2005-07-29

The Economist: "a fundamental change in the equation, global labor force doubled"

The Economist, is arguably the mass media with the best brains and highest quality reports. Another great reports (and this) in this issue about China. Having read the story of Kim Philby, it makes me wonder whether MI5 has been subsidizing the Economist in hiring these big brains. What I mean is, how can a magazine keep these talent without overrunning its cost?

Among the observations:

  • "China, along with the other emerging giants, India, Brazil and the former Soviet Union, has effectively doubled the global labor force, hugely boosting the world's potential output and hence its future prosperity." -- note how this tie with this observation of "re-introducing labor to replace capex"
  • "China's growth rate is not exceptional compared with previous or current emerging economies in Asia, but China is having a more dramatic effect on the world economy because of two factors: not only does it have a huge, cheap workforce, but its economy is also unusually open to trade. As a result, China's development is not just a powerful driver of global growth; its impact on other economies is also far more pervasive (see article)."
  • "Trying to halt China's growth through protectionist measures, as many American congressmen would like to do, would be a disaster, for it would close off a powerful source of future global prosperity. "
  • "Americans like to slap the “made in China” label on their huge trade deficit. Yet not only is China's forecast current-account surplus of around $100 billion this year only a fraction of America's likely deficit of $800 billion, but, as chart 1 shows, most of the increase in America's trade deficit has come from outside China.
  • "The entry of China's vast army of cheap workers into the international system of production and trade has reduced the bargaining power of workers in developed economies...In America, the pace of growth in real wages has been unusually weak in recent years...this is America's weakest recovery for decades...In most developed countries, wages as a proportion of total national income are currently close to their lowest level for decades."
  • "China's emergence into the world economy has made labour relatively abundant and capital relatively scarce, and so the relative return to capital has risen."
It also said "Another oddity is that, while the prices of most goods are falling, house prices are soaring in many countries. Again, enter the dragon. Cheaper goods from China have made it easier for central banks to achieve their inflation goals without needing to push real interest rates sharply higher. This has encouraged a borrowing binge. The resulting excess liquidity has flowed into the prices of assets, such as homes, rather than into traditional inflation." I am not entirely convinced that the rise of house price is due to the interest rate alone. It probably has something to do with the Balasa-Samuelson effect, when non-tradable goods are bid up by general rise in wealth. In addition, urbanization and hence rise in demand may be the reason behind it. "Double global labor force" may mean "double global housing demand". Even though many of the migrant workers in China are housed in factory dorm bunker beds, they will move out in a few years, bidding up prices in Shenzhen, then Shanghai, Hong Kong. Soon they will find what the Hong Kong immigrants found in Vancouver in the 1980s.

1 comment:

kianna said...

hi,

i am a college student in macau, china. when i read newspaper today, i met a question. hope you can help me.

http://www.ftchinese.com/sc/story_english.jsp?id=001015421&loc=story

as data said, chinese trade surplus hits $27bn despite costlier imports this october.
i am confused that RMB has increse in value few months before, in my opinion, it should resuld in dropping in export and rising in import, which it was a tendency to be trade deficit.
but the fact is, accoding to today's news, china will continue to be trade sulplus.
why? is it because inflation these days serious in china?

do hope you can help me.
thanks for your patient.