Is the era of cheap Chinese labor over?

That’s the title of the latest Economics by Invitation online debate over at the Economist, featuring excellent responses from Stephen Roach, Tyler Cowen, and Yang Yao, amongst others.  As regular readers of this blog (Hi Mom!) might imagine, it’s a question I have more than a passing interest in.  To grossly oversimplify, the majority answer to the title question seems to be ‘no’, an assessment I agree with.

I didn’t notice it in any of these responses, but a common mistake in this discussion is the assumption that if China’s exports are moving up the value-chain this is necessarily creating some breathing space for other low-wage exporters.  Consider, for example, the fact that between 2000 and 2008 the share of apparel in China’s total exports dropped from 13 percent to 8 percent, as the country moved into producing more high-tech goods like DVD players.  On the surface, such a statistic should be welcome news to apparel exporters in countries like Bangladesh and Vietnam, who hope to move in on global markets as China climbs up the value chain.

But that’s a fallacy, because what really matters to an apparel exporter in Bangladesh is not the share of apparel exports in China’s total exports, but rather China’s share of global apparel exports.  And the thing is, while apparel was losing ground in China’s export portfolio over the last eight years, China’s stake in the world apparel market increased dramatically — doubled, in fact, from 18 percent to 36 percent (data from UN COMTRADE).

When you’re a country of a billion people — 45 percent of whom still live in rural areas — there’s no reason you can’t  simultaneously move up the value chain *and* increase your competitiveness in low-value manufacturing.  So even as many Chinese are growing rich, the era of cheap Chinese labor still isn’t over…


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