China has a wages problem. I know… it sounds odd because for the past decade Americans have watched companies flock to China simply for the cheap labor they’ve offered.
But this trend is coming to an end.
Since 2007, Chinese wages have increased about 12% per year. Take a look… (the bluish green, vertical bars show the average yearly wage in China):
That’s a pretty steep increase – and it has companies looking elsewhere for the next source of ultra-cheap labor. Clothing makers are looking more and more to places like Vietnam and Bangladesh as the “new,” cheaper China.
As a result, China has lost 6% a year of foreign investment into this industry. That hurts!
And it’s not just China’s clothing market that’s hurting. Foreign investment into China’s total manufacturing sector is waning.
In 2001, 66-cents of every dollar that went into China were targeted at manufacturing. A decade later that figure dropped to 47-cents on the dollar.
Most of the money foreign investors once funneled into China’s cheap manufacturing sector is now flowing into… you guessed it, real estate!
This just compounds the problem Harry talked about! Markets become quickly perverted thanks to central-planned, top-down economics. China is inflating a massive real estate bubble that is destined to pop.