One of the major forces reshaping global business is
that of rising wages in China. Nominal wages have been rising at over 10% a year
in every year since 1997: Chinese workers are still much cheaper than those in,
say, the United States, but the gap is closing rapidly. China has managed to
create such a dominant position in global manufacturing supply chains,
despite rapidly increasing wages, partly because of its infrastructure, but also
because productivity growth has been unusually rapid.
Over the next five
years we think that Chinese wages will continue to rise fast. Productivity will
rise as well, but this is going to change the type of activity in which Chinese
workers are competitive. Countries all around the world, such as Bangladesh,
Peru and Nigeria, are hoping to get a slice of labour-intensive manufacturing
supply chains as Chinese factories focus on a different stage of production.
Which countries are best placed to move into this gap? One country stands out as
having a lot of potential: India. It has low wages and business inputs are low,
and it has the scale to attract big firms that many countries in, say, Africa
lack. India's business environment is very difficult, however, and its
infrastructure is poor. But if India can get the building blocks right, then
China's rising wages create an opportunity it is uniquely placed to capture.
the Economist
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