What Will Determine China's Future Competitiveness?

A recent article in the South China Morning Post is the latest to question China’s “competitiveness” through labor and, by extension, the RMB’s consistent appreciation against the US dollar.  As many have argued, competitiveness is measured by labor productivity and, more specifically, the size of China’s future workforce as measured by a recent peak in the number of high school graduates.

Those who have followed China’s growth story know that throughout the 1980s and 90s, and even into the 2000s, much of that productivity is explained by massive urbanization combined with technology. The simple example is a family farm worker who moves to Shenzhen to work on assembling iPhones in a state-of-the-art factory. Her productivity per hour rises dramatically.  When magnified by a few hundred million workers it explains a lot about China’s rise (see below).

But not everything.  Urbanization has limits as does the amount of people of working age.  Both limits are being tested today.  However what is not mentioned is that only 23 per cent of China’s current high school graduates go on to college.  Clearly that is a dramatic improvement from a decade ago (8 per cent) but China still remains less than half of the OECD average for college bound students, and far less than many Asian peers, as I noted in a previous post

A continuing rise in China’s educational attainment and its direct impact on productivity is emerging as a more critical factor than exchange rates and working age population growth.  Will China’s education policies, capacity and quality keep pace?

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