Chinas rise: A race to the top or bottom and the impact on the world’s players
Chinas open reform period is characterized as one without a blueprint but by ‘groping for stones to cross the river’, based on an incremental, gradualist approach to reformation. China is still a developing country, with pockets of industrialized regions. While China relishes in the fruits of its labour, there is an increasing disparity between the urban and rural areas due to this disequilibrium of development. China’s presence on the world stage has drastically increased and has left many researchers perplexed about the consequences of its rise. There exists a plethora of studies, debating whether Chinas current path is one that is headed to the top, or whether China is at the precipice of its development with looming declines in the near future, plagued by weak institutional reforms. While there are many features that characterize Chinas direction, this paper will primarily analyze Chinas wages and regional disparities and how this as impacted the world.
The Effects of Chinas Wage Increases
Chinas cheap labour has been a prominent economic advantage since opening its market. However, according to government published data, average annual real wages have tripled from 1997 to 2007 from 3,285 to 24,932 Yuan. The Institute of Population and Labour Economics at the Chinese Academy of Social Science (CASS), reported that the rural surplus labour is decreasing to a level that continued industrialization cannot be supported cheaply (Cai, 2007). Additionally there has been increasing reports about China losing its appeal as a manufacturing base for exports (Yang, Chen, Monarch, 2010). Chinas US foreign direct investments (FDI) have been decreasing and unstable and from January to June 2011, US investment in China has decreased 22.32 percent to $1.68 billion. Contrastingly, FDI for Asian countries has increased, Hong Kong, Macao, Taiwan, Japan, the Philippines, Thailand, Malaysia, Singapore, Indonesia and South Korea, surged 23.88 percent to $52.53 billion (Yang, Chen, Monarch, 2010). While there has been increasing reports suggesting that wage increases has led to decrease in FDI this trend may be more illustrative of an increasing interest and access in high technological and service sectors, areas in which China does not have a comparative advantage yet (Yang, Chen, Monarch 2010). Outward FDI to Asian countries other than China is not an automatic indicator of China “losing out” as different regions are accessed for industries that may be complementary to China as in the case of India. Compared to its neighbouring countries,
Figure 1 Source: (Yang, Chen, Monarch 2010)
Chinas manufacturing wages are still very low as seen in Figure 1. Therefore while increased earnings has surged manufacturing wages in the latter part of the 1990s Chinas wages are still below Malaysia, Thailand and the other Asian Tigers. However China holds a significant...