At ‘Lewis Turning Point’, China Eyes Pakistan As Labour Haven

Trade & Policy

At ‘Lewis Turning Point’, China Eyes Pakistan As Labour Haven

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 closed apparel-making units.

The China-Pakistan Economic Corridor (CPEC) has given Chinese investors a vast window of opportunity to view Pakistan as a top investment destination.

A shrinking labour force and rising wages are making many low-cost products unviable for production in China. 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 outstripped the growth in available workforce as the labour 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 labour-intensive industries elsewhere.

Chinese are in fact undergoing the same experience that the developed economies faced as their growth outpaced the supply of labour. The structural change from an excess of labour 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 labour reaches a financial zero.

When an economy reaches Lewis point, its neighbouring economies benefit from the spillover impact. The developed economy either relocates its unviable labour intensive industries across border or encourages its neighbour to take over the labour intensive manufacturing sector.

It's not that hard to figure that Chinese were indeed waiting for establishment of special economic zones and availability of power in Pakistan. 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.