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Reason Foundation

Is China Faltering?

Samuel Staley
May 28, 2011, 8:16am

Could China be faltering?

Chris Kuehl, chief economist for the Fabricators & Manufacturers Association, recently noted that the rapid growth of China's manufacturing base has come with costs. Moreover, Chinese productivity is still lower than the U.S. and productivity continues to improve rapidly here. According to comments reported in ThomasNet News (May 18, 2011), Kuehl sees China struggling to keep productivity up and wages low enough to compete. (See also the article here.) According to Kuehl,

“The Chinese built quickly on a base of low wage workers and significant government assistance as well as a very low valued currency that has allowed the growth of the export economy,” he says. “The future is not looking so positive for the Chinese, however. Wages are growing at 17 percent annually, while in the U.S. they are growing at 3 percent.
“That is just for the average worker’s wage,” he stresses. “If one looks at the managerial levels and among skilled workers, the rate of Chinese wage growth is about 135 percent per year; in the U.S. that same group is seeing wage growth of 3.7 percent. The Chinese pay scale is still far less than in the U.S., but that gap is closing very fast.”
Kuehl admits China has made great strides in terms of productivity – an improvement of 10 times in the last 20 years. Yet, he claims, this still leaves China at a third of the productivity the U.S. boasts, and the U.S. is seeing productivity gains of almost 8 percent per year these days.

China's transportation infrastructure is almost all outwardly oriented to facilitate an export economy. Transportation systems designed to grow the domestic economy are much weaker. (Based on our direct experience in China, we would concur.) 


Samuel Staley is Research Fellow


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