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Rising China wage may relocate factories to Bangladesh: Citi

Star Business Desk
Rising wage pressures in China could prompt a relocation of labour-intensive activities toward lower cost economies such as Bangladesh, Indonesia and Vietnam, says Citi, a leading global financial services company.
The company in its 'Asia Macro and Strategy Outlook' also forecasts Bangladesh growth, inflation and current account balance.
Bangladesh grew by 5.7 percent last fiscal year (2008-09), according to the Citi outlook, released on June 25. For the current fiscal year, the country's GDP (gross domestic product) growth has been forecast at 6.1 percent and for the next year 6.7 percent.
Inflation was around 7 percent last year, while the rate will be 6.5 percent this year and 6 percent next fiscal year, says Citi.
On Asia, the outlook says capacity utilisation is tightening, and credit and liquidity conditions will remain suffi-
ciently accommodative to fund investments.
"Structurally, there is also room for investment shares to GDP in Asean to recover after plummeting post-Asian financial crisis."
Intra-Asia investments should also rise, with China expected to become a bigger source of capital to the region, as it attempts to tap into investment opportunities in infrastructure, production base and consumer markets around the region, Citi says.
"Most Asian countries retain the fiscal capacity to boost public investments."
Structural shifts in the growth model may have the potential to offset disinflationary effects of a cyclical moderation in growth. "In China for example, the forced increase in wages may be the beginning of structural cost normalisation that would alleviate price distortions in key factor markets," the outlook says.
In Singapore, tightened inflow of
foreign workers to force productivity increases may exacerbate cyclical labour market tightness. "The implicit aim of policymakers may be to raise abnormally low wage shares of GDP (especially in Asean) that is a consequence in export-led, MNC-driven growth models, thereby raising consumption share of GDP.”
China's wage inflation would enable other regional economies to tolerate wage increases.
The outlook says signs of a cyclical peak are gradually emerging, with production and leading indicators seeing a moderation across many countries in Asia except Singapore and India.
Inflation momentum has been moderating and contained for most countries in the region except India and Singapore, where demand-pull pressures are rising. Two risks include wage inflation and commodity price increases. "These are both cyclical as well as structural."