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Outside In | China’s rising wages policy has a logical end game

By 2025 the target is to have 78pc of urban households, 630m million, counted as middle class consumers. If Beijing achieves this, consumer spending will rise from US$10.7tr in 2011 to US$67tr

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Skiers at the Genting Resort, in Chongli, Zhangjiakou city, Hebei province. The sport is still considered elite, affordable by the few. But by 2025 the country’s target is to have 78pc of urban households – 630m million – counted as middle class consumers. If Beijing achieves this, consumer spending will rise from US$10.7tr in 2011 to US$67tr. Photo: Simon Song

As it has become fashionable to wring your hands over the challenges facing China’s economy, commentators have in recent weeks screeched siren calls over fast-rising labour costs.

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China’s manufacturers are about to hit a cost competitiveness wall, they say, as companies head to other, cheaper locations.

Foreign investment will wilt, they predict. Or robots will take over. Donald Trump will woo US manufacturers home to give jobs back to America, and “make America great again”.

Forgive me, but I don’t buy it. The first and clearest hint that China’s fast-rising wages are actually a good thing rather than bad is that wage increases are not the result of acute labour shortages, or bellicose union pressure.

No, they are a direct result of China’s 2004 Regulation on Minimum Wages, which set a Five-Year Plan target of lifting minimum wages by 13 per cent a year – and household incomes by 7 per cent.

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As minimum wages countrywide have more than doubled, this in turn has pushed up average real wages by over 10 per cent a year. An average worker in 2004 earned yuan 1,500 (US$190). By 2014 (the latest date for official figures) earnings averaged yuan 4,200.

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