This, coupled with the progressive drying-up of labour supply from the agricultural sector, will reduce the saving rate and the resulting domestic funding of investment. It will probably also bring about wage increases that impinge upon the cost competitiveness of Chinese exports.
This is in part because past labour market reforms have encouraged both groups to enter the workforce in response to higher growth.7 If substantially more workers can be drawn into the labour force, it would be possible for the labour market to strengthen further without generating wage pressures.