Chinese Online Class - Side effects of long-term economic trend

?  ?

Opinion / Liang Hongfu

Side effects of long-term economic trend

By Hong Liang (China Daily)
Updated: 2007-08-21 07:16

China's monthly inflation rate shot to over 5 percent in July, causing
much concern about toughening government action to combat further price
rises.

Other than the rising prices of foodstuff, the higher-than-expected July
inflation rate was attributed to the increased costs of a wide range of
services, showing that free market forces were at work.

For that reason, some economists have reasoned that the latest available
inflation data was a reflection of overdue market reaction to the
significant increase in the average wage of the many millions of migrant
workers in the past three years.

As such, there is no compelling reason for the government to take drastic
action because the driving force behind this demand-pull inflation does
not seem to derive from a bubble economy showing signs of unsustainable
growth. But rather, it is the side effects of a long-term economic trend
as the nation embarks on a new phase of development.

Migrant workers' wages, which had lagged way behind economic growth in
the past few decades, are now just beginning to catch up. The wage rise
is widely expected to gather momentum in coming years as more and more
migrant workers are moving to the high-value-added services sector, which
is growing at a much faster rate, especially in major cities, than the
manufacturing sector.

Official statistics show that in the eight years to 2002, the average
cash wage for migrant workers employed in the low-end manufacturing
sector rose at an average rate of about 3 percent to 4 percent a year
from about 450 yuan ($60) a month to 659 yuan. By 2004, the average wage
went up to over 780 yuan a month and has been rising at an estimated 12
percent to 15 percent a year since.

More important, perhaps, is that a growing proportion of migrant workers
have moved up to the higher income bracket. Latest available data shows
that the proportion of migrant workers earning more than 800 yuan a month
had exceeded 50 percent by 2005, compared to 37 percent in 2004 and 28
percent in 2003.

The price/wage cycle seems even more apparent in the rural districts.
Rural incomes on average have increased in tandem with the aggregate 30
percent increase in farm produce over the past four years. Higher produce
prices are expected to continue to push up rural incomes, which, in turn,
will fuel further price increases.

The increase in rural incomes is having a direct impact on migrant
workers' wages because employers must pay more to attract laborers from
the rural districts to work in the cities.

It seems reasonable to assume that the rising cost of migrant workers,
who have contributed so much to the nation's economic miracle, is an
integral part of a long-term structural change, driven by the rapid
development of the services sector. To be sure, the manufacturing
industry will remain for a long time the main engine for economic growth.
But economic prosperity, filtering down to the wider segments of the
society, is creating a strong demand for better and more services. Such a
demand, which draws its strength from rapid economic growth, will add to
the momentum of structural change.

The impact of this change is yet to be fully understood. But as Jonathan
Anderson, economist at UBS Securities, said of rising migrant workers'
wages: "The future bodes a better livelihood for China's rural migrant
labor, and this trend plays a key role in our findings on inflation,
industrial strategy and macroeconomic rebalancing and growth."

E-mail: jamesleung@chinadaily.com.cn

(China Daily 08/21/2007 page10)

Hot Talks

* Should Beida recruit more recommended students?
* Nude women and Peking Opera: pornography or art?
* War in Iraq lost?
* Costa Rica cut ties with Taiwan: Who's next?
* Will China follow USA "way of life"?

Most Commented/Read Stories in 48 Hours

Learn Chinese, Learning Chinese, Learning Materials, Mandarin audio lessons, Chinese writing lessons, Chinese vocabulary lists, About chinese characters, News in Chinese, Go to China, Travel to China, Study in China, Teach in China, Dictionaries, Learn Chinese Painting, Your name in Chinese, Chinese calligraphy, Chinese songs, Chinese proverbs, Chinese poetry, Chinese tattoo, Beijing 2008 Olympics, Mandarin Phrasebook, Chinese editor, Pinyin editor, China Travel, Travel to Beijing, Travel to Tibet