Unlike Cassandra, the prophets foretelling China’s downfall have been wrong so far. The numbers have failed to confirm the threat of the rising cost of labor. The prediction that the country would be unable to produce at such low salary levels – and maintain its economic advantage – was the main tenet of the prophecy: when the cost of labor goes up, China, like everyone else, will have to deal with the competition. The vision was buoyed by the hope that wages and working conditions would increase, causing the production and export machine to stall and allow some breathing room for the other factories of the world. The situation has turned out to be more complicated, and the end result sees China remaining competitive.
The productivity of Chinese labor has actually increased, the undeniable index of cost per unit produced; it is by this benchmark that a country’s true competitiveness is measured. In the last decade of the last millennium, the increase is productivity was far greater than the increase in wages. China at the time was still in the early stages of industrialization, a time of mass migration from the countryside into the cities. An army of ex farmers, often without any prior manufacturing skills, was employed in the factories, toiling in new jobs that were far from the traditions of the country.
Unaccustomed to the pace of life in the factories and far from the familiar comfort of their farms, only with great difficulty were they able to learn the techniques and secrets of mechanical labor. Production was indeed strong, but only thanks to long working days and the systematic organization of individual roles, and not the skill of the workers. Low wages were mandated by Beijing, part of an overall political and economic strategy aimed at bringing the country’s economic strength to bear in a globalized world.
Given its humble beginnings, Chinese productivity has grown rapidly, and has been accelerating in recent years. Overall education has improved, modern equipment is more widespread, infrastructure is excellent, and the overall system is better organized than ever before. As a consequence, the rising cost of labor has had a diminished impact on the economy. Eighty percent of the increase in wages over the last ten years has been absorbed by the improved productivity of labor. China has become a country with vast productive capability, where the most sophisticated factories can be found next to the most dilapidated.
Better productivity is essential for the elimination of labor-intensive factories, and it discourages the foreign investment that China by now no longer needs. The more traditional manufacturing sector is at risk, but the service and construction industries are seen as virtually immune to the increase in labor costs.
Beijing’s strategy seems clear: control the problem before it becomes uncontrollable. Some factories may close and unemployment may rise, temporarily, but the end result would leave the country’s productive sector more modern and unassailable.
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