China’s race to the Lewis Turning Point

Published on Author Duncan
Obviously, the Lewis Turning Point reading has a lot of implications for China’s future development prospects, and it will be interesting to see how the government formulates policies in the context of a swiftly diminishing cheap-labor supply. Other than financial reforms and increasing TFP as the IMF article discussed, reforms made to the hukou system could also speed up the time frame for reaching the LTP.  The government has talked about hukou reform in the past but with minimal results. However, seeing how providing more social services, especially to rural areas has been a focus of the 18th NPC, could reform be another possible factor in shortening the time to LTP?

Alternatively, tightening migration restrictions (though likely unpopular; possibly causing social unrest) could stave off the LTP.

Here’s a recent news piece concerning hukou reform (pertinent info around 2:50:

3 Responses to China’s race to the Lewis Turning Point

  1. Very interesting stuff. What will also be fascinating is seeing how the country will or will not be able to transform their system. As the cheap labor supply diminishes, how does China funnel its resources and prospects to continue to exhibit growth?

  2. I would which country will transition into the “the worlds factory” as China’s labor becomes more expensive, maybe India?

  3. Reaching the “turning point” – if such exists (cf. the Dennis Yang article earlier in the term) – should be a good thing. Sure, rising wages will be a problem for some exporters. But won’t everyone else rejoice?

    Furthermore, if exporters are that central, then labor market adjustments will mute wage increases: fewer export-oriented manufacturer jobs would spill throughout the rest of the economy. I think however that’s an overstatement of the role of the export sector, and misses the gradual shift in demand towards domestic consumption.

    Restricting migration would hit urban wages even more, wouldn’t it? If robust demand is pulling up urban wages with migration, won’t wages rise even more without? Now better social insurance in the countryside raises real incomes there, and wil (in equilibrium) lead to compensating changes in urban areas. Again, isn’t that all to the good?

    As to “factory of the world”, why need there be a single dominant country? We’ll see some resurgance in the US, there will be additional change in Southeast and South Asia, and (hopefully, given even worse poverty there) in sub-Saharan Africa.