Saturday, April 9, 2011

An inflated future

The Chinese province of Guangxi might be almost 9,000km from Frankfurt, home of the European Central Bank. But in today’s globalised economy, the two are much closer than they first appear. Two months ago Zhu Xinzhi, head of a lighting manufacturers’ association in the industrial city of Foshan in southern China, set off for Guangxi on a recruiting trip. Offering a monthly wage of Rmb1,600, he hoped to attract 500 workers; he got 10. Alternative opportunities, high inflation and a recent trend of rising wages made his jobs unattractive. “The workers felt the salary was relatively low and that it’s better to stay home and run their own small business or go to cities with higher pay,” he says. “The salary we offered has no advantage any more. It was a very unsatisfactory trip.” The reverberations from China’s rising wages, alongside rapid economic growth there and in fellow emerging economies, were felt in far-off Frankfurt this week. That Mr Zhu might have to pay more to recruit workers will raise the price of light bulbs imported into Germany from China. If the process is replicated in the prices of other Chinese goods, inflation in Germany and other European nations will be permanently higher, requiring action by the ECB.

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