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19 Jan 2012

Labour shortage hints in China

Source : The Sunday Morning Herald - Australia

When we speak of China as the world's factory, this idea conjures up for many an image of rows of sweatshops manned by an endless supply of ex-Chinese farmers who churn out everything that a modern consumer could need. 

Along similar lines, it's common to hear China declared, rightly, to be the most populous country on the earth, 1.3 billion or so, and counting. 

With such thoughts in mind, here's one idea that might jolt some accepted wisdom: China may one day run out of labour. In fact, it's already happening. 

The proportion of China's working age population has declined as a share of the total for the first time since 2002 by 0.1 per cent, from 74.5 per cent to 74.4 per cent, according to annual figures released by the National Bureau of Statistics this week. Admittedly, it's a small shift, but nevertheless a notable one. 

Observers view the figures as signalling the beginning of the end of an era when China's leaders can rely on an abundant supply of cheap labour to drive the country's economic growth. In the parlance of economists, China's "demographic dividends" are drying up. 

Together with this week's news that there are more Chinese city-dwellers than rural ones for the first time ever, the outline of a fundamental shift in the country from an agrarian economy to an industrial economy can be seen, says Professor Wang Feng of Tsinghua-Brookings Public Policy Centre in Beijing. This fundamental change poses a host of challenges for Chinese policy makers, from urban infrastructure to the provision of social security for retirees. And China's controversial one-child policy for urban families will exacerbate these demographic strains. 

Farewell red capitalists? 

When times are tough, people tend to long for leaders. Unfortunately, able statesmen are in short supply, from Washington to Brussels. 

Given China's sterling economic performance amid the global gloom, one might think Chinese leaders would be dodge the harsh criticism being meted out by their counterparts in the US and Europe. Think again. 

If fact, there is a strong chorus of reformers from the media, the academia and the business in China calling for deeper and grander reforms of the Chinese economy. The respected financial magazine Caijing recently ran a cover story in memory of Deng Xiaoping - the architect of the Chinese miracle. 

It lauded Deng's audacity to persist with reforms in face of strong political opposition from his own Communist party ranks in the aftermath of 1989 students democracy movement. 

The magazine was in a subtle way saying to the current incumbent leaders and their successors that they need to lift up their game and implement urgently needed economic, political and social reforms. 

The biggest hurdle to further reform in China comes from so-called red capitalists with vested interests in maintaining the status quo, and the gigantic state-owned enterprises with market monopoly power. And then there's the powerful party officials with wide and unchecked power to intervene in the economy and hence the opportunity for rent-seeking and corruption.  

Silver lining to World Bank warning  

Amid the World Bank's dire warning on the health of the global economy, there is a silver lining to the darkening cloud. 

No prizes where that lining might be: it seems that China is getting used to play the role of knight in shining armour (or the Chinese martial equivalent.) 

World Bank chief economist Justin Yifu Lin told a recent press conference in Beijing that China will grow 8.4 per cent and 8.3 per cent for this year and the year after, respectively. 

China's armoury? Chinese government has a debt-to-GDP ratio that euro zone members would kill for: 25 per cent for the central government debt and 45 per cent if we include local government debts as well. 

Beijing, in other words, can repeat its 2 trillion yuan splurge of 2008-9 - and then some - should the local economy turn sour.

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