China migrant miracle nears end as cheap labor dwindles

May 05, 2015 09:04
China's migrant labor force, which has propelled the country's rapid economic growth, is now mostly exhausted, economists say. Photo: Bloomberg

China's migrant labor force, the once seemingly inexhaustible pool of workers from the vast countryside that propelled the country's rapid economic growth, is now mostly exhausted.

And this development will lead to slower growth, reduced investment and a loss of export competitiveness, the Financial Times said, citing the views of leading economists.

As such, it has become urgent for the central government to implement its ambitious economic reforms aimed at finding new engines of growth, the newspaper said.

China has reached its “Lewis Turning Point”, according to the economists, when surplus labor from the farm sector dries up and wages rise rapidly.

The term refers to the views of Nobel laureate in economics William Arthur Lewis, who in the 1950s argued that a developing country with an oversupply of agricultural workers could absorb that surplus to develop its industrial sector for years without wage inflation.

Ha Jiming, chief investment strategist for private wealth management at Goldman Sachs in Hong Kong, believes that China has reached that inflection point.

“The working-age share of China’s population peaks this year at 72 percent, then it will start to fall rapidly, even more rapidly than what we saw in Japan in the 1990s,” he said.

Cai Fang, director of the Institute of Population and Labour Economics at the Chinese Academy of Social Sciences, said China’s potential gross domestic product growth declined from 9.8 percent in 1995-2009 to 7.2 percent in 2011-15, and will fall further to 6.1 per cent in 2016-20.

A shrinking labor force is one of the main reasons for this decline. 

Since Deng Xiaoping launched market reforms in 1978, 278 million migrant workers from the country's rural and interior villages have moved to work in the cities.

“From 2005 to 2010, the growth rate of migrant workers was 4 percent. Last year it was only 1.3 percent. Maybe this year it will contract,” Cai was quoted as saying.

Given this situation, China has to raise productivity in the urban sector through improved capital allocation, technology and management acumen, FT said.

Another factor that is seen having a deep impact on China's economy is its ageing population and the effects of the one-child policy, which has started to influence the number of young workers entering the labour force.

The country's elderly population is rising. Ma Jiantang, head of China’s National Bureau of Statistics, said the population aged 15 to 60 peaked in 2011.

“The excess rural surplus labor is nearly exhausted — China is reaching its Lewis Turning Point,” the World Bank said last year.

“The fact that we have now passed the Lewis Turning Point is 100 percent,” the newspaper quoted Ross Garnaut, an economist at Australian National University, as saying.

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