Analysts consistently scrutinize China economy to predict whether the country can keep its growth pace. Their question is simple: can the Dragon be as good and quick in the future as it has been in the last 3 decades? The second question comes as a consequence: will China be able to maintain its leadership in keeping its low cost advantage?
China’s competitors both wish and hope that a buoyant growth will lead to higher salaries and, thus, to more expensive goods. This process should not be surprising, it has been experienced by Japan, South Korea and the other Asian Tigers. China so far has escaped this automatism. Salaries have certainly soared, especially in the coastal areas. In Shanghai and Guangzhou they were increased by law. But simultaneously, labour productivity grew even more. The final result is more worrisome for China’s competitors. The total cost of Chinese products, on average, has been comparatively lowered overtime. A Chinese worker costs more, but produces much more.
The first reason for this lucrative ratio lays on the endless tank of Chinese manpower. Even if in 2007, the urban population finally outnumbered the rural one, there are still 650 million peasants living in the countryside. The extreme fragmentation of the land allows migratory flows to the cities’ factories without impacting agricultural output. In industrialized countries, increase in productivity often comes after reduction the labour force; the so called jobless recovery. On the contrary, productivity in China soars with new employment. Last year, labour productivity rose almost 8%. This achievement is also confirmed by more accurate analysis, checking the total factor productivity which analyses the combination between capital and labour. Both have proved to be efficiently deployed in China. It would have been impossible to grow so quickly and so much only with low salaries.
In reality, Chinese entrepreneurs have proved to be sometimes inexperienced and unskilful, but willing to learn and to take advantage of newly discovered opportunities.