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China's Increasing Standard of Living

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March 22, 2008 – Comments (4)

I am of the position that while long term China will probably have an increasing standard of living, or at least there will be a growing "middle class," short term China is going to go through a painful correction.  I also find it highly unlikely that the masses will see much in the way of an increase in standard of living simply because there are too many people there and not enough of the essential resources, like water.

Well, events in the news seem to be supporting my take on it, South Korea Quits China Over Rising Wages. In this piece you see that businesses have been taking losses, something like 20-30% of the 6000 South Korean business in China are losing money.  Their solution, just leave and not pay the workers pay that is owed to them.

The article says minimum wage is up 43% over 3 years.  I've seen double digit inflation figures so, 12% per year for three years compounds is 41%.  The increase to the standard of living is really quite small here.   At 10% inflation the 3 year cost of living increase would be 33%.  Workers making $107 per month aren't going to be forming any kind of middle class in the near future, and lots of them are now losing jobs due to these factories closing in the night.

This is going to put downward pressure on wages.  And, other businesses will rise prices to stay in business. 

And the economists are mystified when the increase in cost of imports exceed expectations...

China is already experiencing the pains of a correction... 

4 Comments – Post Your Own

#1) On March 22, 2008 at 9:52 PM, mgiv (97.53) wrote:

looks like a recipe for global depression is in the making.

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#2) On March 22, 2008 at 10:24 PM, abitare (45.58) wrote:

I am calling an end to the "BRIC story". The deleveraging is going to crush the BRIC run up.  I am out of picks, but I would gladly underperform most BRICs' leaders.  

I am looking at putting money in FXP

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#3) On March 22, 2008 at 11:08 PM, bubuzim (96.21) wrote:

We're seeing some factories moving back to Taiwan as well.  I think it's a blip of Chinese government-business relations, like Canadian oil tax policy.  The profitability of the 80% remaining middle class factory owners trumps these details.  Even at $100/mo, Chinese labor is still 8x cheaper than similarly-skilled labor in Taiwan, and it's much harder to find the same work ethics and ease of doing business in other SE Asian nations.

 

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#4) On March 23, 2008 at 12:36 AM, XMFYoda (98.56) wrote:

Yes, there will be some pain.  I hope not too much, for everyone’s sake.

Peter Day at the BBC just did a podcast on issues facing rural Chinese and the migration of people to make way for the Three Gorges Dam.  He touches on water issues in the countryside as well as unemployment issues in the city.  At the moment it’s on his podcast’s homepage, but in a few days you’ll probably have to click through to his previous programs to find it.

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