Whose salary has gone up, which foreign capital has gone?

Since 08, China's wage rise has been a concern, a large number of foreign capital evacuated. Is China's manufacturing industry going downhill? is export competitiveness gone forever? Can economic growth continue?...... All sorts of questions one by one.

In this debate, however, there is much more analysis and less data, and the data is more indirect, original or less.

So, this article will bypass the media, try to use raw data, extract reliable reports, parse charts behind the chart, news behind the story.

One, in the end who rose?

1. Overall wages are falling and local wages are rising

In China, the employment of college students and migrant workers are difficult to exist at the same time, the former is oversupply, the latter is in short supply. Therefore, to understand China's wage problem, we must first understand the local focus. The different problems may cancel each other out, the overall data is difficult to explain the local problem.

(Source: World Bank)

As pictured above, wages in China are falling, as a whole. However, looking at "migrant workers monthly income" alone, but is rising. Therefore, the overall data to analyze the local, may have no gain, the following will be local focus.

2. Local Focus One: low-end wage increase 20%-30%

(Source: Deutsche Bank, Wall Street writer)

Compared to the 09 minimum wage growth, we will find that the minimum wage accelerated since 2010, the average annual growth rate from 10% to 20%, pry into the rapid growth of low-end wages.

is now growing between 20–30%.

3. Local Focus bis: annual growth rate of migrant workers ' wages 16-20%

Migrant workers ' wages accelerated sharply in 2009, with annual growth from 5% to 17%, up to 1348 yuan. It is becoming more and more difficult to employ migrant workers.

(Source: Economist, John Knight, etc 2010 Papers the puzzle of migrant labour shortage and rural labour in, Wall Street, the author of the paper)

According to research estimates, migrant workers wage growth in recent years between 16-20%.

4. Local focus: Annual growth rate of manufacturing 15–20% (RMB-denominated) 20–30% (dollar denominated)

(Data Source: Department of Labor, Wall Street writer)

As shown in the picture, manufacturing wages are mainly growing in urban areas, with growth from 6% to 17%. Part of the growth rate of township enterprises held steady, still between turnover. As a result, the development of manufacturing in big cities is entering a bottleneck.

In renminbi terms, it is estimated that manufacturing wages are growing at a 15–20% rate, and that if the renminbi appreciates and the dollar is devalued, the growth in dollar terms is between 20–30%. As a result, the competitiveness of Chinese manufacturing is indeed weakening.

Summary: China's wage rise is a local phenomenon, not the whole. Low-end wages, migrant workers ' wages and manufacturing wages rose fastest. These three overlapping, essentially interlinked, all mean that China's cheap labor is disappearing.

Two, why rise?

1. The ageing of the labour force and the reduction of supply

(Data source: Economist, United States Bureau of Statistics)

The figure shows the aging trend of the working population. On the one hand, this will reduce the absolute number of labor force, on the other hand, the age structure of the workforce has also changed, when the main force from twenty or thirty years old to thirty or forty years old, they from the unencumbered bachelor to become the pillar of the have, from the brave young man into the pursuit of ease of the middle-aged Its wage requirements must be increased. These two factors: the absolute change in supply and demand, as well as the changing mentality of the labor force, together to raise wages.

2. Labor productivity accelerated over the years, wage compensation growth

Theoretically, wages should be increased in tandem with labour productivity.

The figure shows the comparison of labor productivity between China and India.

(Source: Conference Board, Wall Street writer)

Since 2000, China's labor productivity has risen exponentially, with an absolute value of 1.5 times times that of India.

2000-2010, China's productivity growth rate of 10%, is India's growth rate of twice times.

The acceleration of productivity growth has been cumulative for more than 10 of years, and the acceleration of wage growth in the last three or four years is bound to compensate for the previous debt.

Conclusion: The aging of labor force and the increase of productivity are the root cause of wage increase. Factors such as education, strikes and the rise in the minimum wage are only a few of the root causes. These two root causes will not be reversed, so the trend of China's wage rise will not be reversed.

Third, who has been affected?

1. Low-end wage increases are most pronounced, and industries that need cheap labour are most affected

The following figure, below the national average wage industry is: construction, manufacturing, wholesale and retail and catering. Most of the shocks will be used in these three industries to make the costs rise and profits thinned.

This is consistent with the industry trend in the first half of this year.

(Data Source: Deutsche Bank, CEIC)

2. China remains one of the cheapest and most suitable places to build factories in the world, and most of the European companies will stay in China

The following pictures show China's relative labor costs, still in the world's lowest. Coupled with China's good infrastructure, relatively open trading environment and the policy environment to support foreign investment, other countries will find it difficult to hold a candle in the short term.

(1) labor force, labor participation rate is still the highest

China and India have the world's largest working-age workforce, but China has the world's highest labour-force participation rate, while India is the world's lowest.

As the figure below shows, the size of the circle represents the number of working people, China and India's largest. The horizontal axis is the labor participation rate, China's largest, and India's smallest.

(Data Source: U.S. Department of Labor)

(2) The labor cost of Chinese manufacturing is still the lowest.

Although growth is faster, labor costs in China's manufacturing sector are still less than 4% per cent of the US, less than 5% of the Asian average. (in 2009, denominated in dollars). The figure below is the relative labor cost of manufacturing in the major regions, the lowest in China.

(Data Source: U.S. Department of Labor)

Although Vietnam and other neighboring countries have lower labor costs than China. However, they cannot provide China's infrastructure, policy environment and will never reach the size of China's workforce. Attraction is still limited.

3. The U.S. government is pursuing a manufacturing recovery policy, so about 1/3 of US companies are considering leaving China. But European companies may be less likely to evacuate.

On the one hand, its manufacturing costs are higher than those in the US, and it is hard to pull back home like us (see above);

4. The withdrawal of U.S.-owned enterprises has two characteristics: first, its products for the U.S. domestic market, local production closer to consumers, reduce transport costs; If the product is not targeted at the United States, but against the global market, generally do not opt to withdraw. Second, the product has a certain technical content and capital requirements, labor cost is not the most important factor; if the product is not technical content, still rely on labor costs competition, generally do not choose to evacuate.

5. Two major investment opportunities are emerging: one is China's consumer market--along with wage growth, purchasing power gradually strengthened, to enter the Chinese market, the development of corresponding products is a common opportunity between Chinese and foreign enterprises; The second is that China's machinery purchases--rising labor costs--will force companies to rely more on automated machinery, And China's machinery manufacturing still to be developed, this market space is huge.

Four, good or bad?

1. Help boost domestic demand

The ideal pursuit of any economic growth should be to raise the welfare of the citizens. To support economic growth with residents ' consumption, rather than cheap labor for foreign exchange reserves, will be the most popular, the most long-term and reliable.

Now, as the debt crisis drags on Europe, in the short term, it is moribund, and in the long run it will stumble; the fiscal cliff affects the US, while QE3 is drifting away, and in the short term the US can only slowly recover, and in the long term its growth potential remains to be seen. Therefore, to rely on external demand and export to ensure growth, not long-term, and already no longer feasible.

It is imperative to boost domestic demand and promote consumer spending, economic growth and national well-being. and wage growth will no doubt push this reform forward.

2. Promoting structural transformation

Made in China or created in China?

A world factory or a world think-tank?

How does the Chinese labor force want to work? What kind of industry does China have to stand in the world?

The key to upgrade the economic restructuring industry lies in education, quality and wages.

If you sum up the good and bad of the wage rise in a word, I am afraid it is not as long as short pain: in the short term it causes foreign capital to withdraw; in the long run it pushes China to change.

(This article is selected from Wall Street.) )