What are we to make of the labour unrest in China? Do the strike against Honda's joint venture parts maker and the spate of suicides at Foxconn, the contract manufacturer, mark the end of the cheap labour era? Probably not. But China is changing.
Here, to underline this fact, is the opening of a recent story in China Daily: “The proportion of China's gross domestic product that goes toward wages has been shrinking for 22 consecutive years, a senior trade union official said on Wednesday.” The killer fact was that the share of wages and salaries in GDP dropped to a mere 37 per cent in 2005, from 57 per cent in 1983, and remained static since then. The story also reported the official's warning that “low pay, long working hours and poor working conditions for millions of workers are triggering conflicts and mass incidents, which pose a grave challenge to social stability”.
The remarkably low share of wages and salaries in GDP makes China the most “capitalist” large economy in history. Until this is reversed, the much-desired shift to a consumption-driven economy cannot occur. China's demand will continue to depend, instead, on soaring investment. But the resulting high capital intensity is also a reason for the declining share of wages in GDP. Equally significant is official discussion of the case for higher minimum wages. The strike at the Honda plant could hardly have happened without official acquiescence.