Introduction 

Findings 

 1. How have we arrived at our estimates? 

 2. How much have labour costs increased in China? 

 3. Has growth in manufacturing labour costs peaked? 

 4. How do labour costs in China compare with other countries? 

China’s productivity challenge

Abstract

●Manufacturing labour compensation per hour rose by an average of 11.9% a year (in local-currency terms) in 2001-12, a pace we expect will be maintained in the period to 2020. Earnings expansion will be underpinned by productivity gains and shortages in the labour supply, which will give workers room to negotiate strong wage increases.

●Despite strong growth in manufacturing labour costs, China remains highly competitive in the international context. Manufacturing earnings per hour averaged US$2.1 in 2012, compared with US$35.7 in the US. We expect this gap to narrow, but Chinese labour costs will still be under 12% of those in the US in 2020.

●Internal disparities within China in manufacturing labour costs are narrowing, but still offer opportunities for fi rms looking to diversify capacity to cheaper locations. Provinces such as Jiangxi, Henan and Shandong stand out as attractive destinations for manufacturing, given their relatively low labour costs, large labour pools and developed infrastructure.

●Our data suggest that growth in manufacturing earnings has comfortably exceeded that in labour productivity in recent years, suggesting that China needs to transition more rapidly up the value chain. Price competitiveness alone will not be enough to maintain the country’s global manufacturing predominance; it will also need to demonstrate greater aptitude in innovation.