Higher wages have not led to higher inflation and, so far, have not impaired China’s international competitiveness

- "We have found no clear evidence that nominal wage increases have caused higher inflation in China in the past decade, or even in the past few months. Wage growth has largely been offset by labor productivity gains. Furthermore, China’s labor costs in the manufacturing sector were actually lower in 2009 than in 2001 on a per real unit output basis."
- "We expect CPI inflation to trend lower as the policy-induced slowdown in domestic
demand growth weakens further in the near term. We believe the inflation trend beyond the short term will be determined by monetary policy management."
- "Our analysis also suggests that the relative competitiveness of China’s manufacturing sector vs. the US is at approximately the same level now as in 2002, lowering the need for further significant currency appreciation (as indicated by our GSDEER model)."
- "China’s looming demographic constraints are likely to increase the upward pressure on
money wages, but we think this will at least partly be offset by the improvement in labor
quality and the release of surplus labor from the agricultural sector."
- "In our view, an increase in labor compensation as a share of total output would support domestic demand, and this is likely to be achieved through a reduction (rather than an increase) in government restrictions on the labor market."
GoldmanSachs Asia Economics Analyst 20100805

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