Wednesday, June 09, 2010

Rising wages: a big deal for China?

RearviewMoving to Vietnam? via Wikipedia
Rising wages in China's export industry has in the past few months suddenly hit the mainstream media in the West and in China. A few remarks to put a few of these developments into perspective. The story keeps on developing, so my apologies that I cannot structure it better at this stage.
1. What is remarkable in China is not that workers strike (Honda), commit suicide (Foxconn) or trigger off a wave of wage increases. What is remarkable is that leading Chinese media report about it. Now, China's media scene is too complicated to deal with in one paragraph, but it show certainly that the central government is supporting the workers in this change. That change could be noted since the end of 2009, when it was obvious that China's economy escaped the global financial crisis rather well. In the year before that media, the official trade union ACFTU and local authorities had kept in their cages, just to make sure foreign investors would not get weary. That is over since the end of 2009 and is now getting more coverage, suggesting all players the central government is giving support to this change.
2. Even when wages go up till maybe over 30 percent, like at Foxconn, the effect on most industries is rather limited. Of course, it is different in other industries, but for iPhone and iPad, for Nike's and others, only 3-5 percent of the selling prices is enough to cover the wages. Even if wages in Southern China would double, it would not kill the industry.
3. Manufacturers, especially those from Taiwan, have started screaming, although the real effect of the wage increases is pretty limited. Textile has a tradition of moving around in the region, looking for the cheapest labor. But many manufacturers, electronics, automotive, depend on a network of suppliers and high-end production that cannot be moved that easy. Screaming is just a part of the counter-strategy and cheaper than really moving.
4. Wage increases are not limited to China. Similar stories I hear from India and Indonesia, especially in industries that need a  bit more than only nibble fingers: pharma, IT, automotive. It is hard to gauge these stories for relative smaller countries like Vietnam or Malaysia. I'm sure that some of the industries might be looking around for cheaper options, but as information is also better available for workers or even trade unions with access to the internet, they might be in a stronger position, where in the past only employers would have region wage information.

A few considerations: let me know what you think, and we might get a better picture in the near future.

Update: Al Jazeera on China's economic changes


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