For decades, China has held the status of “the world’s factory,” harboring the largest supply of inexpensive labor for industrial production across the globe. But as its economy has grown, so have wages — and now some are so high they’re approaching levels seen in Europe.
According to new data from Euromonitor, a market research firm, average manufacturing wages in China rose to $3.60 an hour last year. That might not sound like much compared to the US, where they’re around $26 per hour. But it’s a striking illustration of how China’s economic growth is impacting the lives of ordinary Chinese citizens, improving quality of life for huge portions of the population but also highlighting questions about how the nation will maintain its breakneck growth rate.
The report from Euromonitor found that Chinese factory wages are now higher than in Brazil, Argentina, and Mexico. As CNBC notes, China’s average wage is more than five times manufacturing wages in India, and “more on par with countries such as Portugal and South Africa.”
The rising wages are a reminder that President Donald Trump’s belief that China is the foremost threat to the American worker may be a bit outdated. Trump has repeatedly threatened to slap punitive tariffs on Chinese goods in a bid to boost US manufacturing. But it’s quite likely that those jobs could just end up going to other countries with abundant supplies of cheaper labor instead of returning to the US.
In fact, that’s exactly what happened when former President Barack Obama imposed huge tariffs on Chinese tires in 2009. “Shipments from South Korea, Thailand and Indonesia doubled in value, more than offsetting the decline in Chinese-made tires,” the LA Times reported in a retrospective report.
The growing incomes of many Chinese workers are good news for the country’s working population, who will have more to spend on both necessities and recreation. In 2014, the average Chinese consumer expended close to half of their personal spending on food and clothing.
But rising wages also present an enormous challenge to China’s economy. As wages grow, the country’s ability to attract investors in its manufacturing sector will diminish. Southeast Asian countries like Cambodia and Myanmar are already on the path to displacing China’s role as the go-to location for building things on the cheap. ANZ Bank economists have estimated that countries in the region are likely to seize the mantle of the “world’s factory” within 10 to 15 years.
China is becoming increasingly vulnerable to the very kinds of labor market displacement that it caused in some developed nations in 2001, after the country joined the World Trade Organization and integrated itself in the world economy. Just as the US manufacturing sector saw a significant uptick in unemployment after millions of US jobs migrated to China, Chinese workers could be undercut by workers in places like Sri Lanka, where hourly factory wages are just 50 cents.
China’s rise in the global arena is often taken for granted as inevitable, but this is another indicator that it cannot continue to rely on its industrial might in order to continue growing. It also has political consequences: The Communist Party is concerned that failing to steadily increase quality of life for large portions of the population will dramatically increase the likelihood of social unrest.