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Economist: China will Match US Wage Levels in 30 Years

A leading Harvard University economist says fast growing China will eventually overtake the United States in certain high technology industries and reach U.S. income levels in 30 years.

Labor economist Richard Freeman says if current growth rates continue it is only a matter of time before China matches the high-income levels prevailing in the United States and Western Europe. Mr. Freeman spoke at Washington's Institute for International Economics.

"The difference between 30 years and 50 years for China to reach U.S. wage levels depends on whether their wages grow at six percent (per year) or seven percent," he explained. "Compound interest plays a big role. Currently, as best I can see, Chinese wages are growing at six percent."

Mr. Freeman calls China and India the new globalizers, the most important developing countries in the increasingly high technology, trade-based world economy. Over the past two decades, as both countries opened to trade and investment, they brought more than one billion new workers into the global labor force. These low-cost, but productive workers, he says, exert downward pressure on wages elsewhere. Mr. Freeman says China's higher education system is responding very well to the country's access to the most advanced technologies.

"In 2003 China graduated 700,000 bachelors of science engineers. We had 60,000 in the United States," he noted. "Give me three years of China's graduates and I've filled up the entire U.S. stock of employed engineers."

In the global transition now underway, Mr. Freeman believes it is the less advanced developing countries, like South Africa and Mexico, that are most at risk. Their wage rates are higher than China and India and they're not winning the race to attract foreign investment.

Mr. Freeman does not say that the catch-up trend is irreversible, but he does believe it is unlikely that a nominally communist China will withdraw from the global economy that has fueled its economic boom.

"If Mao rises from the dead and says, 'this is not the China I envisaged,' I don't think there is any conceivable way the Chinese people would accept that," he added. "They are intrinsically in this [global economy] as well."

Mr. Freeman says while incomes are growing rapidly in China, so too are income inequalities, as the rich grow richer and the poor lag behind.