China: not enough labour, too much capital

Many countries have seen a fall in the share of labour income in recent years, but nowhere has the drop been as huge as in China. This partly reflects China's large pool of surplus labour, which has depressed wages relative to the economy's large productivity gains. But you might expect that if wages are low relative to the value of workers' output, firms will hire more staff, which will moderate the decline in the wage share. Instead, the growth in jobs has been unusually slow. Many people blame this on the fact that the financial sector is poor. Big firms have easy access to credit, but smaller, private firms find it hard to raise finance for working capital, which in turn restricts their hiring.