Are Chinese Companies Masking Wages As Investment?

One reason Chinese wages are low is that China is relatively poor. But China also stands out among middle income countries for having a huge investment share of GDP and relatively little household consumption. Why that is exactly is a little bit puzzling, but it’s become a commonplace to say that China needs to “rebalance”—i.e., raise actual people’s living standards and dedicate a smaller share of output to capital investment projects.

James Fallows’ photos from the Foxconn campus call some of the common interpretation of that fact into question. It’s clear from the images that in addition to its factories and dorms, Foxconn has built a fair number of structures that are basically designed for employee entertainment and well-being. This is hardly unknown in the United States, though it is mildly unusual. Your job can pay you a salary that you might spend on a gym membership, or they can build an exercise facility in the office. Either way, what’s basically happening is that you’re spending money to try to make people want to work for you. But one form of spending registers as business investment while the other is measured as employee compensation. If it happens to be the case that for some reason (taxes? loan availability?) major Chinese manufacturers are more inclined to respond to employee demands with in-kind services rather than money wages this could skew one’s perception of the statistics.