Exporters adjusting to rising wages (2)

Second, the sheer size of China's manufacturing workforce plus a focus on investment in factories and the infrastructure that surrounds them allows Chinese enterprises to respond quickly to shifts in demand and ship their goods to market faster and at lower cost than their overseas rivals.

Third, many enterprises benefit from generous government support in the form of cheap loans and a supportive currency policy. Opinion is now divided on whether the renminbi is close to "fair value". But exporters in China have the luxury of knowing that the People's Bank of China will intervene if needed to prevent a sharp appreciation in the Chinese currency.

The clearest evidence of the competitiveness of China's exporters is their continued ability to undercut companies' elsewhere in the world. The prices of the goods that China exports to the United States, still its most important market, have barely increased since the start of 2009 (they are up just about 2 percent). This is all the more remarkable because the renminbi has appreciated substantially against the dollar over the same period.

Most significantly, the prices of manufactured goods imported by the US from elsewhere in the emerging world have risen four times as fast. This ability to raise productivity enough to keep prices low explains why China's exporters have continued to expand their share of the global market, even though they no longer have the advantage of cheap labor.

Of course, today's success provides no guarantee for the future. If exporters are to succeed against a backdrop of continued rapid wage increases, they will have to continue grinding out improvements in productivity.

There may also be a limit to how high China's share of global exports can rise before it triggers a protectionist push back from trading partners. For most of the period since the launch of economic reforms, China's emergence as a global export powerhouse followed a similar path to that traced by Japan 30 years before. But whereas Japan's share of global exports peaked at one-tenth in the 1980s, China's share passed that level two years ago and has continued to rise. If this continues, the pledge of Mitt Romney, who contested the recent US presidential election against President Barack Obama, to designate China a "currency manipulator" is unlikely to be the last such threat that China faces.

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