There is no China after China

Does it happen to you that a thought sometimes just appears, and then won’t go away? That happened to me when the phrase “there is no China after China” flashed across my mind.

I’d been thinking about how low-cost labour in China has driven much of what’s been happening in the global economy: massive imports of low-priced goods dampening inflation leads to central banks allowing an excess of liquidity, then to a global asset price bubble, and then (eventually) to the inevitable re-pricing and the exposure of a growing number of financial institutions as bankrupt.

What struck me wasn’t the long chain of consequences with a disruptive ending. (It’s just one example of the intertwined and unexpected nature of our global economy - which creates what we call The Age of Discontinuity.) What struck me was that a key idea that has been true for a long time probably won’t be true in future: “there is always somewhere with cheaper labour”. Not just slightly cheaper – but lots cheaper; enough cheaper to drive major shifts in economies, enough cheaper (and enough of it) that businesses have to respond. This has been true for the last 20 years or longer, if not about China then about some “somewhere”. It’s been true for so long, it’s probably an unexamined part of the mindset of many business executives and a key part of the strategy of a growing number of businesses.

But, the real cost of labour in China has started to go up and there’s reason to believe that we aren’t far from the point where China’s labour surplus is effectively used up. “So what?” one might say: there’s always somewhere else – Indonesia, Peru, Nepal, somewhere. But, around the globe, there’s no labour market nearly the size of China’s. While there might be enough additional low-cost labour for any one company, here are lots of companies where a key element of the strategy is lower cost – ever lower cost, lower than competitors’ costs – and a large part of expected future profits are predicated on having this lower cost. And it can’t be that they all will get the low cost labour they expect – there just won’t be enough at low enough cost.

I can’t know what the full implications in will be as we reach the end of new pools of low-cost labour joining the global economy. At one level, it will probably be a great thing; it should mean the end of the massive unemployment so pervasive in the developing world with huge benefits in terms of length and quality of life. But, for business leaders in the developed world, it means a need for a major rethink about competitive advantage and growth plans – a rethink that won’t get started without a recognition that “there is no China after China”.

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