29

**Table 4. The Dragon in the Global Marketplace for Low-Tech Products:** **<u>China’s Percentage Share of Labor-Intensive Exports, 1976–2009</u>**

|**SITC COD**|**E PRODUCT**|**1976**|**1980**|**1990**|**2000**|**2005**|**2009**|
|---|---|---|---|---|---|---|---|
|83|Travel goods, handbags|1.6|2.8|5.6|31.7|38.2|47.5|
|75|Office mach. & automatic data process. Equipment|0.0|0.0|0.3|5.2|25.1|40.4|
|85|Footwear|1.4|1.7|7.4|25.9|32.8|39.0|
|84|Articles of apparel and clothingaccessories|2.1|4.2|9.3|18.5|27.0|35.9|
|Source: UN C|OMTRADE(SITC two-digit level).|||||||

An important consequence of China‘s rapid rise to dominance as a global exporter of laborintensive products has been the absorption of its vast reserves of unskilled labor, especially from rural areas. Some labor economists still predict that China will remain a ―labor surplus‖ country until 2014. But the growing demand for service sector employees as well as the reluctance of some workers to leave rural areas will gradually stretch China‘s job market, particularly at the low end (McMillan 2011). So will China‘s shift, following the flying-geese pattern of development, from labor-intensive industries toward a more advanced industrial structure, with machinery increasingly dominant in manufactured exports. Labor productivity is indeed a key driver of wage dynamics. As the economy continues the process of industrial upgrading against the backdrop of burgeoning global demand for labor-intensive products, wage rates will rise and erode China‘s competitive edge in such products.

Indeed, China has already seen rapid growth in wages. Manufacturing wages rose from just over $150 a month in 2005 to around $350 in 2010 (about $4,200 a year).<sup>22</sup> As a consequence, the wage gap between China and some upper-middle-income countries is closing, and this trend is almost certain to continue over the coming decade. China‘s 12th Five-Year Plan projects that the economy will grow at 7 percent a year on average during 2011–15—and, for the first time in the country‘s history, proposes that real wages will grow at least as fast as GDP. Both growth rates are likely to be achieved. That would imply a doubling of real monthly wages over the next decade, to around $700 a month. If the likely continued currency appreciation is added up, China‘s real wages could approach $1,000 a month within a decade, the level in such uppermiddle-income countries as Brazil and Turkey today—and $2,000 a month by 2030, the level in Korea and Taiwan, China today.

China is at a stage like that reached by Japan in the 1960s and Hong Kong SAR, China; Korea; Singapore; and Taiwan, China, in the 1980s. To continue growing dynamically against the background of declining wage competitiveness, China will have to follow the path of the earlier Asian ―geese‖ and start to relocate its labor-intensive industries to low-income countries.<sup>23</sup> Indeed, this is already happening. A large share of China‘s outward foreign direct investment in Africa, which had reached $9.33 billion by the end of 2009, has gone to manufacturing (22 percent), second only to the share in mining (29 percent). And China is building six economic

> 22 <mark>Data from Oxford Analytica, March 28, 2011.</mark>

> 23 Based on the estimation by Maddison (2010), China‘s per capita income (measured in purchasing power parity) was 6,725 international dollars in 2008, the same level as in Japan in 1966, Korea in 1986, and Taiwan, China, in 1983. These economies started to relocate their labor-intensive manufacturing industries at that income level, Japan to the East Asian Tigers and Korea and Taiwan, China, to mainland China.