Asia Pacic Economic Outlook—April 2013 3
but they don’t want to uel infation and they don’twant to oster conditions or credit crises in theuture. They want inbound investment, but theydon’t want more upward pressure on the currency.They will have to make dicult choices.
Slowdown in consumer spending
One major eort o the new government o PresidentXi Jinxing is to ght corruption, which President Xi haspublicly warned could undermine support or the Partyand government. Specically, Xi has cracked down onthe massive amount spent on entertaining ocials,advocating that ocial banquets should consist o “ourdishes and a soup” and should not include extremelypricey Chinese liquors. The government’s ociallypublished retail sales numbers, especially sales at high-priced restaurants, describe a tapering o, consistentwith the goal o the campaign. The decline in luxuryspending across the board is consistent with severaltrends and drivers in the economy evident or severalquarters, including high levels o debt and liquidity issuesin many local governments, that have led to similar eventssuch as auctioning o city-owned luxury vehicles.
Boost to trade
China’s trade data or March was good enough to sparka global rally in equities. China reported that, in March,imports were up a surprisingly large 14.1 percent overthe previous year. This suggests strong domestic demandand bodes well or the strength o exports in countriesthat trade with China—which is just about everyone.In addition, the government reported that exportsincreased 10 percent, more than the market expected.The end result was a modest trade decit or China.
A report rom the Asian Development Bank (ADB) saysthat rising wages in China threaten the competitivenesso the country’s exports. The report noted that infation-adjusted wages have more than tripled in the last decade.I productivity does not keep pace with rising wages, thenthe country loses competitiveness. Already the rise inwages is leading to a shit o low-wage manuacturing outo China and into lower-wage countries such as Vietnam.The ADB report says that Chinese labor productivity hasgrown, but remains roughly 10 percent that o the UnitedStates. It also says that the sharp rise in wages has beenlargely due to changing demographics, leading to adecline in the size o the labor orce. Indeed the numbero 15- to 39-year-olds has declined rom 557 million veyears ago to 525 million today. This decline is expectedto continue. The ADB also says that China’s system oresidence permits, known as the
system, hasexacerbated wage gains by restricting internal migration.The ADB urges that China do more to boost productivityand allow greater fexibility in the labor market.Increases in productivity will require more investmentin human capital, more investment in inormationtechnology, and more ecient use o labor. The latterrequires a more competitive business environment.
China’s trade data or March was good enoughto spark a global rally in equities. Chinareported that, in March, imports were up asurprisingly large 14.1 percent over theprevious year.