As China’s Wages Rise, Export Prices Could Follow

Following a wave of suicides on the Foxconn campus, and a series of strikes by workers demanding higher wages (including a recent one outside Shanghai which turned violent), companies are responding by raising salaries. Foxconn announced it would double worker salaries this fall. The New York Times looks at the impact this will likely have on the price of consumer goods and on the global economy:

Coastal factories are increasing hourly payments to workers. Local governments are raising minimum wage standards. And if China allows its currency, the renminbi, to appreciate against the United States dollar later this year, as many economists are predicting, the relative cost of manufacturing in China will almost certainly rise.

The salaries of factory workers in China are still low compared to those in the United States and Europe: the hourly wage in southern China is only about 75 cents an hour. But economists say wage increases here will eventually ripple through the global economy, driving up the prices of goods as diverse as T-shirts, sneakers, computer servers and smartphones.

“For a long time, China has been the anchor of global disinflation,” said Dong Tao, an economist at Credit Suisse, referring to how the two-decade-long shift to manufacturing in China helped many global companies lower costs and prices. “But this may be the beginning of the end of an era.”

An article from the Global Times questions whether it is better to raise wages or keep global manufacturing jobs in China:

Foxconn’s factories in Shenzhen will raise their basic level employee salaries by 66 percent. The continuous rise in the minimum salary paid by the largest manufacturer of electronics and computer components worldwide, which is not a common scene in the industrial area of South China, is sending a clear message to the outside world: China is no longer synonymous with cheap labor.

But China still has to depend on cheap labor to attract more overseas investment. The conflict between higher salaries and more jobs is now a challenge many local governments are facing.

According to the analysis of industry experts, factories in the southern coastal areas funded by Taiwanese and foreign investors are approaching the bottom line of paying high salaries, which makes investing in China less appealing.

See also, “Talk of the day — Are wage hikes irreversible trend in China?” from Focus Taiwan and “Who will be the next China?” from the Time blog. The Huffington Post has a slideshow illustrating “Why The END Of Cheap Chinese Labor Is Near.”

Meanwhile, the second strike at a Honda parts factory is till ongoing. Read about the strike and recent worker unrest here via CDT.

From Al Jazeera:

June 8, 2010 2:46 PM
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