This, at first glance seems strange, as China is renowned for being a low cost centre for manufacturers. Times change! Whilst China once had a massive comparative advantage in unit labour costs this has recently begun to be eroded as wages and other costs have risen.
This has led to a boom for Bangladeshi clothing manufacturers who are now exporting to China. Bangladesh enjoys even lower unit labour than China, which obviously means that it is cheaper to produce there then in China.
The response of the Chinese Government will be interesting. These exports are currently enjoying duty free access to China. Will Beijing allow that to continue if China starts exporting jobs as well as everything else and start protecting their domestic producers? Or, will they view it as an inevitable consequence of a move up the value chain?
That Chinese workers are no longer the low skilled/low wage employees of a few years ago, and therefore this is something to be embraced?
Will this boom last for Bangladesh? Their infra-structure could be described as creaky, at best. There is pressure on Western companies not buy from manufacturers that pay low, low wages and industrial conflict is on the rise as Bangladeshi workers push for better pay and conditions. Are ever lower costs the best way to build a sustainable comparative advantage, or are low pay low skill jobs better than the alternatives for the time being at least?
Questions:
What do you know about the concept of comparative advantage?
Does the UK have comparative advantage in any goods or services? (If so, how?)
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