By: Dr. Mike Campbell

China is now the world’s second largest economy behind the USA. It has a population of 1.34 billion and is the most populace country in the world. The Nation’s GDP has increased by more than ten-fold since 1978, but at the start of this year, the per capita income is still below the average for the rest of the world. The nation’s GDP was estimated at about $10 trillion last year. What this means is that some people have become incredibly rich with the liberalisation of the communist country’s economic policies, but the majority have not seen very substantial improvements in living standards.

Inflation in China remains a problem. The target for inflation is 3%, but consumer price inflation is twice this (6.2%) and food price inflation (a more pressing concern for poorer families) is an astronomic 13.5%.

Part of China’s economic success story has been that it has a low wage economy and so can produce goods more cheaply than is possible in many of its competitor economies, however, this may be changing. Data released by the Ministry of Human Resources and Social Security shows that the minimum wage level has seen an increase of 21.7% across much of the country. The increase comes against the backdrop of the central government’s drive to rein-in inflation.

The city offering the highest minimum wage is Shenzhen, close to Hong Kong, but that is just the equivalent of $207 per month. In the capital, Beijing, the best minimum hourly rates of $2 are to be found – but of course living costs are higher in big cities.

Some evidence suggests that the rising cost of wages is driving some producers to leave the country. Indonesia and Bangladesh offer workforces where labour costs are low enough to be attractive. China is now offering four times the minimum wages on offer in other parts of South and South East Asia – a sobering prospect.
China needs to stimulate internal demands for some of the goods that it produces to reduce its reliance on exports. A key component of this is that Chinese citizens must have higher levels of disposable income.