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China's changing labor and wage picture an influence on economies worldwide

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China’s emergence as a labor/manufacturing powerhouse over the past three-plus decades has served to dampen wage rates worldwide, says Andrew Gottschalk, senior vice president of R.J. O’Brien & Associates and owner of HedgersEdge.com. When China began tentatively opening its doors to the world 35 years ago, after decades of self-imposed isolation, “It heralded the largest influx of labor into the world market in history,” he said at the annual Winter Commodity Conference of the Mississippi Farm Bureau Federation.

 

When China began tentatively opening its doors to the world 35 years ago, after decades of self-imposed isolation, it represented the start of a transition unlike any ever before seen, says Andrew Gottschalk.

“It heralded the largest influx of labor into the world market in history,” the senior vice president of R.J. O’Brien & Associates and owner of HedgersEdge.com said at the annual Winter Commodity Conference of the Mississippi Farm Bureau Federation.

China’s emergence as a labor/manufacturing powerhouse over the past three-plus decades — it has now surpassed Japan to become the world's second largest economy — has served to dampen wage rates worldwide, he says.

But, change is coming in China, and once again the world labor market will be affected — this time upward rather than downward.

However difficult it may be to comprehend, given our image of the country’s teeming population, “China is now facing a labor shortage,” says Gottschalk, who recently returned from another visit to that country. “As a consequence of their long-enforced one child per family policy, they are increasingly facing problems in obtaining the labor they need to keep their factories running.

“Last spring, China’s largest employer, with 800,000 workers, had to double wages overnight in order to quiet worker unrest. That action has mushroomed. Beijing recently increased the national minimum wage by 20 percent, the second increase during the year.

“China has now created an umbrella for wage rates to increase in every emerging and developing nation worldwide — again unlike anything we’ve ever seen.”

As wages increase in China and elsewhere, and diets and living standards improve, there will be new opportunities for sales of U.S. agricultural products, Gottschalk says.

“From 2000-2008, 42 million more Chinese moved up into the middle class. In the last 20 years, China’s major cities have become as modern as any in the world, with increasingly affluent populations.”

Rapidly changing diets are demanding more beef, pork, and poultry; at the same time, consumption of cooking oils is escalating. China’s recent opening of trade to U.S. beef represents “a huge step” for America’s producers.

“Their hog industry is bigger than the next 40 countries combined — a half-billion animals,” Gottschalk says, “but only a small percentage of that is commercialized. As more of it becomes commercialized, they will need more soybeans and corn. We can hardly ship them enough beans and meal now.”

While almost half of China’s manufacturing production is exported (Europe is the biggest buyer, the U.S. second), he says the government is trying to encourage more domestic consumption. “They can’t accomplish it overnight, but longer term that could be bullish for exports of U.S. and European products.”

U.S. agriculture should continue to look beyond its own borders for growth opportunities, Gottschalk says. “India’s growth rate could soon overtake China’s. There is a lot of growth and development in Asia, and in the future Africa will play an increasingly major role in agricultural trade.”

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