Guest post from Calipe Chong, founder of VipoAsia and author of VipoAsia’s blog
Labor cost in China
Recently there are two labor unrest cases widely reported in China. This is uncommon as the Chinese media usually do not report such cases involving big foreign MNC in China. Besides trying to demonstrate her openness in news reporting, there could be a subtle change in mindset on how much the government could tolerate the wage abuse by employers. It is a well known fact that the local government is very accommodating to big foreign companies in their prefecture as the latter would provide labor and tax revenue. Thus many such companies could get away with labor abuse and flouting regulations.
The first case involved Foxconn where 13 suicide attempts were made and caused 10 deaths. Some employees citing to journalists that the tough management and long working hours (80 hours of overtime in a month) are the main stress they are enduring. The victims were young with average age of twenty and unlike their parents, are less tolerable to hardship, ambitious and more solitude which could be the result of the one-child policy.
With the bad publicity and customer pressure, Foxconn increased 30% on the basic monthly wage for most of its 800,000 employees in China. The production operators have their wages increased from RMB900 ($132), which is the minimum wage level, to RMB 1,200. And Foxconn is also considering providing housing allowance for 80,000 employees in its Yantai plant in Shandong province. The annual cost would amount to RMB200 million ($29.3 million).
The second case was the strike by the workers of one components manufacturing plant of Honda in southern province Guangzhou. The strike had caused four other Honda assembly plants to shut down production. Honda subsequently increased the basic wage by 24%.
There were also reports about trade unions and local communities forcing some US fast food chains to raise the workers wage to the stipulated minimum wage level in China and Hong Kong. To shun the bad publicity, many of these fast food chains have reluctantly agreed to meet the minimum wage level for their workers.
Such wage increase in Foxconn and Honda has created severe repercussion to other factories especially those at coastal provinces. The workers may demand wage increase and follow the Honda example. Labor supply at the coastal cities is already very tight and the employers have to increase wage and benefits to attract workers. One Hong Kong businessman commented on a TV news interview that 2,000 to 3,000 Hong Kong companies in Guangzhou would encounter difficulties to match the pay rise by Foxconn and Honda.
The current skyrocketing increase in property price and some inflation on food have put tremendous stress on cost of living for many Chinese. Consequently the pressure is exerting onto the government to address the issue. Without an effective curb on property price increase at the moment, the government may want to increase the income level for her citizen especially the lower income bracket to combat the rising living cost.
China may also want to sway away from a sweatshop industry which she is widely known as. The low cost merchandised goods do not seem to be appreciated by her American and European customers. Not only are the customers putting immense pressure to force China to appreciate the yuan (RMB), the local trade unions and politicians are targeting China as the culprit for their woes on unemployment and loss of competition. Thus it makes better sense for Chinese government to increase labor cost to soothe the trade friction with their US and Europe customers than to appreciate her exchange rate which will cause acute economic and political pains to the country and the people.
Many Chinese I have talked to and also from the Chinese blog websites are showing anger on those foreign countries forcing China to adhere to their demand to appreciate the yuan while insisting on low cost goods as many foreign buyers do not agree to price increase whenever there is an appreciation on the yuan. To further aggravating the situation, some countries are putting up trade barriers to fence off the competition from China. This acrimonious trade dispute will lead to further misunderstanding and hostility not only between countries but also people from both sides.
China is also embarking on her fiscal policy to spur up domestic consumption. This will reduce her reliance on export to maintain economic growth. After all she needs a balanced economic structure for sustained growth and social harmony. Unfortunately the increase in domestic consumption has met limited success other than the housing and luxury goods. Henceforth an increase in income for the masses will boost the domestic consumption.
Thus I sense the Chinese government is giving indirect consent to the trade unions to bargain for higher wages. Though the Chinese government implicitly allows the wage to increase to appease her citizens, the cost competitiveness is not lost. Many of her inland provinces are providing abundant resources and manpower to accommodate the low cost manufacturing. However the price will still be higher than what the foreign customers are accustomed to. The transfer of technologies, management knowledge and labor skills from the coastal cities to the inland industrial parks will ensure their strategic leverage and competitiveness against other low cost manufacturing countries.
This may help China to reconcile relationship with US and Europe with the slightly higher product cost. After all, an increase in domestic consumption would also increase in import too. And this will help the foreign companies to fulfill their goal to capture the immense China market.
* This entry has been published with the permission of the author, Calipe Chong of Vipo Asia. Please visit VipoAsia to access his blog directly and read more of his insight on Asia and the world.
