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Feeling the PRD pulse Special Report: Shop Talk – China, ASEAN and robotics Our respondents see diverse productivity growth. Wage increases can be justified and, more importantly, absorbed by productivity growth. In the absence of reliable official numbers, we gauge labour productivity growth by asking our respondents whether their per-worker output has increased more than wages (Figure 6). 62% of respondents agreed with this statement, down from 67% last year. A material and growing minority said productivity growth lagged wage growth. This reflects the companies’ varying abilities in boosting productivity to absorb rising wage costs (see ‘Asian manufacturers – A deep dive’ for more details). On average, however, productivity growth remains adequate to limit the spillover of wage costs to prices of final goods. An ageing workforce is a small short-term blessing and a big longterm challenge A shrinking labour force poses long-term challenges China’s labour shortage persists because of shrinking supply rather than strong demand. The working-age population has been declining since 2012 and is likely to keep falling in the coming decades, even with the recent relaxation of the one-child policy (Figure 7). Various socioeconomic factors remain disincentives to having multiple children, including the soaring financial and opportunity costs of raising children, women’s growing role in the workforce and changing social expectations. While having less excess supply of labour helps during a downturn, longer-term challenges stemming from an ageing population loom. First, having fewer workers Figure 5: Workforce utilisation level % of respondents, this and previous surveys Figure 6: Has per-worker output risen more than wages? % of respondents, this and past surveys 100% 90% 80% Yes, a lot Yes, a bit 2016 2015 2014 70% 60% 2016 2015 2014 No 0% 10% 20% 30% 40% Source: Standard Chartered Research 0% 10% 20% 30% 40% 50% 60% Source: Standard Chartered Research Figure 7: Following Japan’s demographic footsteps Working-age population (aged 15-64), mn persons 1,200 UN projection 1,000 China 800 600 400 Japan (RHS) 200 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Source: UN, Standard Chartered Research 250 200 150 100 50 0 Figure 8: Old-age dependency has a long way to climb Population aged 0-14 and 65+ per 100 population 15-64, ratio 100 90 80 70 60 50 40 30 Source: UN, Standard Chartered Research Total dependency ratio Old-age dependency ratio 20 Child 10 dependency ratio 0 1950 1965 1980 1995 2010 2025 2040 2055 2070 2085 2100 19 July 2016 10
2015 Feeling the PRD pulse Special Report: Shop Talk – China, ASEAN and robotics means lower long-term growth potential. Second, the economy needs to adapt to a new paradigm, one that requires less unskilled labour but can provide enough skilled jobs for the rising educated middle class. This adds urgency for China to pursue an industrial upgrade to skill-based high-end manufacturing, as well as the transition to modern services. Third, the social security burden (pensions, health care) that Beijing needs to bear will increase along with the old-age dependency ratio (Figure 8). This comes at a time when China is already taking on an inordinate amount of public debt from the private sector. No let-up in pressure on margins, orders and funding costs Corporates are pessimistic on the 2016 growth outlook for both China and their partner countries The persistent margin squeeze and more Wages on average account for more than 20% of our respondents’ total cost base (Figure 10). A greater proportion of our respondents see a higher wage component than in 2015. With wages still rising as the economy slows, margins are bound to drop. Respondents expect margins to fall by an average 6.1% this year, from a drop of 0.4% last year. On a same-company basis, only 19% of respondents expect the change in margins to improve this year, while 22% expect margin changes to be worse than in 2015 (Figure 9). On the demand side, respondents expect orders to decline 7.6% on average in the next six months (Figure 11). 58% of respondents see weaker orders in the next six months, while 21% expect an improvement. This matches the widespread pessimism among respondents on the 2016 outlook for China and key overseas markets (Figures 13 Figure 9: Margin change, 2015 actual vs 2016 estimate % of respondents; blue shading indicates those expecting better margin changes this year than last year Down 30% Down 20% Down 10% 2016 No change Up 10% Up 20% Up 30% Down 30% 5.2% 0.7% 0.0% 1.0% 0.0% 0.7% 0.3% Down 20% 0.3% 5.9% 4.2% 1.4% 1.0% 0.3% 0.0% Down 10% 0.3% 5.6% 24.4% 4.2% 2.1% 0.7% 0.0% No change 0.0% 0.3% 6.6% 15.0% 2.1% 0.0% 0.0% Up 10% 0.0% 1.0% 2.1% 4.5% 6.3% 0.7% 0.0% Up 20% 0.0% 0.0% 0.0% 0.3% 1.0% 1.0% 0.0% Up 30% 0.0% 0.0% 0.0% 0.0% 0.3% 0.0% 0.0% Source: Standard Chartered Research Figure 10: What share of your total costs are wages? % of respondents, this and previous survey Figure 11: How do you see orders in the next six months? % of respondents >50% 40-50% 1% 13% 11% 2016 2015 +30% +20% +10% No change 20-30% 45% 43% -10% -20% 10-20% 29% 33% -30% -40% 0-10% 12% 12% Others 0% 10% 20% 30% 40% Source: Standard Chartered Research Source: Standard Chartered Research 19 July 2016 11
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Page 3 and 4: Overview Special Report: Shop Talk
Page 5 and 6: 2015 2015 Infographics Special Repo
Page 7 and 8: Feeling the PRD pulse Kelvin Lau +8
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Page 13 and 14: Feeling the PRD pulse Special Repor
Page 21 and 22: A deep dive Special Report: Shop Ta
Page 23 and 24: 2015 2015 2015 2015 A deep dive Spe
Page 25 and 26: A deep dive Special Report: Shop Ta
Page 27 and 28: ASEAN - The next PRD? Chidu Narayan
Page 29 and 30: ASEAN - The next PRD? Special Repor
Page 37 and 38: 2010 2030 2050 2010 2030 2050 2010
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