Rising China wages may end cheap labour: experts
ALLISON JACKSON
June 9, 2010 - 2:14PM
               
The days of endless cheap labour in the "workshop of the world" could be numbered as a shortage of workers and government fears of social unrest drive up wages in China, experts say.
A spate of suicides at Taiwanese high-tech firm Foxconn and an unprecedented strike at Honda's auto parts factory in southern China suggest that employers can no longer take their workforces for granted after decades of rapid growth.
Beijing has reacted to the labour unrest by launching a round of minimum wage hikes across the nation, reflecting concern among top leaders that frustrated workers could trigger wider social turmoil.

Under President Hu Jintao, "the direction of policy has been towards greater concern about income distribution, less emphasis on growth at all costs", Tsinghua University economist Patrick Chovanec said.
The labour problems have received widespread coverage by state-run media and sparked statements of concern from official trade unions -- essentially an adjunct of the communist regime.
Nearly a quarter of Chinese employees have not had a raise in five years, according to the All-China Federation of Trade Unions. Inflation has stayed low, despite blistering economic growth during the period.
But IT giant Foxconn -- which counts heavyweights Apple, Dell, Sony and Panasonic among its clients -- has now given staff a 70 percent pay rise after 11 suicides among its vast Chinese workforce.
Honda, Japan's number two carmaker, last week offered a 24 percent rise to workers to end a crippling strike that had brought the company's vehicle production in China to a halt for more than a week.
In another case, Taiwanese handset component maker Merry Electronics Co. raised the basic wages of 7,000 staff at its factory in the southern city of Shenzhen by 17 percent to end a brief strike, Taiwanese media reported.
"If you are a factory owner in Guangdong (southern China), you have got a few things working against you now and you have definitely got to start making it a bit more attractive to make labour come to you," said Brian Jackson, a senior analyst at the Royal Bank of Canada in Hong Kong.
"All the indications are this is something that is going to continue in the months ahead -- assuming you don't have a big impact from European problems on the manufacturing sector," he said, alluding to eurozone economic worries.
But some Chinese-owned factories fear the wage pressure could hurt the vast manufacturing industry as it bounces back from the global financial crisis.
"We are all worried about the cost push and how that will continue to have a higher stress on manufacturers who export," said Jimmy Kwok, managing director of Rambo Chemicals, which employs 400 workers at a plant in Shenzhen.
He said higher labour costs might force manufacturers to pull back on planned investments in new equipment, to lay off staff or to move their operations to regions where labour costs less.
As China's economy surges, wage demands will continue to pose a headache for companies, forcing some to relocate or pass on the cost through higher prices for their toys and electronic gadgets, analysts say.
The market verdict against Foxconn's parent company has been brutal. Hon Hai Precision Industry has lost billions of US dollars in market valuation as its share price has slumped since the steep wage hikes were announced.
For Arthur Kroeber, managing director of the Dragonomics consultancy in Beijing, the laws of supply and demand are reawakening in China.
"The simple reason for the wage pressure is that the supply of young workers who are typically the people who move into these factories in coastal China is shrinking," he said.
Huge government spending on infrastructure projects in central and western China and increasing relocation of factories inland are encouraging workers to stay home, where the cost of living is cheaper and they have family support.
Kroeber cautioned it was too soon to say workers have gained the upper hand in one-party China.
"It is still the case that there are lots of workers, employers still get to set the rules, workers do not have the right to independently organise, so it is early days yet," he said.
Link here:
http://news.smh.com.au/breaking- ... -20100609-xvnh.html

Does this mean the cost of punting in China is going to rise too?

Workers revolt!! I heard the wage was increased from RMB1,200 to RMB2,000 per month.
Thats roughly 60% increase! But in real terms the wage is still only USD290 or AUD360 per month.

Heard someone mention that a good rule of thumb on mongering is -

One month's average wage is roughly equivalent to the cost of a night's worth of mongering.

