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Last Updated:[21-06-2010 05:23:20 EDT] Zoom in Zoom out Back to Tradenews

Lewis Turning Point of Chinese Economy May Improve Quality

tradenews The recent strikes at Honda and other factories in China for pay hike have to be construed as the fallout of the dearth in obtaining 'qualified' workers and the rapidly changing mores of the Chinese workforce. Guangdong, Jiangsu, Zhejiang, Shandong provinces and other provinces of China are facing severe shortage of qualified workers.

This development has given rise to the market forces to flex its muscles in pushing up wages, and eventually eating up the profit margins. In addition, the narrowing of gap on the outlay of wages with other competing markets has also reflected up on the product prices, which have become higher as compared to other markets.

Surprisingly, though the total labour force of China is about 800mn, very few workers have the required qualifications. It should be recalled, C.P. Lee, Asia-Pacific human resources chief at Motorola Inc. had observed “The skills base does not meet the demands of a rapidly growing (Chinese) market.”

In a rising wages scenario, the Chinese Companies cannot survive in the global market without providing cheap products to its clients, which was the core competency of most Chinese manufacturers hitherto. With that, majority of the Chinese firms will be compelled to shift from the earlier strategy of producing cheap products to quality ones as the market for the cheap products may not exist in future. The absence of cheap goods market will leave the Chinese companies with only one option of leveraging through tapping the available ‘quality’ over a quantity product market.

Hence, to grab new buyers whom seek quality products, the manufacturing companies while dishing out higher wages will also be forced to retain or recruit competent labour force to produce superior quality products. The higher wages which trigger job losses will equip the existing companies the liberty to choose the best from the competitive labour market to cater to the new quality-preferred clientele.

Incidentally, it goes without saying cheap labour often adversely affects the efficiency of the workforce, and the China growth story is an example to that premise. China’s strategy to garner market share was always been associated with manufacturing more quantity while often blowing to the wind the standards of quality.

So as former chief Asia economist at Citigroup Inc., Huang Yiping’s contention, China may be heading for the so-called Lewis turning point, but the silver lining would be that the country would also be in the process of becoming a “quality global factory”. Huang was referring to the economic theory by the late Nobel Prize-winning economist W. Arthur Lewis where manufacturing competitiveness and the pace of growth begin to turn down as labour costs rise.

By Jose Roy

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