Rising Chinese Wages Highlight Case For RMB Revaluation

Given the pace with which the Chinese economy has been growing, it should come as no surprise that Chinese workers are now seeing substantial wage increases while the multinationals who’ve learned to love cheap Chinese labor are fretting about its demise.

It also serves to highlight the fact that the PRC has ample reasons of self-interest to give in to American demands and stop undervaluing its currency. The idea of using currency manipulation to give your producers a cost advantage can work, but as a strategy, it has a natural time limit. Artificially low Chinese currency has created artificially high demand for Chinese-made goods which has created artificially high demand for Chinese manufacturing labor which is creating pressure for wages and eroding China’s cost advantage. At the end of the day, they wind up in the same place they would have been with a floating currency — higher wages and reduced cost advantage—but a boatload of extra geopolitical animosity.