China’s rising cost of labor has driven the country to start producing and exporting high end goods. China is evolving as a country and by doing such, their high-growth export industries are changing. The year-to-year growth rate of labor-intensive goods hovers at or just below 0%. On the other hand, high-value goods such as electrical machinery, cars and optical, photographic equipment has a growth rate of roughly 11%. A lot of the industry in the US deals with services and intellectual goods so will we see a shift to outsource these to China as well? It could very well be that the demand for higher-end goods has increased or maybe China has such a large global market share for labor-intensive goods that there isn’t room for growth. Regardless, it will definitely be interesting to see if this is sustainable growth or if it is merely a blip on the radar.
Source: WSJ
Rising labor costs will cause China to import more, not just export less (and to export differently). Furthermore, the “high value” goods you list are aimed more at the domestic than at global markets. As noted in class on Wednesday, net trade is not the source of growth during the past half-dozen years. What happens to exports isn’t trivial in impact, but it is not the key to what level of growth is “sustainable.”
The shift from cheap labor to high-end production is a good sign for China, as it’s moving toward more technology-intensive activities. This reminds me of the story of GM joint venture where China had no technology to begin with but opened the market to foreign companies who were willing to teach. Although China still has a long way to go in technology autonomy, higher exports in high-end products show it’s at least on the way.