Amid plummeting trade growth, Chinese productivity trends are macro bearish

In recent months, we have seen a precipitous drop in Chinese trade growth. This comes from both the export and the import side.

What's happening?

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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