatest resources, fueling its manufacturing boom. But all the able-bodied workers have left this village already, leaving mostly the elderly. "All the young men have gone out to work," says Wang Shuzhen, 58 years old, whose two sons left town, one to work in construction, the other as a driver.
Fewer migrant workers are heading to China's manufacturing zones along the coasts because villages like Dashimen are tapped out, putting pressure on wages and sparking worries about labor shortages. Job centers in the Pearl River Delta, the manufacturing heartland of southern China, had 9% more vacancies than applicants in the first quarter, according to a survey by China's labor ministry. ...
The favorable demographics that have supplied manpower for economic growth are changing. China's working-age population, age 15 to 64, has grown continuously. But partly because most families are limited to one child, growth of this working population is slowing, according to the United Nations. The labor pool is expected to peak around 2015, and then decline, according to U.N. projections. In China, manual laborers tend to stop working before age 65, due both to the demands of the work and to employers' preference for younger workers. ...
The most anticipated problem is an end to some 35 years of steady growth of the working-age population, which fueled the expansion when China liberalized its economy. The demographic changes added about 1.8 percentage points of economic growth annually since the late 1970s, according to the Center for Strategic and International Studies, a Washington think tank. But by 2030, the CSIS predicts, the contraction in the working-age population will reduce growth by 0.7 percentage points a year.
In places like Dashimen, in the hills in northern Hebei province, everyone who can physically labor is already working in jobs in the cities. Yin Zhen, the 61-year-old husband of Ms. Wang, says he was a migrant worker himself until employers started passing him over for younger men about five years ago.
With growth of the labor force slowing, migrant workers are in a stronger position to bargain with employers. A central-bank survey this year showed average wages for migrant workers, who traditionally fill the least-skilled slots and have little economic power, rose 17.8% from a year earlier.
Those gains will improve the lives of the poorest urban workers. They also will make it tougher for Chinese exporters of low-end merchandise like apparel and toys to continue to compete mainly on price. Exporters will have to keep boosting productivity to make up for higher wages, and start making higher-end products that are less price-sensitive.
As I detailed a month ago, I believe the massive offshoring of American manufacturing is, if not coming to an end, then about to slow dramatically. This will have an enormous affect on the composition of economic gains, which have accrued almost entirely to capital over the past decade whereas labour has seen virtually nothing. I expect gains to labor to outpace gains to capital over the next 10 years and returns on equity to be lower.
Perhaps I am wrong, I do not know, but seismic shifts on Wall Street usually occur when no one is expecting them. The consensus is always wrong at big inflection points when articles of faith turn out to be illusions. Those who see this and have the wherewithal to exploit it make fortunes.