From SCDigest's On-Target e-Magazine
- Nov. 30, 2015 -
Supply Chain News: Now, Labor Shortage is Issue in China, as Global Manufacturing Trends Likely to See Major Shifts in Coming Years
Wage Inflation, Demographics a Key Issue for China, as Trend is to Move Production Closer to Demand
SCDigest Editorial Staff
China rose to become the world's second largest economy and top manufacturer on the back of tens of millions of workers willing to work for very low wages.
That model is changing - rapidly.
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Moody's Analytics predicts that these and related changes in market dynamics will cause the US trade deficit with China to start to diminish and turn positive by 2042. |
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"Over the coming decades, a labor shortage will force Western brands to remake their China operations or pack up and leave," the Wall Street Journal recently wrote in a major article on this changing dynamic. "The changes will mark a new chapter in the history of globalization, where automation is king, nearness to market is crucial and the lives of workers and consumers around the world are once again scrambled."
The change is driven by a number of factors. While Chinese factory wages remain low by Western standards, they have been rising rapidly in recent years, eroding China's competitive advantage against not only developed countries but also versus nations such as Vietnam, Cambodia, Bangladesh and Ethiopia, especially in the apparel sector, where moving operations is relatively easy, given its labor intensity.
According to recent data from The Boston Consulting Group, productivity-adjusted manufacturing wages in China are about $14.60 this year, or about two-thirds of the US average of $22.68. But that gap has been rapidly shrinking.
That is in large measure automation is coming even to the apparel sector. A supplier making jeans for Levi's in the Zhongshan area of China started using automated lasers are replacing dozens of workers who once rubbed Levi's blue jeans with sandpaper to create the worn look that has become popular with many consumers. Automated sewing machines have significantly reduced the number of seamstresses needed to stitch designs into back pockets. Digital printers make intricate patterns on jeans that workers used to create with a mesh screen.
Demographics as usual play a key role in the Chinese labor economics. The country's working age population (15-59 years old) peaked in about 2010, at an incredible 900 million people or so, and has since started to fall, with the United Nations estimating the working age population in China will decline to about 700,000 million by 2050, as it faces a rapidly aging population.
As others have said, China in fact may be the first country to grow old before it becomes rich. The share of the Chinese population older than 60 is forecast to double by 2050 from 2015, to 36.5%.
Although wage growth in China may ease this year because of an economic slowdown there, the upward pressure is almost certain to increase in coming decades as the number of workers plunges.
Indeed, just recently China largely reversed its decades-old "one child" policy that limited family size, now allowing parents to raise two offspring. But perhaps surprisingly, experts expect the new policy will have little impact on Chinese demographics, as the years of a one-child culture has led most couples to prefer just a single son or daughter.
(Global Supply Chain Article Continued Below)
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