China joined the WTO in December 2001. Since then, it has become one of the largest exporters of manufactured goods in the world. As part of your job in the Department of Foreign Affairs and Trade, you have to write a report on the economic consequences of China's entry in the WTO. For the sake of your report, you assume that consumers consume just two goods, manufactured goods and coal. For simplicity, you assume that the latter is used only to produce electricity for final consumers but is not used in the production of manufacturing goods. Both manufactured goods and coal are produced using only labor. Further, you assume that Australia has a comparative advantage in producing coal.

In this exercise, we continue to analyze the impact of the rise of China on Australia. In this part of your report for DFAT, you are supposed to analyze the impact of China's integration into the world economy on Australian wages. For the sake of your report, you still assume that consumers consume only two goods, manufactured goods and coal. For simplicity, you assume that the latter is used only to produce electricity for final consumers but is not used in the production of manufacturing goods. Manufactured goods are labor-intensive, and coal is capital-intensive. You assume that production only uses labor and capital, technology exhibits constant returns to scale, and that Australia is a capital-abundant country.

We can model China's integration in the world economy as a reduction in the relative price of manufactured goods. Assuming that there are no factor intensity reversals and that both products are produced in both China and Australia, what happens to the real wage and the real rental in Australia?