The authorities want to avoid the impoverishment of low-income households from inflation, but employers fear labour costs are already too high. Meanwhile exports drop as direct foreign investments rise. For experts this trend could lead to speculation.

Beijing (AsiaNews/Agencies) – Guangdong is set to give factory workers large, regular wage increases in an attempt to combat high inflation and labour shortages. At the same time, exports are slowing down whilst direct foreign investments raise fears about speculation.

In Guangdong the Department of Labour and Social Security is planning to raise wages for all employees by 14 per cent a year between this year and 2012.

The authorities will also set a link between minimum wage and inflation to raise the base wage in the next five years. The move is meant to help low-income households cope with a consumer price index that rose 8 per cent in the first quarter of the year.

This initiative is meeting resistance from factory owners who have already been hit by price increases for raw materials, fuel, property and labour costs (wages rose by 9.4 per cent in Guangdong in 2006 alone). This has raised concerns that many factories might close and move to lower-wage regions.

Fears are also fuelled by the drop in the trade surplus which was “only” US$ 21.35 billion in June, 20 per cent lower than the same month last year (US$ 26.9 billion).

Meanwhile the yuan continues its rise against the US dollar, touching 6.8331 today, a gain of 6.9 per cent over the dollar this year.

Still China’s economy is sizzling hot, especially in terms for foreign investments which rose 45.6 per cent in the first half from a year earlier, taking in US$ 52.4 billion

There are concerns however that the inflow is largely speculative, with investors attracted by a strengthening yuan and interest rates at a decade high, with the possibility that this hot money might put the country at risk of “massive outflows” if expectations for currency gains reverse.

For Stephen Green, economist at Standard Chartered, China might thus turn into “some kind of massive black hole for the world’s liquidity,” attracting more and more capital.

• china
• economy
• wages
• foreign
• investments
• surplus
• exports
• trade
• inflation
• yuan
• currency
• speculation
• interests