Advantage of upgrading

Even though its demographic dividend is coming to an end, China should not undervalue its manufacturing

Recent statistics published by the National Bureau of Statistics indicate that China's working-age population decreased by 3.45 million during 2012. This was the first decline in decades, and it has caused widespread concern that the country's demographic dividend is coming to an end.

The end of the country's decades-long demographic dividend will undoubtedly have enormous repercussions for China's manufacturing sector, whose incredible achievements can be largely attributed to the huge cost advantages it has gained from low-paid labor.

However, given that the demographic advantage has never been the only driving force for the country's economic growth, the declining demographic advantage does not inevitably mean the end of China's incredible manufacturing growth. China can take the ending of the demographic dividend as a new opportunity to promote industrial upgrading, such as changing the sector's deep-rooted GDP-prioritized growth model, easing its structural contradictions and raising the added value of its products.

Given China's manufacturers are highly concentrated in the eastern regions, blindly increasing manufacturing inputs in these saturated areas will cause labor costs to rise and increase the pressures on smaller enterprises to an unbearable level, leading to a growing number of bankruptcies. So China should accelerate the transfer of its manufacturing from the coastal to inland regions.

The less-developed central and western regions still have a huge demand for manufacturing and their abundant supply of labor has created favorable conditions for a westward industrial shift. The latest data from the National Bureau of Statistics indicated that in 2011, 57.3 percent of China's 158.63 million migrant workers came from its central and western regions. The sixth National Census conducted in 2010 indicated that China's population growth is 0.678 percent in its western regions, much higher than the 0.468 percent in eastern regions. The higher population growth rate in the western areas means they can accommodate expanded manufacturing activities.

These, together with their lower consumption level, land prices and wages, mean China's western regions still offer manufacturers cost advantages, so relocating some east-coast manufacturing to these regions will help ease the labor shortages occurring in the eastern regions and increase the domestic demand for consumer goods.

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