Wednesday, August 4, 2010

China can’t afford this!!

Chinese workers have become dearer and aggressive, with wage increase of 17% in last year alone. The rise in wages, of the world’s cheapest labour is bound to trigger a multi faceted debate. Will china loose its identity of a low cost manufacturing destination or productivity will increase proportionately (1995 to 2004 wages tripled and production quintupled, thus reducing unit labour cost by 43%), or is it time for companies to shift their manufacturing to other low cost producing nation like Vietnam (touted as next china, per capita income is less than third of china’s), will this wage rise, translate into consumption?

Chinese workers are thought to be docile and diligent, but spree of strikes repainted this image. Guangdong (preferred province for most of the MNC) alone has witnessed 36 strikes. Social adhesive of unity is increasing with the increase in education standards. Further Labour reform of 2008 and government differential policy towards MNC have strengthened them. Productivity per unit labour has already reached its upper limit with modern manufacturing techniques, thereby increasing the unit labour cost and cost of the goods. Effect of such a rise will be similar to appreciation of Yuan, exports will become uncompetitive.

Spinal cord of Chinese economy is FDI and high exports. Of 200 largest exporters on Chinese ports in 2009, 153 companies had a foreign stake. These large exporters may shift their facilities to other nations, giving ambitious Chinese economy a setback. Though there is also a good side to this, if wages increase than consumption will pick-up and companies which are there for manufacturing will stay for shoppers.

It’s also a good sign for recovering global economy which is working far below its capacity. China is disturbing the equilibrium of global economy. As they produce too much and consume too less. Consumption rise in China will increase exports and employment in Western countries.

Chinese communist party (CCP) will have to take some serious measures for roaring workers as it is becoming difficult for company’s administration to manage the workforce. Cost of production is bound to rise with increase in wages but other competitive advantages can still lure manufacturers to invest in China.


Anonymous said...

1200 Chinese yuan/month / (37.5 hours/week * 4 week/month) = 1.215 U.S. dollars/hour

I guess that's quite the increase from the 800 yuan/month (0.804 U.S. dollars/hour) in 2004.

I have a moral objection to the outrageously low rates in China (and other countries). Furthermore, wage increases in China make North America more competitive. The US federal minimum wage is $7.25 while in Canada it ranges from $8.00 to $10.25 (depending on province). Why are people surprised our economy is failing? We simply can't compete.

Anonymous said...

Remember that everything is much cheaper in China, and housing is usually included in a worker's employment package, so $1.215 is a moderately comfortable wage. I, a white American male, lived comfortably in China on about that salary when I taught there, even found it a slight improvement over my previous conditions as a college student. By purchasing power, China's salaries are not so morally objectionable.

Anonymous said...

USA economy still exist because the People's Bank of China owns over the 20% of the USA state bonds. It's time that, from now on, all americans, for the Thanks Giving Day, go on a pilgrimage to Beijing, to revere the Chinese Government. Thanks to the Chinese investments, they still have something to eat in their dishes.

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