Salient to Investors:

Peter Orszag  at Citigroup writes:

A growing body of academic studies warns that economic growth in China might slow substantially in the decades to come. Past growth has been driven disproportionately by workers moving from farms to factories, but those economic gains are over – the Lewis turning point.

Xiaodong Zhu at the University of Toronto said agriculture accounted for 69 percent of total employment in China in 1978, while average labor productivity outside agriculture was 6 times as much as inside it. By 2007, agriculture accounted for only 26 percent of total employment. Since 1997, migration rates have averaged less than 5 percent a year versus 10 percent between 1985 and 1997. The average age of  the migrant workers has been rising, and quality falling, because most young workers have already left.

Hongbin Li, Lei Li, Binzhen Wu and Yanyan Xiong at Tsinghua University said the slowdown in migration has caused wage pressures in the coastal manufacturing regions – in 1978, the annual wage of the average Chinese urban worker was $1,004 in 2010 U.S. dollars, but $5,500 by 2010. China is already experiencing labor shortages.

Jane Golley and Xin Meng of the Australian National University say rising wages are not the result of a shortage of unskilled labor. They say China still has an abundance of workers who are underemployed with very low income in the rural sector, while China’s unique institutional and policy-induced barriers to migration have prevented many rural workers from migrating to cities.

The IMF says the Chinese economy will reach the Lewis turning point sometime between 2020 and 2025.

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