1. WSJ Real Time – In the midst of gloom about China’s economic outlook, new labor market data provides an optimistic counterpoint — and a possible explanation for why a long-anticipated stimulus has been slow to arrive.
Data for 2011 shows private sector wages growing 18.3% year-over-year, up from 14.1% in 2010. Wages in the all-important manufacturing sector rose 20.1%.
That’s good news for two reasons. First, it shows China’s labor markets are tight, with strong demand for labor – a sign the economic engine is not sputtering out.
Second, 2011 was the first year in the short history of the data series that China’s private sector wage growth exceeded growth in nominal GDP. That means household income is growing faster than the economy as a whole, a crucial part of China’s rebalancing agenda.
The bad news is that higher wages dent the competitiveness of China’s exporters, and firms in low value-added sectors like textiles and tools are already suffering.
But China’s wages are starting from a low base, 4.2% of the level in the U.S. in 2008 according to the U.S. Bureau of Labor Statistics. That means rapid growth can run for a while before China’s low-wage status is eroded.
Numbers for 2011 in May 2012 is a little old. But there are signs that strength in China’s labor market has persisted into 2012. Data on the balance of labor market supply and demand published by China’s Ministry of Human Resources and Social Security showed a record shortage of workers in the first quarter.
Beijing is determined to keep curbs on property speculation that it imposed two years ago after 4 trillion yuan of fiscal stimulus injected in the wake of the 2008-09 global financial crisis sparked frenzied development.
It’s a lesson in how fixed asset spending can go wrong. The determination to avoid a repeat is so strong that growth is being sacrificed short term, with analysts citing property curbs as the main reason why 2012 is set to see China’s slowest economic growth since 1999 – albeit at 8.2 percent.
Productive, efficient assets like essential infrastructure and globally competitive factories are welcome. Building too much speculative capacity, particularly real estate, could backfire if they lead to bad debts and the recapitalisation of the banks left holding them.
Xi’an plans to increase fixed asset investments by 26 percent in 2012. Between 2005 and 2010, the value of such spending rose four-fold compared with the previous five years.
Wolfgang Weil, chief operating officer at Xi’an Xianyang International Airport, reckons his new 20 million passenger-capable terminal and second runway – able to accommodate the Airbus A380 superjumbo jet – is part of a virtuous cycle.
“I’m pretty sure in the case of Samsung, one factor helping their decision was that there is now a runway available at Xi’an airport without any limitation to aircraft type and payload,” he told Reuters a couple of weeks after the official opening.
Weil says sustainable passenger potential in Xi’an – home to 8.5 million people and the least developed, but fastest-growing city in China’s four main metropolitan deltas – appealed greatly to Germany’s Fraport, the airport’s joint venture partner.
Sustainable is a key word for those concerned that China’s intensive urbanisation is dangerously unbalanced development.
Shifting investment inland to where workers are cheaper allows China to squeeze another decade or two from a development model pushing its maximum potential on the coast.
The apparently unbalanced development is China’s greatest economic strength, according to Yukon Huang of the Carnegie Endowment for International Peace in Washington, who says the last major economy to develop in such a skewed way was the United States – the most powerful nation on Earth.
That means the key question for investors is how Beijing can manage the investment and political risks generated by another two decades of development spending, when China’s urban population is expected to swell to 66 percent by 2030 from 51 percent in 2011.
“China is large and disparate enough for industry to shift and take advantage of comparative advantages and cheaper labour elsewhere in the country,” said Eric Fishwick, head of economic research at brokerage CLSA.
“But China’s scale implies continuing friction as policymakers in developed nations have a wrong-headed view of what China’s rebalancing means.”
China’s rise depends on a conscious effort by Beijing to perfect an urban development model that eases rural poverty and cements power in the capital.
Intensive urbanisation is the only way Xi’an and dozens of similar cities can grow fast enough for the Communist Party to make good on pledges to raise incomes for the poor and achieve social stability, thereby justifying its grip on power.
During the 2005-2010 five-year plan, average annual urban income in Xi’an roughly doubled to 22,244 yuan. The plan is to double it again by 2015. But that still leaves wages way behind Shanghai’s 71,874 yuan average – China’s highest.