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As China’s wages rise, export prices could follow–this article makes a convincing case that Chinese export prices will probably rise in the near future.

The effect of higher wages is pretty clear, but I doubt the claim that domestic demand will increase much, especially for imports into China. Even with the higher wages here, workers are still much cheaper than in the west.

The salaries of factory workers in China are still low compared to those in the United States and Europe: the hourly wage in southern China is only about 75 cents an hour. But economists say wage increases here will eventually ripple through the global economy, driving up the prices of goods as diverse as T-shirts, sneakers, computer servers and smartphones.

Yeah, prices for Chinese exports will be driven up. likely leading to inflation pressures in the US and Europe.  The short-term effect on the Chinese economy is probably not so bad, as exporters will still find price advantages overseas. As more Chinese workers are attracted to work in the east coast factories, I believe Chinese products will maintain a price advantage compared to manufactured goods in the west.

But Chinese policy makers also favor higher wages because they could help ease a widening income gap between the rich and the poor.

Big manufacturers are moving to raise salaries because they are desperate to attract new workers at a time when many coastal factory cities are struggling with labor shortages.

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2 Comments

  1. In present-society,the prices of goods and services(e.g.apartments) are soaring.As a result labors have to face greater pressures.For example,13 workers in Foxconn(a Chinese company) committed suicide because of lasting onerous work.To improve their life quality,it is necessary for the government to increase labors’ wages. Besides,manufacturers also can attract more workers in this way.
    However, more wages should be paid,more costs of production should be considered. Thus,it doesn’t encourage export. But China own a big exporting market of manufactures, which cannot be deteriorated immediately.

  2. Do you mean that there is a J-curve tendency? Yeah.i think the same way. Chinese government decided to raise the wage for two reason i guess: concilliate the workers’ resentment about low living standard & stimulate the economy by lowering the unemployment.

    Clearly, higher wages bring low unemployment but high risk of inflation. However, for Chinese situation, workers are too cheap to consume even they have more wages. it seems like this policy will not have very obvious stimulative effect on Chinese economy. But at least, unemployment will be lower.

    On the other side, export will be decreased( this maybe delayed ) soon or late. But More imported stuff may cheer chinese consumer up.


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