Does China Export Cheap Shoes To HOLD?

Recently, Swiss Bank economist Anderson said that China's development model has come to a turning point, and the cheapest jobs have been gradually lost from China. Other Asian countries are expanding their market share in Europe and America.

Can China's cheap shoes and clothing exports continue?

In recent years, the cost of labor in China's footwear manufacturing industry is climbing steadily.

In November 2010, the research data provided by Tao Dong, the managing director of Credit Suisse, showed that the wages of migrant workers rose by nearly 30%-40% in 2010. In the next 3 years, the annual wage increase of migrant workers will reach 30%, and the minimum growth rate will remain above 20%.

Despite the rising labor force prices, labor shortage is still widespread.

"Labor shortage" first appeared in 2004, and 8 years later, "labor shortage" is becoming more and more serious. It is likely to change from "seasonal shortage" to "perennial famine".

According to media reports, early this year, Shanghai, Guangdong and Zhejiang all had "labor shortage".

In Shanghai, Minhang, Yangpu, Fengxian and other areas, many processing enterprises start up less than half of the production line.

In addition, the "labor shortage" of the manufacturing industry in the southeast coastal areas has appeared many years ago. Now, with the relocation of some manufacturing industries, "labor shortage" has spread from the coastal areas to the traditional labor exporting provinces in the Midwest, and there has been a phenomenon of fighting for migrant workers in the Midwest and the East.

At present, China's exports are mostly "three low" products with low technology content, low unit price and low added value.

In the context of rising raw materials and rising labor costs, this part of cheap manufacturing begins to shift from coastal to inland and low labor costs.

Cheap export manufacturing is also very prominent in areas such as Southeast Asia where labour is cheap.

For example, in 2010, Vietnam surpassed China and became the largest foundry base for Nike shoes.

According to the annual report data of Nike, in 2001, China produced 40% of its shoes, ranking first in all countries, while Vietnam accounted for only 13% of the total. In 2005, China's share dropped to 36%, Vietnam rose to 26%, and second; in 2009, China and Vietnam tied for the first place, all were 36%; in 2010, 37%, and China was second, accounting for 34%.

Cheap export mode at the expense of labor rights and environment

In fact, even though China is cheap.

According to research by economist He Fan, the average labor force of the United States is about 18 dollars per hour, and the minimum wage is close to 6 dollars per hour.

Workers in western Germany earn an average of 27.87 euros per hour, while the eastern region is 17.37 euros.

The average wage of Mexico's labor force has also reached 4 dollars per hour, while the wages of migrant workers in China's manufacturing industry are mostly not even 1 dollars per hour.

He fan's research shows that, in terms of average wages, the hourly wage of Chinese labor force is only 60%-80% of India labor hour wages in such industries as footwear and clothing manufacturing.

Despite the rapid development of China's export enterprises, in the final analysis, a large number of enterprises rely on low wage, high energy consumption and high pollution mode can not last long.

The trade surplus has become the source of domestic inflation.

What is more serious is that the cheap trade mode that encourages exports for a long time has become an important reason for the current inflation.

Yi Gang, vice president of the people's Bank of China and director of the State Administration of foreign exchange, said that the pressure on RMB appreciation was too great after the favorable balance of trade. In order to maintain the relative stability of the RMB exchange rate, the central bank had to buy back the US dollar and forced the basic currency.

Yi Gang believes that a large trade surplus is the source of inflation. More currencies push inflation up, and prices rise.

Data show that since 2003, China's foreign exchange reserves have increased by more than about one hundred billion per year, followed by about two hundred billion to about four hundred billion annual scale.

In 2008, facing the global economic crisis, China's foreign exchange reserves continued to increase by US $450 billion.

By the end of 2010, China's foreign exchange reserves totaled US $2 trillion and 850 billion.

Economist Hu Zuliu has said that the current fixed exchange rate system in China has made the central bank forced to purchase foreign exchange, passively issuing notes, and the massive fiscal and monetary stimulus since 2009, which is an important reason for the severe inflation today.

According to statistics, by the end of 2010, the Central Bank of China had thrown nearly 20 trillion yuan to hedge the huge foreign exchange reserves of 2 trillion and 850 billion dollars.

Industrial upgrading is difficult to achieve in the short term, and cheap export mode is difficult to sustain.

With the increase of minimum wage level and the turning point of China's population, the rise of labor costs and the reduction of supply will become a long-term trend.

Under such circumstances, it is an inevitable choice for foreign trade foundry enterprises to rely on cheap labor force for industrial upgrading and innovation. However, most enterprises are often complacent and unable to take the initiative to change.

Therefore, despite the slogan of the government calling for industrial upgrading and pformation for many years, the pformation faces many difficulties.

Mei Xin Yu, an Associate Research Fellow of the international trade and Economic Cooperation Research Institute of the Ministry of Commerce, has said that some of the development trends of processing trade today seem to fix China in the low end of the international division of labor chain and unable to extricate itself from it.

It has been expected that the economic crisis in 2008 could be forced to "make in China" to "create in China", leaving the quagmire of low-end processing trade. But in order to protect exports, the state implemented a series of encouraging policies such as raising export rebates and so on.

Because of cheap export for a long time, enterprises are not concentrating on R & D, technological innovation and product upgrading, but are keen on price war, and are caught in a fierce homogenization competition.

Economic growth is mainly driven by investment and the proportion of exports is low.

In recent years, the excessive dependence of China's GDP growth on investment also fully demonstrates that the cheap manufacturing industry is difficult to sustain.

According to statistics, in 2007, before the outbreak of the global financial crisis, China's exports accounted for 35% of the GDP.

Since then, with the pressure of growth and 4 trillion investment, the driving force of China's rapid economic growth has come mainly from large investments in infrastructure and rapid expansion of credit.

In 2009, investment accounted for 48% of gross domestic product (GDP), and investment accounted for 54.8% of GDP in 2010.

{page_break}

The gradual increase in investment ratio shows that the cheap manufacturing industry has been unable to achieve the goal of growth and employment protection.

However, whether it is investment oriented or foreign trade oriented, the domestic shortage of domestic demand is hard to solve.

The expansion of investment intensifies administrative monopoly and national retreat, which in turn will further aggravate domestic consumption. A market with insufficient domestic demand will hardly provide strong support for the pformation and upgrading of cheap exports.

It is true that China's cheap export mode and the so-called cost advantage are at the expense of labor rights and environment, but also bring domestic inflation. Today, with the increase of labor costs and labor shortage, this cheap export mode has been difficult to continue, but there are many restrictions to achieve industrial upgrading.