One of the questions around globalization is the issue of China's continued competitiveness in the face of rising labor rates as well as regional competitors.  The conventional wisdom is that China will lose its competitive edge due to increasing pressure on labor rates.

Turns out that hasn't come true, at least not yet.  A study recently released by the global bank RBS indicates that China continues to remain competitive.  Labor rates continue to rise, but other changes in China's economic environment are offsetting some of the cost pressures.

Here's an excerpt from a Wall Street Journal article:

RBS’s top China economist Li Cui writes in a research note published Wednesday that “evidence of China losing out is still absent.” Her view is that China has been remarkably adaptive to rising labor costs and a strengthening currency.

“One would have expected that labor intensive industries should have been hurt the most given their thin margins and relatively weak pricing power in the global market. However during this period China’s exports of light manufacturing products has risen to about one-third of the world markets (from 22% in 2005), dominating other regional competitors,” she writes.

Another website, The Edge (Malaysia), expands on the shift towards capital intensive exports which has the effect of reducing the impact of rising labor rates:

“But actual evidence of China losing competitiveness is still largely absent. In fact rising labour costs have gone hand-in-hand with China's rapid growth in global market share (from 7%% in 2005 to 11% in 2010).

“The rise in capital intensive exports has been a big part of the change. Machinery and transportation is now the largest category of exports, accounting for 53% of the total Chinese exports, up from 39% in 2001. In these sectors increases in labour costs have relatively minor effects,” said the report.

Due to the dynamic nature of globalization, no country can rest on its past accomplishments.  But given the ambition and talent of the Chinese people, it's unlikely that China will be out of the game any time soon.

Link to the Wall Street Journal article: China Isn't Losing Its Manufacturing Competitiveness After All

Link to The Edge (Malaysia) article: No Actual Evidence China Is Losing Its Competitiveness, Says RBS