Wage increases in China

Comments on Cai Fang and Wang Meiyan “Chinese wages and the turning point in the Chinese economy”, 29/01/2011, http://www.eastasiaforum.org/2011/01/29/chinese-wages-and-the-turning-point-in-the-chinese-economy/

There are a few points needing some clarification.

The second reason given for worrying less about wage increases is moving westward of labour intensive industries inside China, because labour costs are lower there presumably. But earlier on in the post it was said that wages rises in the western regions are faster. It requires a bit reconciliation between the two arguments.

The third reason is that wage rises will create more domestic demand that would sustain production. That obviously has some truth, but also may confuse the change in the comparative advantages between China and other countries. The newly created demand may choose to buy cheaper imports as opposed domestic products.

Further, the figures in the post suggest that the wages for the bottom income class of migrant workers increased very rapidly over a period that may indicate a reduction in income inequality. This seems to be inconsistent with what many people are saying that income inequality has been rising in China. Which is correct?