China’s labour force is shrinking and the “migrant miracle” that powered its industrial rise is mostly exhausted, removing the factors that propelled the country’s meteoric development, according to leading economists.
The transformation will lead to slower growth, reduced investment and a loss of export competitiveness, they warn, increasing the urgency of implementing ambitious economic reforms aimed at finding new sources of expansion.
Today the Financial Times begins a series of articles on the end of the migrant miracle — the three decades of breakneck economic growth fuelled by the unprecedented migration of labour from the unproductive farm sector to work in factories and on construction sites.
Broad consensus has emerged that China has reached its “Lewis Turning Point” — the point at which the once-inexhaustible pool of surplus rural labour dries up and wages rise rapidly. Nobel-prize winning economist Arthur Lewis argued in the 1950s that a developing country with surplus agricultural labour could develop its industrial sector for years without wage inflation as it absorbed that surplus.
“Now we are at the so-called Lewis inflection point. I made this forecast in 2006, and today there is no need to change it,” said Ha Jiming, chief investment strategist for private wealth management at Goldman Sachs in Hong Kong and formerly chief economist at China International Capital Corp, the country's first Sino-foreign joint venture investment bank.
“The working-age share of China’s population peaks this year at 72 per cent, then it will start to fall rapidly, even more rapidly than what we saw in Japan in the 1990s,” he added.
Cai Fang, director of the Institute of Population and Labour Economics at the Chinese Academy of Social Sciences, a think-tank that advises the government, estimates that China’s potential gross domestic product growth decreased from 9.8 per cent in 1995-2009 to 7.2 per cent in 2011-15 and 6.1 per cent from 2016-20.
A shrinking labour force is one of the main drivers. Since Deng Xiaoping launched market reforms in 1978, 278m migrant workers from rural villages have moved to work in the cities.
But reallocating labour from farm to factory — resulting in higher overall growth as workers’ productivity soars — is now mostly complete.
“From 2005 to 2010, the growth rate of migrant workers was 4 per cent. Last year it was only 1.3 per cent. Maybe this year it will contract,” said Mr Cai.
China faces the more difficult task of raising productivity within the urban sector through improved capital allocation, technology and management acumen.
The second trend is an ageing population and the effects of the one-child policy, which has started to influence the number of young workers entering the labour force. As in developed countries such as Germany and Japan, the ranks of the elderly are rising. Ma Jiantang, director of China’s National Bureau of Statistics, said the population aged 15 to 60 peaked in 2011.
“The excess rural surplus labour is nearly exhausted — China is reaching its Lewis Turning Point,” the World Bank said last year.
Economists debate the precise date of the turning point based on inconsistent data and contrasting theoretical models. Some say that due to varying regional labour market conditions, it is more precise to speak of a “turning period” rather than a single point. But the basic measure is not in doubt.
“The fact that we have now passed the Lewis Turning Point is 100 per cent,” said Ross Garnaut, an economist at Australian National University and co-editor of a collection of papers on China.
Additional reporting by Ma Nan
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