Labor cost in China

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.

Singapore-Latin Trade: Singapore and Panama in focus

Attention! / ¡Atención! / ???

Merlion - Singapore

For those of you out there who pay the whoppin’ $399 a year for a subscription to the Latin Business Chronicle, you can feast your eyes on some juicy reporting about Singapore’s growing trade with Latin America, particularly with Panama.

Here’s a brief synopsis from CSA of what was available for free from the Latin Business Chronicle:

Singapore’s trade with  Panama is a $6.6 billion usd, more than double Singapore’s entire trade with its second largest trading partner in Latin America, Brazil.

Considering that Singapore has signed Free Trade Agreements with the South American countries of Peru and Chile which have yet to help increase total exchange to a level even comparable with Panama’s.  It is clear to CSA, Singapore has found a healthy partner in Panama and it plans to nourish the relationship.

Panama is country of similar size (population wise), like Singapore it is strategically positioned in the middle a important global trade network, and it is increasingly open to economic cooperation with Asia.

Long term, CSA believes that Singapore is playing it smart in Latin America.  It is positioning itself to not only benefit directly from trade, but also from the growth of trade between other Asian and Latin American countries.

In other words, once Singapore has established a base of operations in Panama, it will probably expand into the business of providing services for other countries and companies within the Asia – Latin America trade network.

Below are a few excerpts from the Latin Business Chronicle article you can access directly via this link.

Soon, Singapore will also be known locally for its port services. PSA International, the world’s second-largest container terminal operator, will be competing with Hong Kong-based Hutchison Whampoa, the world’s largest operator for container traffic that goes through Panama.

PSA is building a terminal at the Pacific entrance of the Panama Canal, right across from the Port of Balboa, which is operated by Hutchison unit Panama Ports Company. It expects to open the terminal, located at what once was a US Naval station, next year.

The current and future business generated by ST Aerospace and PSA is helping cement Panama as Singapore’s top trading partner in Latin America. Singapore’s trade with Panama is twice as large as its second-largest trade partner in Latin America, Brazil.

Last year, Singapore’s total trade with Panama grew by 59.6 percent to 9.2 billion Singapore dollars (US$6.6 billion), according to a Latin Business Chronicle analysis of IE Singapore data. While Singapore exports still dominate the …

China’s Africa goals more than just natural resources – Reuters

~ Gavin Coates

BEIJING (Reuters) – Barely a month goes by without some new energy or mineral deal being struck between China and an African nation. These deals have transfixed the West, but China gets far more from the relationship than raw resources.

Africa offers China two important things — a chance to earn the global respect it believes it deserves in recognition of its growing economic clout, and friends who do not judge it, or who at least have little reason to directly fear China’s rise.

China’s friendly relations with Africa go back decades, to when Beijing backed newly independent states as well as liberation movements. The continent’s backing was vital in getting China into the United Nations in 1971.

“You could argue that the contemporary driver is economic, but they’ve always had a political interest in Africa, from the mid-1950s onward,” said Chris Alden, an Africa expert at the London School of Economics.

“As China becomes a more active player in multilateral affairs, it recognizes it needs partners, and Africa in many ways is a very suitable partner.”

In 2006, President Hu Jintao promised a leap in investment, trade and aid at Beijing’s first summit with African leaders. At the G20 summit of big developed and developing economies last November, he raised Africa’s needs during the global economic turmoil.

Click here to read the complete article written by Reuters reporter Ben Blanchard

South America: An Analysis of Arms Races and Regional Geopolitics

A insightful analysis on the ongoing arms build up occurring in South America was released on Tuesday, October 20 by Council on Hemispheric Affairs (COHA). You can access the full analysis, written by research fellow Alex Sanchez if you sign up to be a (free) member of MercoPress.

Img: MercoPress

MercoPress is an independent news agency based in Montevideo, Uruguay focused on delivering news related to South America, Mercosur-member countries and covering an area of influence which includes the South Atlantic and insular territories.

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In mid-September, Secretary of State Hillary Clinton critiqued Venezuela’s leader Hugo Chavez for his ongoing purchases of mostly Russian military equipment, arguing that this could trigger an arms race in South America. The statement has added fuel to the ongoing discussions about what form South America’s rearmament is taking and what this could come to mean for the security of the region.

