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National Research University Higher School of EconomicsStudent ThesesIncreasing Labour Costs as a Threat to the Competitiveness of the Chinese Economy

Student
Title
Supervisor
Faculty
Educational Programme
Final Grade
Year of Graduation
Karina Novichixina
Increasing Labour Costs as a Threat to the Competitiveness of the Chinese Economy
Bachelor’s programme
2014
In China over the past few years the cost have been growing on the enterprises : prices of land and property were increasing , additional taxes and fees were imposed , and the most important factor- the wages have been rising recently too. Thus , now there are more and more talks about the end of the era of cheap Chinese goods . Previously, economic growth has been based on a large supply of cheap labor , but now there is a tendency to its scarcity. More expensive labor will have implications not only for China but also for the whole world. Rising labor costs increase end- product prices , and affect the export revenues (due to the reduction of its volume ) and profits of the corporations.The main aim of this work is to compare the observed trends in the economy with the possibilities of a new model of growth, which mainly consists in the transition from extensive to intensive growth model with an efficient allocation of resources and focus on the domestic market.In examining the features of the labor market in China , the analysis of current trends in labor costs and their impact on the stability of the country's economic growth, prospects of the competitiveness goods due to appreciating currency and the importance of administrative influence on economic processes can draw the following conclusions:1. Wage growth is a natural process for modern China , as market mechanisms play a greater role in the economy, and living standards are rising because of economic progress2 . Despite the obvious trend of rising wages , the end of the era of China's economic growth is not certain , as production structure is developing switching to more sophisticated and technological- advanced production. Increasing labor costs is not so noticeable in industries with high added value and improving production processes may mitigate the negative effects of rising costs. Export products are already starting to compete with Western goods , indicating that China is experiencing a gradual transition to a new rank in the global economy .3 . Despite the fact that other Asian countries have lower labor costs , China still has sufficient power in the face of migrants to maintain the low growth of labor costs .4 . Important criterion that will help to maintain the market share of Chinese goods is productivity growth . Wages grow faster than productivity, so it is necessary to improve performance through the introduction of new technologies, automation, retraining workers. It is important to develop scientific - research base as in enterprises and the economy as a whole, which will allow the industry to develop and improve product quality.5 . Consumer prices grow in the same direction as labor costs , but the size of the growth is much lower. This is explained by the indirect effect of wages on the total cost ,as the main item of expenditure in the industry is raw materials . Containment strengthening of the national currency also allows curb rising prices and wages and this process protects the economy against shocks.6. Chinese Government policy clearly reflects the ongoing processes in the economy in the form of five-year plans . The Government focuses on improving living standards and relying on the domestic market. Thus, fixed upward trend in wages , the Chinese economy is waiting for a large-scale transformation in the future.

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