As labor costs continue to climb, is China set to lose its coveted spot as the world’s workshop?
Rising labor costs are inevitable. China’s government introduced tough labor laws and a minimum wage in 2008. Recent policies to improve rural economic conditions have slowed the flow of migrants from the countryside. Workers are demanding higher compensation to match the fast-rising cost of living in China’s cities, as manifested in an ongoing and high-profile labor strike at a Honda plant based in Guangdong. Salary was the major point of contention.
Workers on strike demanded a raise in pay from the current 1500 renminbi ($234.00) to 2000-2500 renminbi ($373.13) per month. Clearly, Chinese factories can no longer offer dirt-cheap prices.
Apparel production is a prime example of China’s declining competiveness in markets dependent on low-cost labor. According to a study by the US consulting firm Jassin O’Rourke, labor costs in China are higher than in seven other Asian countries. The average cost for a worker is $1.08 per hour in China’s coastal provinces and $0.55-0.80 in the inland provinces. India was in seventh place, at $0.51 per hour. Bangladesh offers the lowest cost, only one-fifth the price of locations like Shanghai and Suzhou.