The aim of this paper is to discuss the major arms purchases now going on in South America and the likelihood of inter-state war breaking out as the result. Ongoing reports about major purchases by Venezuela, Brazil and Chile tend to blur the actual geo-security situation in the region, as several countries, with Argentina as the most prominent example, have carried out only limited military acquisitions. The common perception is that an arms race raises the possibility of inter-state war; however, the reality in South America (and Central America as well) is that inter-state warfare has seldom occurred since World War II. Additionally, regarding the arms race in South America, it is misleading to assume that all South American countries are carrying out their arm purchases with the same gusto as Brazil, Chile and Venezuela.

It is generally assumed that South America is either already engaged in an arms race or is about to enter one. This is somewhat inconsistent because the start of an arms race is not easily defined. It could also be argued that what is occurring is not so much a general arms race as it is a product of certain militaries capitalizing on weak civilian governments (an updated version of former Uruguayan President Bordaberry in 1973) to increase their defense budgets. Furthermore, in spite of domestic security issues in several South American countries, most notably the insurgent movements in Colombia and Peru as well as occasional inter-state tensions, the reality is that inter-state wars in the region have been notably scarce in the past few decades, which raises the question: is interstate warfare necessarily the future of South America? The final section of this article will discuss whether an arms race could lead to general warfare.

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Click here to access the full analysis from MercoPress

Sino-Brazilian Cooperation

China's Policy Paper on Latin America and the Caribbean – MercoPress Analysis

[Source] — MercroPress

On November 5, 2008, the Chinese government released a policy paper on Latin America and the Caribbean, as it had previously done so for Europe in 2003 and for Africa in 2006.

Although it may not come as a huge surprise that Latin America is the most recent region for which China has formally spelled out its foreign policy position, the region has been historically perceived as being under the United States’ sphere of influence. Perhaps the importance of the Chinese policy paper lies in the timing of its release. The release of the paper deliberately coincided with the unfolding of the current financial crisis; this congruence of events has allowed China to expand its influence in this somewhat neglected region without attracting any lasting venom from the U.S. China’s policy paper formally evidences the importance of Latin America and the Caribbean as part of China’s growth plan for its long-term strategic interests. Most of all, this includes access to raw materials as well as a plethora of natural resources, the infiltration of new foreign markets, the reduction of diplomatic support for the Republic of Taiwan, and the strengthening of Beijing political standing on the global stage through strong alliances cemented with the developing world.
The policy paper’s general context

The policy paper explicitly states its main objective is to “clarify the goals of China’s policy in this region, outline the guiding principles for future cooperation […] and sustain the sound, steady and all-around growth of China’s relations with Latin America and the Caribbean.” In the economic realm, China expresses an interest in investing in energy, mineral resources, forestry, fishing and agriculture, areas important to expanding China’s productivity. Additionally, the Chinese government seems to show interest in infrastructure projects not directly related to its economy, albeit essential in the transportation of natural resources, and proposes to fund these projects in order to be perceived as a partner in development. Furthermore, China expresses its desire to increase military diplomacy and sale of equipment to the region. Although many of the report’s statements are merely rhetoric and general in scope, the paper helps formalize China’s economic, diplomatic and military ties with Latin America, which were first proposed by then President of China Jiang Zemin in 2001.

The policy paper was released against the backdrop of the current financial crisis and the corresponding economic hardships that have severely hit the U.S. and Europe. Its publication deliberately coincided with the emergency G-20 meeting to discuss the economic crisis that was about to take place in Washington. More importantly, it preceded Chinese President Hu Jintao’s visit to Peru for the November 2008 Asia-Pacific Economic Cooperation (APEC) summit, at which he presented China’s foreign policy towards Latin America. This timing of the paper’s release was especially important for the countries seeking to diversify their export markets and decrease their dependence on declining Foreign Direct Investment (FDI) from the US and Europe. With the vast foreign reserves accumulated by China –which totalled US $1.95 trillion in December 2008– the region had valid reasons to closely follow the summit’s developments.

To access this article in full you must register for MecroPress’s website.

Once you register, click here for a direct link to this article

Japan DPJ Election Win Brings ‘Bloodless Revolution’ — Bloomberg

Aug. 31 (Bloomberg) — The Democratic Party of Japan swept to power
for the first time as the nation’s voters turned their backs on half a
century of single-party government that failed to reverse economic
stagnation and spiraling welfare costs.

