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PeakTrader:

2011 Report: China manufacturing hourly labor rate, compensation costs impact EMS (Electronics manufacturing services)

“China’s manufacturing employment continued to grow from a total of 97.91 million at the end of 2007 to 99.01 million at year end 2008.

Though manufacturing workers in China are earning more than ever before, average hourly compensation costs were only $1.36 in 2008.

China’s hourly compensation costs remain far below those of many of its East Asian neighbors like Japan [$27.80] and Taiwan [$8.68], but are roughly on par with those of others like the Philippines [$1.68].

Even as China ascends as a major economic player in the global economy, its position in the international landscape of labor costs has not changed dramatically.

As measured in U.S. dollars, Chinese hourly labor compensation costs in manufacturing were roughly 4% of those in the United States and about 3% of those in the Euro Area in 2008.

As of the end of 2008, China’s employed population was reported to be 775 million, constituting 58% of the country’s total population. Of the population ages 15 to 64, 77% was employed, which is high from an international comparative perspective.

Meanwhile, youth population ages 0 to 14 has shrunk to an unusually small proportion of the population for a developing country.

Indeed, a key determinant of China’s paradoxically tightening labor market is low fertility.

China’s family planning and one-child policies have significantly reduced fertility and kept it low during most years since the 1970s and today manufacturing employers are reporting that they cannot get the rural migrant workers to return to urban units, and are having difficulty luring new employees as well.”

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That steep rise in China’s manufacturing output is not only the result of selling its goods too cheaply and lending its dollars too cheaply, generating virtuous cycles of consumption-investment for its trading partners, particularly the U.S., it’s also the result of huge demographic shifts in China.

China’s fertility rate declined from 5.9 in 1966 to 2.6 in 1980 and to 1.6 in 2010. So, China will have a huge retired population (past its prime) and a relatively tiny working population (in its prime).

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According to the following chart, China’s population growth will slow further and decline in the 2030s:

http://www.worldlifeexpectancy.com/country-health-profile/china

It’s interesting to compare China with Japan and the U.S.. (Japan peaked around 1990), although the accuracy of the data is uncertain.

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http://www.aei-ideas.org/2012/12/charts-of-the-day-world-manufacturing-output-2011/#comments

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PeakTrader:

Citizen B., I stated before: GDP = Consumption + Investment + Government + Net Exports.

If you take away China’s investments and net exports, you have consumption and government, and we know consumption is low and malinvestment is high.

China’s GDP is an illusion. The private sector is small (consumption fell from 45% to 36% of GDP in the past decade). Basically, China is a giant assembly plant.

What the Chinese do best is corruption, crony capitalism, misallocate resources, cause negative externalities, prevent creativity, create inefficiency, and export much of its GDP.

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Citizen B., there are still about 1 billion peasants, who make almost nothing.

And with its one-child policy, there will be a huge demographic imbalance.

Its standard of living will peak somewhere between India and Japan.

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Most people are completely wrong about so much economics.

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Here’s what James Fallows said about China:

James Fallows studied American history and literature at Harvard, where he was the editor of the daily newspaper, the Harvard Crimson. From 1970 to 1972 Fallows studied economics at Oxford University as a Rhodes scholar.

January/February 2008

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is. Economists will also point out that, despite the glitter of China’s big cities and the rise of its billionaire class, China’s people have been living far worse than they could. That’s what it means when a nation consumes only half of what it produces, as China does.

Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. The average cash income for workers in a big factory is about $160 per month. On the farm, it’s a small fraction of that. Most people in China feel they are moving up, but from a very low starting point.

This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.

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Vinnie, if you can compensate someone to produce that ton of steel or doll for almost nothing, you can sell it cheaply.

Working for free when social costs are included won’t really raise living standards for the masses.

That’s why China has become the world’s No. 1 manufacturer so quickly, because it sells its goods too cheaply.

China not only sells its goods too cheaply, it lends its dollars too cheaply. So, the buying goes on, while Chinese are employed.

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More illusions. Italy had thousands of more years to accumulate wealth than the U.S.. Yet, Italians live in smaller houses, drive smaller autos, or ride bicycles, have much fewer shopping malls, etc.

And the U.S. manufactures more value per worker than any other country, including through offshoring older products, e.g. to China, and shifting resources into more high-end manufacturing and emerging industries, where the U.S. not only leads the world, it leads the rest of the world combined (in both revenues and profits).

The U.S. offshores older goods, e.g. to China, imports them at lower prices and higher profits, and shifts the freed-up resources into services, high-end manufacturing, Information and Biotech firms, and infant industries.

The U.S. leads the world in all four major economic revolutions: Agricultural-Industrial-Information-Biotech.

The only way to move from one economic revolution to the next is through efficiency, because of limited resources.

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Lorenzo, India is graduating more engineers than the U.S.. Yet, most of them aren’t any good. It’s hard to imagine China will lead the world in innovation, given the U.S. and China’s track records. The U.S. has more successful (measured in both revenues and profits) Information Age and Biotech Revolution firms than the rest of the world combined.

Also, the U.S. has many allies, throughout the world.

Yes, the Chinese are optimistic and hard working. Unfortunately, for China, either the best or the wealthiest Chinese, or both, will likely flee the country in a political upheaval by the masses.

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http://www.aei-ideas.org/2012/12/chart-of-the-day-china-is-now-worlds-no-1-manufacturer/#comments

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PeakTrader:

MP says: “Fewer Than 10% of Indian MBA Graduates Are “Employable””

“Use fewer if you’re referring to people or things in the plural (e.g. houses, newspapers, dogs, students, children).

Use less when you’re referring to something that can’t be counted or doesn’t have a plural (e.g. money, air, time, music, rain).”

My comment: 10% is a fixed amount or singular.

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Thirty one-tenth units is plural. Ten percent of those thirty one-tenth units is singular.

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Ron: Wrongo. Would you say “one tenth is” or “1 in 10 is” or “100% is” or. “1/2 is”?

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PeakTrader:

Is what?

Less than one-tenth is a number.

Fewer than one in 10 are unemployed.

One-tenth is fixed. One in 10 can be counted.

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http://www.aei-ideas.org/2012/12/wednesday-afternoon-links-5/#comments

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