Chinese wages outpace Brazil, Argentina, Mexico
The average wage in China’s manufacturing sector has overtaken that in countries like Brazil and Mexico, and is approaching levels seen in weaker Eurozone countries like Greece and Portugal. This is the result of a decade of incredible growth, which has seen Chinese salaries treble in size. Looked at as a whole, the Chinese labour market now has an average wage that exceeds all major Latin American countries apart from Chile. This vast increase suggests that China’s 1.4 billion people could soon be living in a land that pays more than the average “middle income” country.
The comparative wealth of Chinese workers will be a huge boost to consumerism in the country, as well as globally, given the Chinese propensity for travel. But it also comes with the risk that more manufacturing work will be outsourced to countries like Mexico, which is now far cheaper than China.
However, the rise in wages is not isolated from other economic fundamentals. Productivity growth has outpaced even salary increases. According to Oru Mohiuddin, Euromonitor strategy analyst:
“You have to put the wage inflation in context. Manufacturers will still benefit from being in China. Across a range of sectors China will account for 20% of the market by 2020, similar to North America and western Europe. It makes sense for manufacturers to be based in China.”
There are threats to Chinese labour, of course. Most prominent amongst them, perhaps, is the speed at which the country’s workforce is ageing – a direct outcome of the one-child policy that means there are fewer young Chinese aging into the workforce.
China is experimenting more deeply than most countries with the automation of labour, having whole factories staffed by robots. But whether this will prove to be an answer to China’s demographics problems in the long run remains to be seen.
Until then, companies and the investors that hold them should be prepared for the driving force of Chinese consumption to continue with fresh fuel in the tank.
Dominion holds a number of companies with exposure to China across its Global Trends range of Funds.
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