The DPJ, led by 62-year-old Yukio Hatoyama, captured at least 306 of
480 lower-house seats, public broadcaster NHK said. Prime Minister
Taro Aso indicated he would resign as head of the Liberal Democratic
Party, which lost almost two-thirds of its lawmakers in a complete
reversal of the last election in 2005.

“This is a bloodless revolution, the first transfer of power from one
party to another in postwar Japan,” said Tomoaki Iwai, a political
science professor at Nihon University in Tokyo. “The DPJ now faces the
tough task of delivering on its promises and showing the Japanese
public it can change the system.”

Hatoyama, who quit the LDP in 1993, has pledged to revive an economy
emerging from its deepest recession since World War II by boosting
child-care spending, cutting taxes and curtailing the power of
bureaucrats. His grandfather founded the LDP in 1955 and became the
first of that party’s 22 prime ministers.

“This election has been all about changing the government,” Hatoyama
said in a nationally televised press conference. “Everything starts
now.”

…

To acess the full Bloomberg article please visit:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAQ0qltevVQI

–
Sent from my mobile device

Chinese Oil Firms Bid for Repsol's Argentine unit

Chinese oil conglomerates China National Petroleum and Cnooc have offered to pay an estimated $17 billion usd for all of Repsol YPF’s state in its Argentine unit called YPF.

You can read the Wall Street Journal’s paraphrased article (the original costs money) at thestreet.com, by visiting this article.

Will this deal actually be completed? China South America reported on this possible deal back on July 7, 2009. You will notice, the offer at this point was only $14.5 billion for a 75% stake. China has since upped the offer and is now looking to buy the entire thing.

Why China? Are you angry over Australia rejecting your Rio bid? Are you feeling flustered that countries from the industrialized world, but also in Africa and Latin America are starting to think twice about selling the rights to their raw materials?

I don’t blame them, after all, Australia is quite similar to South American commodity producing countries. Two note worthy and simple similarities include

1. A large portion of GDP is generated from commodity exports
2. The relative strength or weakness of domestic currencies such as the Ausie Dollar, Argentine Peso, Peruvian Sol and Brazilian Real, are all inherently linked to the global market price of the commodities the countries export. [ie: if the spot price for copper drops 50%, observe what happens to Peru and Chile’s Peso’s.

According to the WSJ article, the main obstacles to this deal include

• Spain is hesitant to see some of its best assets in Argentina be sold to China

• Argentina’s government has no financial stake in YPF, but nonetheless under Argentine law has the right to veto decisions such as transfer of ownership. In my personal opinion, this translates into who is willing to pay more “under the table” to the Argentine government.

• China National Petroleum and Cnooc are state owned organizations. Despite their growing influence and presence in oil markets around the world, many governments still remain weary of doing business with companies officially tied to a foreign government.

Great blog, written by a wise man living in China

Jonathan (Jono) Warren is a friend of mine who is currently living in Beijing, but is moving to Kashgar, Xinjiang. You know the place where all the riots occurred a little while ago. He is beginning a tea business, where he will be importing Pakistani tea into China, packaging it in China and then selling it to super markets in the West.

Sounds crazy right? Well, regardless of your thoughts of this brief description of his business, the man is quite well read and paints a incredible story with his words… which you can find at his blog Garbage and Noodles (http://garbageandnoodles.blogspot.com/)

Here is a small excerpt from his most recent post “I sing, you sing, we all sing”

Up in Changbaixian, Liu Baiguo was that grower. The owner of a local Chinese-medicine shop (???), recommended Mr. Liu as his farm was the closest to the city, but produced some of the best ginseng. Liu walked into the shop and asked for the ones who were looking for him. He seemed genuinely excited to be able to show his roots to two bright-eyed American entrepreneurs.

He led us out of the shop, out of the marketplace, and into his car – a police car that he got to keep after his work as a chinese border customs official. At his fields, he told us everything he knew about ginseng, how he inherited his fields, how there are 92 workers working for him, how he plants trees on the plots where the ginseng is picked because the roots use up all the nutrients…

Click here to read more

The return of China South America

?? ?? (hello friends),

China South America will be returning to cyber space tomorrow, Aug 11, 2009.

I apologize for the recent absence of updates, I have been traveling in China where access to sites such as this is limited.

We’ll return to China South America’s usual mix of current events relating to China & South America, commodity markets, micro finance and of course my own analysis and writing on the world.

~ Benito