At ‘Lewis turning point’, China eyes Pakistan as labour haven

LAHORE: Chinese are making serious forays into Pakistan’s textile sector. It’s evident from the fact that their negotiations with the country’s largest business group to put together a large composite textile unit are in the final stages, while others are reportedly opting to lease the closed apparel-making units.

It goes without saying the China-Pakistan Economic Corridor (CPEC) has given Chinese investors a vast window of opportunity to view Pakistan as a top investment destination. 

The critics that think that China is merely interested in the transport side of the corridor are not aware of the desperation of the Chinese, who are dying to continue to serve the global markets they have been for decades.

In fact shrinking labor and hiking wages are making many low-cost products unviable for production in China. This is not an isolated phenomenon as industrial economies like United Kingdom and Japan have also suffered from the labour crisis in the past. Now China is bearing the brunt of its too fast industrial growth.

For a considerable time China continued to barrel ahead with its industrial growth without increasing the real wages; however, times have changed now as the growth in industrial sector out-stripped the growth in available workforce as the labor spared from agriculture is no more available. 

The labor shortages naturally resulted in increase in wages. 

The Chinese are better planners and they realised they would have to go for valued-added production to keep their export base intact. At the same time they also don’t want to lose the market for low-value-added products. So they upgraded their industries and started relocating their low-value and labor-intensive industries elsewhere.

Chinese are in fact undergoing the same experience that the developed economies faced as their growth outpaced the supply of labor. 

The structural change from an excess of labor to shortage is termed the ‘Lewis turning point.’

Named after economist W Arthur Lewis, ‘Lewis turning point’ is a term used in economic development to describe a point at which surplus rural labor reaches a financial zero. 

When an economy reaches Lewis points, its neighboring economies benefit from the spillover impact.

The developed economy either relocates its unviable labor intensive industries across border or encourages its neighbor to take over the labor intensive manufacturing sector. We in Pakistan started economic reforms in 90’s while China had launched them in the late seventies. 

It’s not that hard to figure that Chinese were indeed waiting for establishment of Special Economic Zones and availability of power. 

These two issues have been resolved to the satisfaction of Chinese. 

One can now expect sustained Chinese investment in Pakistan. On the other hand experts are also upbeat that Chinese work ethic will bring about positive changes for the local workers, entrepreneurs, and investors alike.