Cost Competitiveness Comparisons and Convergence in China

We investigate trends in regional cost competitiveness in China's four regions (Coastal, Northeast, Interior and West) over the past thirty-five years. We find that the Coastal region lost its initial cost competitiveness as its higher relative labour productivity (RLP) was offset by rapidly rising relative nominal labour costs (RNLC) due to rising wages. The Northeastern region still has cost advantages in the traditional Manufacturing sector. The Interior and West regions improved their competitiveness in most industries due to low RNLCs. There is convergence of relative unit labour cost (RULC) in all industries before 1995, but only in Finance after 1995. However there is convergence in RLP in five industries in 1978–95 and 1995–2009, offering prospects for robust growth for China into the future.