Predicting the future is a dicey practice, especially when indicators are stacking up against you.
That said, I predict wages for production workers at Chinese manufacturers will continue to rise, even in the face of a slowing economy and falling real estate values.
I’ll stick with my prediction because, regardless of several indicators coming out of China, the fundamentals driving my logic haven’t changed.
The Chinese economy isn’t grinding to a halt&imdash;it’s simply slowing from red hot to just plain old hot.
I believe wages will continue to rise in China because:
- Chinese production workers are fundamentally underpaid for the value they add. They deserve more and everyone knows it—production workers’ wages have not kept up as a percentage of the GDP. Protests for higher wages and an increasing exchange rate will increase pressure on a regime that sees the standard of living fall as their country gets richer. Complex topic, but you don’t have to understand economics to feel its effect.
- Labor rights lawsuits are increasing. While labor laws have been on the books for several years, employees are now beginning to understand them and bring cases against their employers. This will increase the number of employers that pay according to the law.
- The government needs to make up the portion of the GDP being erased by falling exports. Domestic consumption is a viable alternative that also addresses the issues already mentioned. The Chinese government is directing companies are to increase wages and companies will, ultimately, abide by this.
Look for wage growth slightly above GDP growth. It will be bit bumpy as the China transitions from export/infrastructure led to a more balanced economy, but Chinese workers have earned a raise and they are going to get it.
Plan accordingly.