Damn @#$$@& Foxxconn and Honda!

SEAJ

ehh ... your salary ?  you must over pay the girls !!!      

LOL!

No.... I ain't no BSD - Big Swingin Dick!

Average salary for a factory worker in SZ/DGG had been approximately 1,100 to 1,300 - and when we go to a KTV, we end up paying the gal say 800 or 1,000 etc overnite.  Add the cost of the KTV etc and what not, we've actually spent  what a factory worker earns in a month. Ridiculous/unfair scheme of things when you think about it - but that is how it works out unfortunately.

Now they've gone and upped the wages - with more strikes happening and workers clamoring for very much higher wages.  So we've got the prospects of having to pay higher rates for our hobby in China.  Yowich!!

SEAJ

Even with the pay hike, labour is still cheaper in China. 60% pay increase was for the Foxconn employees. However all other companies have raised the minimum wage from 900 to 1200 RMB per month, which will improve the conditions of the workers. Ud be surprised how far they can stretch that extra 300 RMB

On the other hand, this also means goods costs will rise over time. Its still early to say how exactly it will affect chinas low cost manufacturing.

In real terms, it is more like US$800 taking into account the cost of living in China. I do admit though US$290 is bare existence. Surviving on just RMB1,200 is just impossible these days.

[ Last edited by  geoduck at 9-6-2010 14:58 ]

Not only do they survive on 1200rmb but they also manage to send a part of it home. Thats what always amazed me. Most of the working girls I know always send money home, no matter how less they earn. The more unfortunate girls have their money leeched away by their asshole boyfriends. And of course, some unfortunate guys have their money leeched by their pretty girls.

The beginning of the end..

Once China's cheap labour ends, robots look more and more attractive, which is the start of China's economic death spiral, it happened in most western economies in the 1970s when labour costs got too high they either outsourced or used mechanisation.

A one trick pony if I ever saw one,cheap expendable labour.... unless they go Korea and Japan i.e. actually start copying things but making them BETTER then this means some big troubles for China.

I've talk to leading analyst where companies are already moved on to outsource to other cheap labor countries like vietnam & india.  Companies are hedging their risk of inflation

Unfortunately, those countries do not have the economies of scale like China. They can make Nike shoes but that's all they can do. I've visited many factories in many countries and they just do not have what China can offer, the logistics, the manufacturing know how. technical expertise a military style workforce which foreigners have spent the past two decades in developing.

Please also look into my thread, posted a month ago entitled "Inflation Soaring in China" http://forum.sex141.com/eforum/v ... 9932&highlight=

[ Last edited by  geoduck at 9-6-2010 22:34 ]

There's going to be at least 10 years of labor still being plentiful and cheap in China (relative to its importing countries) and at least 10 years or more of production being moved out of China to its cheaper neighbors and everybody's going to do fine a make a ton of money.  The eventual reckoning is still a long way off.

That's not the big issue.

Sure China might do a Japan, and improve the tech of their stuff and the quality.

The problem is who has the money to buy it?

The economic system in the USA is the USA issues $ bonds and China and Japan buy them up, thus loaning money to the USA which they use to buy goods made in China. Which is used to loan the USA more money in which they use to buy goods from China.

What happens when the USA is broke and Europe is similarly broke? the USA printed 800bn of money last year would you buy bonds if they could print the value away? There was an angry radio show about the CCP gifting the USA 3 aircraft carrier battle groups due to the money being devalued.

The Euro zone is currently crumbling... the debt levels in Europe and the USA are insanely high in the trillions.

So while China might be a cheap labour country who's going to buy their goods?

Remember in WWII? The USA was the ONLY major power left with factories still operational, the UK Germany Europe Japan (War was still going on in China), they enacted the Marshall plan the official line was to rebuild Europe but the marshall plan was to stick their fingers in everybody's pies, the UK only managed to pay off its debt to the USA from WWII last year!

