In China, The Nominal Wages Are Real

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Includes: CHN, CN, CNY, CXSE, CYB, FCA, FXCH, FXI, FXP, GCH, GXC, JFC, MCHI, PGJ, TDF, XPP, YANG, YAO, YINN, YXI
by: Scott Sumner

This is not fake news:

Average wages in China's manufacturing sector have soared above those in countries such as Brazil and Mexico and are fast catching up with Greece and Portugal after a decade of breakneck growth that has seen Chinese pay packets treble.

Across China's labour force as a whole, hourly incomes now exceed those in every major Latin American state apart from Chile, and are at around 70 per cent of the level in weaker eurozone countries, according to data from Euromonitor International, a research group.

And here's a graph of real wage growth (not PPP-adjusted):

Why is this important? Because year after year, we see China pundits predicting a crash. When it doesn't happen, some people claim the GDP numbers are "fake news". The problem with these arguments is that the Chinese wage numbers (showing real wages growing at 10.5% annually over the past 11 years) are consistent with the reported gains in GDP. So, the Chinese government would have to get its 1.4 billion people to participate in The Great GDP Cover-up, by getting them to also lie to reporters about their wage gains.

My wife recently mentioned that her mother was now paying 35 yuan/hour (i.e., $5/hour) to her maid - a sum that her mother found completely mindboggling. So what's the theory? Is my mother-in-law participating in the cover-up, lying to her daughter? Or maybe my wife is fabricating Chinese wage numbers to make her homeland look good. Perhaps I married someone in the Chinese propaganda ministry.

Hmmm... that would explain...

Seriously, it's time for people to face reality. China is not a bubble; it's a very successful developing country. The GDP data is real, even if it's nominal. China may well have a debt crisis at some point in the next decade or two, but like South Korea, it will recover and move into the high income category.

PS. If anything, the wage data suggests that the country may be understating its GDP growth, as China's reported GDP (PPP-adjusted) is still well below the levels of Mexico and Argentina.

PPS. When China's crash does occur, you can be 100% sure I will have failed to predict it. Just as I promise you I will fail to predict the next US recession. And the next stock market crash.