Apparel Sourcing Intelligence - Worldwide

What happened to all those millions of workless Chinese?

We’ve raised this subject in The Source a few times.

The theory used to be that China had an infinite supply of workers, who’d toil round the clock for practically nothing. The theory never really stood up to examination: wages kept on being higher in Chiona than in Bangladesh, Cambodia or Vietnam – and no-one seriously argued there was a limitless supply of Cambodians.

We pointed out that this was becoming discredited in July, though we’d made similar points in 2006 and in 2004 and 2003. Many readers thought we were barmy at the time. Now, though, there’s a respectable academic argument about the issue. And general agreement China’s working age population will start shrinking from somewhere around 2015

But there’s disagreement. You can predict how many Chinese there’ll be in 2020 – but what we don’t know is how fast Chinese productivity will rise, and whether China will have more vacancies than workers. That’s the debate the Economist article referenced above summarises.

But few of us really care how many Chinese workers there’ll be in ten or twenty years’ time. What matters is that everyone DOES agree China’s moving towards a situation where it’s going to be short of workers in some places, rather than into a perpetual struggle to keep its people employed. It looks almost certain that the places most likely to be short of workers are the coastal provinces where clothes are made right now – and, however good China’s road system, factories several days’ drive from the nearest container port just aren’t that exciting for most clothing buyers.

China might well show a massive spurt in efficiency – indeed we’ve reported on evidence its productivity is already improving. But unless something very strange happens to the world economy, two things look very close to certain:

  • Chinese government policy is going to swing still further away from encouraging labour-intensive businesses (like making clothes), and might even start actively discouraging such businesses.
  • Chinese businesses are going to see wages grow faster than prices. They MAY succeed in getting the value of workers’ axctivity to grow still faster but Chinese workers will be able to negotiate for pay and conditions with far better authority than workers in most other Asian – or Africa, or Central American – countries. The key question won’t be how much workers are paid – but how productive they are