How China Added Another 1.4 Billion Low-Cost, Offshore Workers to its Production Capacity
Op/Ed by Chris Devonshire-Ellis
China’s Belt and Road Initiative (BRI) now covers 147 countries and territories, with projects and investment loans going out to nearly all of them. There is much debate and controversy about the BRI, not least with accusations that China is loading up smaller nations with debt (although why China would wish to do this is never explained) and is militaristic in design (although how China’s navy could effectively seize sea ports in Asia also remains unexplained). Consequently, my opinion is that China has instead come up with a scheme that allows it to secure much needed future supply chains via the three following criteria:
- Possession of the world’s largest foreign exchange reserves valued at over US$3 trillion. (By comparison, the US is 22nd.)
- Affordable loans – China can afford to borrow money at very low rates. Via the BRI, it has been passing these rates on, together with a small mark up, to nations with poor credit ratings and who otherwise would not be able to afford development cost interest repayments.
- Exploiting the infrastructure build. China (and most recipient BRI nations) understand that the infrastructure build itself, rather than the cost, will secure future fiscal growth in trade and wealth creation.
This will, and is, creating additional development opportunities, and especially as infrastructure build reaches conclusion in many countries affiliated to the BRI. Those with completed projects will start to see this infrastructure being utilized, facilitating the development of new trade routes and new market opportunities. These may be city to city, or city to port, or cross-border, or a combination of each; there are thousands of such projects underway on a global basis. These will soon start to kick in and new trade corridors will emerge.
While much of the actual BRI infrastructure overseas build has been conducted by using exported Chinese labor, there are interesting developments ahead for China’s SOEs that will start to use that infrastructure build and new trade corridors to service China’s increasingly affluent consumer class. As I pointed out in the article China’s Overseas Free Trade Zones and Industrial Parks, the country’s leading companies have actively been involved in setting up an increasingly expansionist network of manufacturing, processing, and assembly units that will manufacture both for the local markets they operate in but also for China, and markets China has access too. A map of these parks can be seen below.
Many more such parks throughout Asia, Africa, Europe, the Middle East, and South America are in the pipeline. The number of overseas, Chinese-owned industrial parks can be expected to eventually reach into the thousands within the next decade.
So, we have Chinese businesses investing in overseas industrial parks, the Chinese government investing political and trade time into negotiating free trade and double tax treaties. But there is a problem: where is the labor pool coming from?
A domestic problem for Beijing is that China is becoming increasingly expensive. This is especially true for Chinese labor costs, where minimum wage levels continue to grow. We explored this subject earlier in January this year, in the article China Minimum Wage Levels in 2020, which covers 98 different cities and regions in China and the minimum wage levels applicable in each. Although “minimum wage” in China is something of a misnomer, because employers have to contribute additional, mandatory expenses that typically add another 50 percent overhead on top, the minimum wage level does give an important benchmark on national differences. It also gives a China mean average: in 2020, the average minimum salary level in China is RMB 1,518, or US$216 per month. However, China is also increasing its wage levels – in 2019, by 3.6 percent above the base inflation rate, one of the fastest rates of salary increases in the world.
- China Set to Cash in on New African Free Trade Agreement
- 52 Out Of 68 Belt and Road National Economies Improved in 2019
China Briefing is written by professionals from Dezan Shira & Associates. The firm has a near 30-year history in China, and possesses 12 mainland offices employing several hundred staff, assisting foreign investors into the country. We also provide strategic advisory and intelligence along the Belt and Road Initiative. Interested parties may email us at firstname.lastname@example.org or visit us at www.dezshira.com.