The End of the China Price?
For the better part of the last decade, the notion of the “China price” has been central to understanding trends in global trade flows and the accumulation of a vast Chinese trade surplus. The “China price” flowed from the dramatically lower cost of producing labor intensive goods in the Middle Kingdom relative to the developed world thanks to the presumed limitless supply of heretofore farm-bound subsistence labor making its way to burgeoning coastal manufacturing centers in search of higher incomes and a better quality of life.
So what to make of the proliferation of stories in recent weeks, with the Honda Lock situation the highest profile, implying that the paradigm may again be shifting?
For one thing, it illustrates that market forces work even in places where markets are not entirely free. The limitless supply of labor is not so limitless after all as urban job growth has boomed, but at the same time, many migrants have found the rural to urban move not as appealing as expected. Thus, Chinese workers are discovering they have bargaining power and are using it to extract higher wages and better working conditions.
It is far too early for definitive conclusions, but it is a safe bet that the downward pressure on the prices of imported manufactured goods will be far less in the coming decade than in the past decade – an inexorable erosion of the China price.
06-18-2010 9:50 PM