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    June 3, 2010

    China's Dwindling Resource


    HONG KONG — A strike at Honda’s plant at Foshan in southern China. Suicides and labor unrest at the giant Foxconn factory not far away in Shenzhen. Everywhere in coastal southern China pressure is growing for wage rises and better working conditions, particularly from the young, mobile workers who have converged on the region in recent years.

    At one level this is just a demand for a fairer share of the China cake now mostly being eaten by enterprises, local and foreign, rather than by their workers. In almost no other country are employees’ shares of national income as low as it is in “socialist” China.

    But behind the surge of worker activism lies not ideology but some dull, fundamental data — demographics. This year the percentage of China’s population of working age people (15 to 64) peaks at 71.9 percent, the culmination of a steady rise over 30 years. Together with the birth bulge which preceded the introduction of the One Child policy in 1980 this increase drove workforce growth of 33 percent in 30 years and helped to fuel the export sweatshops of southern China.

    Another important marker is just five years away: The absolute size of the working age population will peak by 2015 and then decline gradually. In practice, the peak of available workers may have already arrived because more people stay in school longer and thus do not enter the workforce until much later than 15. The participation of women in the workforce, at 70 percent, is as high as it is likely to get.

    As important as the size of the workforce will be the change in its age composition. For almost two decades very rapid economic growth has been possible partly because of the mass migration of young people from rural areas to the towns driving urbanization and industrialization.

    But this spring of youth escaping rural drudgery is drying up. The Honda strikers, like the Foxconn suicides, are mostly in their 20s. There is an instinctive realization among them that there is a diminishing number of youths to follow their migrant footsteps. There are also now more work opportunities in the towns and small cities closer to their rural homes.

    For China as a whole there are currently only 106 million workers in the 15-19 age group compared with 122 million in the 20-24 group. China now has 378 million in their 40s and 50s but only 273 million under 20. The decline, which is continuing, in the number of the young and mobile has been greatest in rural areas. So China will have to find other ways of sustaining economic growth and gains in worker productivity.

    This is actually good news for almost everyone — except the control freaks of the Chinese Communist Party, and those who believe that investment is an end in itself, not a means to a better life. The more strikes, the more demands for higher wages, the more chance that China will see the shift toward a better balance between consumption and investment. The more chance too that investment itself will focus on raising labor productivity rather than on mega projects with scant economic return. Improvements in technical education and an innovative spirit in the private sector should keep productivity moving ahead.

    Big wage increases will also reduce China’s export competitiveness, eliminating a trade surplus that is positively damaging to the global economy as well as to China’s low-paid workforce. It is past time that personal incomes that have lagged for so long start to grow faster than national income. More money for households will also mean less for military aggrandizement and prestige projects — and maybe less to be laundered by corrupt officials through Macau’s gambling tables. More consumption will make for greater long term economic stability than today’s lop-sided focus on investment regardless of its rate of return.

    There will be challenges. One is what will happen to agriculture as rural populations get ever older. Will consolidation of land holdings, now that transfers of agricultural land are allowed, happen on a big enough scale to allow the rapid mechanization of farming? Or will rural de-population and water shortages threaten a food crisis?

    But that potential problem is further down the road. The harbingers of the coming demographic decade are the Foshan strikers.