The Chinese economy give labor leverage – in other words, rising wages. This is resulting in a visible redistribution of wealth and an increasing number of blue-collar consumers entering the marketplace.

The One Child policy has begun to take its toll on China’s labor force. Although China’s population has remained relatively stable – 1.36 billion people today versus 1.19 billion 20 years ago – its working age population has peaked, dropping by 3.45 million in 2012 to 937.3 million people. In order to remain competitive, China decreased its reliance on capital-intensive manufacturing industries over the past decade, with manufacturing dropping from over 50% to 34.8% of the workforce between 2001 and 2011. Service industries have taken up most of the slack, now representing 35.7% of the workforce. Improving productivity and increasing economic output has also led to better working conditions and rising wages. The minimum wage increased 21.7% in 2011, with government policy-makers targeting to raise it to 40% of the average local salary by 2015. Thanks to government legislation and employer initiatives, worker safety, housing, and social insurance have all had major improvements. This all has led to more demand for labor at increasing wages.

We have seen the effect of the rising power of blue-collar workers in our forestry business, which is based in Pu’er, Yunnan Province. Rural land reforms and the demand for agricultural products like timber and world-famous Pu’er tea have played a role in rising living standards for locals in the region. When our company was founded in 2003, forestland in the local counties was priced at RMB 200 per mu, and the average forestry worker was paid RMB 1000 per month. Nowadays, forestland is sold at RMB 2,000 per mu and the same worker takes home RMB 3- 4,000 per month. In 2003, Pu’er tea was known to sell “at the same price as lettuce and cabbage.” Today, tea sells at over RMB 100/kg, fifty times as much as a head of cabbage that now sells for RMB 2/kg. It is now the norm for farming households in this sleepy municipality to earn RMB 100,000 to 200,000 per year to grow tea, coffee, walnuts or timber. For those who prefer to avoid the physical toil of farming, there’s also the option of seeking work in the many factories and businesses that have sprung up in nearby Chengdu and Kunming, which has resulted in provincial economic growth averaging 13.5% per year for the past 3 years.

Workers have been becoming continually more difficult to attract and retain. Worker recruitment companies from the Pearl River Delta promise Yunnanese increasingly favorable conditions. We need to match their offers, and currently offer workers and their families free dormitories, subsidized utilities and free meals during their shift at our two wood processing facilities. At the same time, these increasingly affluent blue-collar workers are becoming good consulters for businesses in the region. In the provincial capital of Kunming every day, consumers swarm the central shopping districts with crowds that would rival any Boxing Day or Black Friday in western countries. Similarly, in the storefronts of Pu’er, cellphone stores hawking Samsung, Apple and HTC seemed to stretch on for miles. Local Pu’er residents have upgraded from bicycles and tractors to motorcycles and Dongfeng minivans. Within the city, construction has begun on Puer’s first Walmart and KFC, and mid-tier brands like Wyeth and Adidas have set up local flagship stores.

We believe that this trend of blue-collar workers commanding increasingly good wages will continue, and lead to a new source of increasing consumer demand.. As business owners and operators, we must continually refine our worker engagement strategies to maintain and improve productivity, and also enact socially responsible policies. As investors, it opens further opportunity for us to identify consumer-focused businesses well positioned to take advantage of this new and growing customer base.