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Justin Yifu Lin:Continent holds answer to wage conundrum


Only Africa is capable of taking over a huge amount of manufacturing from China

With China's rapid economic development and its rising wages, a lot of labor-intensive processing enterprises are finding it difficult to survive. Many are seeing a way out in transferring factories to regions with lower pay.

Given these circumstances, it is transferring some of them from China to Africa obviously benefits everyone.

The per capita wage of China's blue-collar workers has risen to some $400-$500 a month, but even those historically high wages are still inadequate to attract sufficient workers to meet the needs of many employers.

It is expected that by 2020, the year China has set as its target to become a high-income country, the average wage for workers will reach a minimum of $1,000-$1,500. Many domestic labor-intensive enterprises would find it very difficult to pay such wages. To tackle the challenge, such labor-intensive enterprises can either improve research and development to boost their brand, shift to capital-intensive industries with a higher added value, or transfer manufacturing to lower-wage regions.

Any mention of such a transfer to lower-wage regions will undoubtedly cause some to think of the country's less-developed central and western regions. However, the space for such industrial transfers has become very limited.

A large portion of China's surplus labor force already has moved to economically developed eastern regions, leaving very few surplus laborers in central and western regions. China's highly developed transportation network has made it much easier for people to move around the country, and has helped considerably in narrowing wage differences between its developed and undeveloped regions.

The gap stands at only about 30 percent among its eastern, central and western regions. The rise in wages in China's eastern coastal areas in recent years has led to similar wage growth in other parts of the country, which has squeezed the space that otherwise might allow for the transfer of labor-intensive industries to less-developed provinces.

Southeast Asia seems a good destination for China's industrial transfers because of its proximity and close historical and language links with China. However, the small populations of Southeast Asian countries means any large-scale transfer there of labor-intensive industries would fuel a fast rise in local wages, even faster than that seen in China in recent years.

This has been demonstrated in Vietnam, where the per capita wage of workers was only a quarter of China's in 2009. The gap, however, has narrowed to a half and in some cases even two-thirds of China's wage. A rapid increase means that Southeast Asian nations are unsuitable for China's vast labor-intensive sector.

Africa remains the best destination for China to transfer its labor-intensive processing enterprises. It also may be the world's last stop for this type of industrial transfer. The African continent's population has surpassed 1 billion, and 80 percent of workers are surplus labor forces in rural areas.

Wages in many African countries are only one-tenth of those in China, making those nations the only place in the world that can absorb a huge industrial transfer from China.

In China, the slow rise in wages in processing and manufacturing sectors during the two decades after implementation of China's reform and opening-up policy has won for the country a large space for economic development and takeoff.

The condition of Africa's infrastructure, its business environment and its governments' efficiency lag far behind present-day China, but they look better if compared with China in the early 1980s.

Learning from China's development experience will help African countries boost their own development.

For example, provincial or city governments in China often seek to boost economic development by having the heads of government personally make efforts to invite outside investment.

Chinese officials often offer incentives to non-local investment, such as building a special industrial park where developed infrastructure and one-stop service procedures can improve working efficiency, providing preferential industrial policies and setting up simplified customs procedures.

For African countries, emulating China and developing labor-intensive industries can create a lot of jobs and expand exports, which will help extricate the continent from protracted poverty.

For China, failure to find an answer to the difficulties of its vast labor-intensive industries will mean increasing worries about the jobs of the large army of workers employed by this industry. Transferring factories abroad and moving some intermediate products and key machinery to overseas regions also offers room for industrial upgrades in China.

The success after just a few years in Ethiopia achieved by Huajian Group, a manufacturer of shoes that has its headquarters in Dongguan, southern Guangdong province, is a good example of the bright prospects of China's manufacturing sector in Africa. Established in 2011, the group's Ethiopian branch now has 3,500 employees and has become the African nation's largest export enterprise. Huajian's experience indicates that a company in Africa that is well managed and can produce credible products will grow quickly.

Fierce competition for international market share is likely to develop between China's labor-intensive enterprises and similar outfits from other countries that are making an effort to establish themselves in Africa to make use of cheap local labor. In view of this, Chinese enterprises should learn from Huajian's experience and boldly look to the vast African continent for further development.

The author is a member of the Standing Committee of the Chinese People's Political Consultative Conference's National Committee and honorary dean of the National School of Development, Peking University.

(China Daily Africa Weekly 10/17/2014 )