This is the biggie issue, they make far too much for them to consume themselves unless you do a henry T ford and increase wages across the board, but when labour becomes expensive the Germans and Japanese turned to Robots.

Robots don't need to be paid get tired or demand higher wages.

At which what do the other 95% of the population do? In modern societies 3-5% of the people can provide the NEEDS for 100% of the population meaning they have to make and sell toys, which can only occupy a certain % of the population.

The UK has 27 million workers, cut out government employees and you have 20 million workers meaning we have a 65% unemployment rate.

next thing you know India will be the next Cheap Power house

India can't cut it as a major manufacturer. They have very poor infrastructure and too much unskilled labour and foreign investors would not dare invest big time as they have done in China because of religious tensions that may erupt anytime. Only thing foreigners would invest in India is outsourcing, not plants or machinery.

[ Last edited by  geoduck at 11-6-2010 10:49 ]

Being a major factory base takes time, and China has had a lot of that. Most factories are very near to each other and this makes sourcing of various materials very cheap and efficient. Couple this this with very few worker and labourer rights and the amount of control factories have over their workers, and you have a very good manufacturing solution. Things such as rising workers ideas of unions and demands may hamper this, but its not gonna happen soon, and even so, I doubt that the cost would be higher than India.

India being a democracy faces a lot of problems when it comes to manufacturing. Yes there are religious tensions, as well  asthe problem of unions and politics. Read about the TATA company and how they failed to set up a factory in West Bengal, India even though they would have created thousands of jobs. Too many opinions crash in a democracy.

All the more reason to buy China's goods as they are much much cheaper. With the downturn of the economy, more and more people are turning to cheaper options such as wallmart, where most of the products are made in China.
Now also look at third world countries from Africa which can afford and buys a lot of Chinese products.

And its not only buying from China, Most major companies are now changing strategies not to buy, but to sell in China. Chinais becoming the BIGGEST MARKET FOR consumers now!

But that is precisely the point if their wages rise then yes they have more spending power but this suddenly makes the capital vs labour ratio look more in favor of robots and mechanisation. Once china ceases being cheap the infrastructure exists in Western economies to use robots to build things.

Also China still hasn't gotten its association away from cheap goods but utterly shit quality, the only decent quality goods are foriegn firms which heavily supervise the production. Made in Hong Kong had a reputation in the 1970s for utter shit quality, 2010 whatever is still made in HK is still utter shit quality.

1980s Hyundai was laughable quality, by 1999 they got good I owned a Hyundai Coupe it was excellent.

The biggest and best motorbike manufacturer in China for example is Jinlun, the quality is appaulling, I parked my 1992 Honda next to a Jinlun one winter and the jinlun turned completely into rust. I mean FFS the FRAMES of their motorbikes snap if you push them too hard. Even a 1970s Honda when you corner at over 90mph you feel the frame flex but it won't break.

My friend was hospitalised in 2008 after the frame snapped! not the welds the actual metal!.

Can only agree about the poor quality issues. I have a friend who is in the import business and he is always having to deal with poor quality issues with the stuff that comes from China.

They are however shifting under the pressure of O/S buyers and lifting their game to the point where there is a 2 tier level of quality, export quality and domestic. If the stuff they export is too shoddy and doesn't meet specs. they could well find themselves billed for the cost of shipping it back. I visited a small clothing factory in Shanghai once and they asked me to go over an order contract from HK, too make sure they had understood all the details. The buyers were very specific about material quality, colour, sizing, etc. with clauses for returning the goods at their cost if they didn't meet the demands set out.

My Chinese friends who have spent longer periods of time here in Australia are surprised at the good quality of Chinese goods available here and will buy 2nd hand made in China clothes for example to take back to China with them. That being said the stuff you buy in China is inevitably shoddy, not only because of poor quality control, but because the Chinese themselves expect everything to be cheap. They would rather pay 5rmb for an item that lasts 6 months, than 20rmb for a better quality item that lasts 6 years.