What are some of the issues associated with rising wages in China?

What will be an ideal response?

Answer: In recent years, the Chinese central government has been substantially raising minimum wage rates, creating pressure throughout the wage structure. Minimum wage rates increased an average of 24 percent across the country's 31 provinces, and the government is planning an annual increase in minimum wages through 2015. Average monthly income for migrant workers increased 13 percent (approximately $257).

Chinese policy makers are supportive of increased wages for the following reason. In recent history, the growth in the Chinese economy was based in large part on its trade surplus. A trade surplus occurs when the value of goods and services being shipped for sale outside the country, in this case, China, exceeds the value of goods and services shipped from other countries to China. Encouraging higher wages promotes domestic consumption, that is, the purchase and use of goods and services within its national borders. Increased domestic consumption will decrease the country's reliance on exports to sustain growth. Reduced reliance on exports is particularly necessary as labor costs within China increase rapidly. As China's labor costs rise, so would the cost of its exports, making the country less competitive in the global economy.

Labor shortages have also contributed to wage increases in China. These shortages are due, in part, to the rapidly aging Chinese population after 30 years of its one-child policy. The Chinese government implemented the policy to curb population growth in large cities.

Economic growth is creating the need for new jobs; however, the one-child policy has slowed population growth, vastly reducing the number of young workforce entrants. As a result, this policy has inadvertently contributed to an aging population. The largest segment of the Chinese population is currently in the 35-44 age range.