China's migrant workers

300m Chinese work outside their province in China.

http://www.ft.com/cms/s/2/767495a0-e99b-11e4-b863-00144feab7de.html#ixzz3ZJZQav8v

The National Bureau of Statistics estimates the number of people working outside their hometowns for at least six months was 278m last year. If they were a country, China’s migrant population would be the world’s fourth largest.

China’s growth in gross domestic product is forecast to slow to 6.1 per cent from 2016-2020, from 9.8 per cent in 1995-2009, according to estimates by Cai Fang, vice-president of the Chinese Academy of Social Sciences, which advises the government. A shrinking labour force is the main factor.

Development economist Arthur Lewis laid out the turning point theory in 1954 to explain how wages stay low in agricultural economies that undergo rapid industrialisation. Since then, the idea has been commonly applied to the “Asian tigers” such as Japan, South Korea and Taiwan.

When industrialisation begins, Lewis explained, the reallocation of labour from farms, where productivity is low, to the urban industrial sector fuels rapid growth. 

But the fruits of this development flow disproportionately to business owners because the deep pool of excess rural labour ensures wages stay low.

This dynamic explains the extraordinarily high rates of savings and investment that are hallmarks of China’s economy. Knowing they can easily find fresh workers, factory owners and property developers boldly expand their operations. Rising profits fuel further investment, creating a positive feedback loop. Cheap labour and high savings produce trade surpluses, big foreign exchange reserves and a rising currency. Asset bubbles can also develop, as China has seen in its real estate market.

Eventually, however, the rural wages begin to converge with the industrial sector. At that point, labour shortages appear and urban employers must offer higher wages to lure workers from the countryside. Corporate profits, export competitiveness and asset prices fall.

Wages grew from 1000 Rmb to 3000 Rmb per mth over 10 yrs