Regional Implications of China’s Wage Inflation Part 1: Reshaping the Regional Production Chain

- China’s wage inflation could alter the wage cost rankings within Asia1 — "Wages of unskilled labour in China may accelerate 15-20% in coming years from 10- 15% over the past decade, further eroding China's relative cost advantage. Out  of twelve Asian economies, China has risen from being third lowest in terms of hourly manufacturing wages in 2000, to being the sixth highest currently."
- China’s wage “catch-up” may reshape the regional production chain — "While the relocation of labour intensive activities could benefit lower cost regional economies, strong incentives exist for firms to retain production within China, including the large domestic end-market and China’s diverse array of cost structures which effectively allows it to replicate the pan-Asian production network within its own borders. Moreover, to the extent that it incentivizes higher wage coastal regions to automate and shift towards higher value added production, China’s coastal regions may over time compete more directly with Asian NIEs which compete on technology rather than low cost."
- Relocation in electronics and low tech; catch-up in capital intensive sectors — "Our Revealed Comparative Advantage (RCA) analysis identifies the activities where China has a comparative advantage in production, the activities that are likely to relocate, as well as the likely winners and losers of this reconfiguration. Low tech sectors aside, we think labour intensive activities within E&E production, including telecomms and household appliances, may see greater pressures for relocation out of China or into inland provinces. More capital intensive sectors where China has the greatest scope for catch-up include chemicals, autos, pharmaceuticals and semiconductors."
- MY, TH winners in med/high-tech, JP, KR, SG potential losers — "Within the medium and high tech space, Malaysia (electronics, high-tech consumer goods) and Thailand (electrical, autos) could benefit, especially in labour intensive areas. Korea and Japan (autos, machinery, high-tech consumers), Singapore (electronics, pharmaceuticals, non-road transport, high tech consumer goods) and India (metals, non-road transport, pharmaceuticals) could face greater Chinese competition in capital intensive sectors, as higher Chinese wages spur automation and technological/productivity catch-up."
- IN, ID, VN, Cambodia, Sri Lanka to gain from relocation in low tech space — "Within the low tech space, there are few losers given limits to automation. By becoming relatively cheaper, countries with marginally lower RCA scores than China would potentially benefit. For garment/textiles, India and Indonesia are bigger beneficiaries, while Vietnam could gain in low-tech consumer products. Bangladesh, Cambodia and Sri Lanka with currently higher RCA ranking vs. China would continue to hold comparative advantage in low-tech production."


No comments:

Post a Comment