In recent months, we have seen a precipitous drop in Chinese trade growth. This comes from both the export and the import side.
A large part of it is wages. As I indicated two years ago, China has already sucked a large portion of the labour out of its countryside villages. And that has buoyed wage growth. Research by Chinese economists on the Lewis Turning Point indicated that the resultant coastal city labour shortage could spell inflation and trade deficits for China. But the increase in wages could have a beneficial effect if it led to higher domestic demand growth as China moved more production inward and moved to more capital and less labour intensive manufacturing. I wrote then that:
The corollaries of this increase in wages and lower productivit...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.