Author: CHUNG Yoon Ngan
Date: 06-05-12 14:01
China sheds reputation for cheap labor
By KARL WILSON
June 1, 2012 - 11:03am http://www.chinadailyapac.com
Chinese workers assemble electronic components at Foxconn’s factory in Shenzhen, in southern Guangdong province. Foxconn is cited as the most high-profile example of wage hikes on the Chinese mainland last year. (AFP)
China’s reputation as a country of cheap labor and low overheads is fast disappearing.
Over the next two years minimum wages are expected to increase by an average of 13 percent annually.
Nayan Chanda, director of publications at the Yale Center for the Study of Globalization, said in a recent commentary that wages in most of China’s provinces went up by as much as 22 percent last year.
“Costs of production have increased manifold because of government-mandated measures to reduce environmental damage, foreign employers’ obligation to provide pension benefits to workers, skyrocketing price of land and growing price of electricity,” he wrote.
“The resultant across-the-board rise in costs has begun to drive investors to other low-cost Asian countries. In fact, some labor-intensive manufacturing has already shifted from China to Thailand, Vietnam, Indonesia and Cambodia.”
While the average wage rate in China is $4.11 per day, in Vietnam, it is $2.75, in Indonesia $2.81, and $1.84 in Cambodia.
Over the past two years, millions of jobs have moved to China’s interior or elsewhere in Asia as factory owners try to cut costs, according to a Bloomberg Businessweek report.
“In Guangdong, the mainland’s top exporting province, wages have almost doubled in the past three years, and more than half the factories can’t find enough workers,” the report said.
Factory owners complain the higher wages are devastating profits, especially as their customers continue to squeeze them for lower prices, it added.
Global management consulting firm Boston Consulting Group also said in a recent report that many American companies that had relocated offshore to China are now moving back to the United States.
“Reshoring, as the move back to the US is called, is the opposite of what had been a decade-long trend that accelerated in 2001 when China became a member of the World Trade Organization,” noted the report US Manufacturing Nears the Tipping Point: Which Industries, Why, and How Much?.
It said China was an incredible deal for everybody because the government made it easy to put a plant there. Companies looking to cut costs were lured into outsourcing parts production to China or building plants. The attractions included cheap land, a fixed currency, financial incentives, government-funded infrastructure improvements and wages of less than $1 per hour.
“Those wages that were dirt cheap grew by 15 to 20 percent per year,” the report said, adding that as labour costs grew, companies were saddled by rising transportation costs and higher utility rates as well as costs related to supply disruptions and quality issues.
“After a while, some companies began to take note that real manufacturing costs in China (had) started to get closer to those in the US,” it said.
Professor Amitendu Palit, a visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore, agrees with the report.
“That was bound to happen when you consider the seismic social and economic shift that took place in China over the last two decades or more,” Palit tells China Daily Asia Weekly.
“Low wages, especially in the manufacturing sector, gave rise to a global shift in manufacturing from high-cost to lower-cost centers. China was seen as a low-cost center with a huge supply of labor.
“We saw this in Japan in the 1950s and ’60s. It is the same case in China but on a much bigger scale.”
But while agreeing that in time some low-end manufacturing will move out of China to countries where wage costs are lower, Palit doubts if there will be a “stampede from China”.
Foxconn, whose sprawling factories in China employ over a million workers to produce Apple’s iPad and other items, is cited by Yale Center’s Chanda as the most high-profile example of wage hikes last year.
“Facing international criticism for its treatment of workers, some of whom were driven to suicide, the company doubled its wages but also hedged by opening a new factory in Vietnam,” he wrote in his article.
“Given the growing social media-based activism on behalf of workers, it is becoming more difficult for large western businesses to continue employing cheap labor.”
China says it will continue working on increasing wage levels, controlling unemployment rates and improving the conditions of workers.
Last year Beijing enacted a new Social Insurance Law which, for the first time, included foreign employees in its national social welfare program. Local governments are now making it mandatory for employers to make social insurance payments for their foreign employees.
Furthermore, the protection of labor rights is to be strengthened, which will likely force employers to offer greater benefits to their workers.
Labor contract signing rates will reach 90 percent between 2011 and 2015, compared to 65 percent between 2005 and 2010.
Also, regulations on working hours, annual leave and sick leave, national holidays, and protection of female employees will be further toughened.