SCDigest: Is the Cheap Chinese Labor Party Quickly Coming to an End?
By SCDigest Editorial Staff
Through a special arrangement, presented here for
discussion is a summary of a current article from Supply Chain Digest.
The
rapid rise in manufacturing wages in China took a brief respite with the start
of the global recession in 2008, but as China’s stimulus fed expansion
quickly takes hold, once again wages are on the rise — as well as labor
activism.
What does it all mean? That is difficult to say, but the seeming general
acquiescence of the Chinese government to the moves suggest it’s long
planned strategy for competing other than by low wages is advancing to its
next phase.
The symbol for this changing dynamic is clearly the current strike
at Honda’s
massive transmission plant in Foshan, China, which went on for more than a
week. The labor action caused Honda to shut down its four Chinese assembly
plants and led to an increase in wages of 24 percent for workers there. The
strike highlighted the growing income disparity and inconsistency in China.
Workers at the Honda factory make about $150.00 monthly in U.S. terms, whereas
in many other parts of China, similar manufacturing workers take home about
twice that. Air conditioning, long working hours and sleeping quarters
were other issues.
What has been highly interesting to most observers there
is that the strike is taking place with little interference from the Chinese
government, which not only made no moves to stop the strike effort, but it
initially allowed state media to provide high levels of television and internet
coverage of the labor action. That is significant because it obviously sends
a message about striking as a tactic to laborers all over the country. This
new permissiveness, the New York Times reported, “coincides with growing
sentiment among some officials and economists that Chinese workers deserve
higher wages for their role in the country’s global export machine.”
But
clearly labor activism has increased in China since it passed the Labor Contract
Law in 2008, raising the awareness of workers as to their legal rights.
“There are internet cafes everywhere, so workers can get information,” said
Harley Seyedin, president of the American Chamber of Commerce of South China. “They
are starting to ask for more. The days of cheap labor are gone,” he said.
Meanwhile, The Wall
Street Journal reports that rising labor
costs are already driving many apparel manufacturers to look to lower wage
countries for production. Overall, China’s labor costs are up five to 15 percent
this year already, with continuing upward wage pressures.
However, there are
issues. China is also a major textile manufacturer, while the textile industries
are nascent at best in many of these lower cost countries. That means apparel
likely would have to be shipped in to these new sourcing locations. Combined
with the lack of logistics infrastructure found in China, especially the small
number of routes by ocean from ports say in Vietnam of Bangladesh back to the
U.S., logistics costs could eat away much of the gains achieved by the lower
labor costs.
Discussion Questions: What are you expecting in terms of Chinese labor costs?
Do you make much of the Honda strike action? Do you think China can smartly navigate
the transition to more higher value products and keep its export machine going
even with rapidly rising labor costs?
The days of really cheap Chinese labor are possibly past. Labor activism in China is on the rise. But the Chinese leaders are crafty and creative people and they operate with determined central control–and hold loads of U.S. debt.
The socio-political forces now occurring in China seem to be modifying matters but these emergences still need further clarification in order to determine their significance in the future. Momentarily, I suggest that we shouldn’t expect China to be satisfied to export much less–unless a revolution occurs
As in any market, when the labor gets expensive, labor gets fired. The Chinese government does have a lot of control and my guess is they will use any force needed to quiet labor unrest. The Chinese government will not take kindly to workers that disrupt the working relationship with the USA and other countries.
The expectation of this recent world financial crisis was that China would be hurt more than most countries. The rationale being is that their labor cost was so low that they could not cut costs any further. The fact is that the crisis was hardly a hiccup to China. The reason is because they have a huge financial cushion and they are progressing very rapidly on other cost cutting fronts.
China already is the world leader with the most efficient energy production. They lead the world in development of alternative and sustainable energy. As they grow, their growth will be based on efficient products. They don’t have to concern themselves with weaning their system from energy inefficient goods and operations.
The 21st Century will be owned by the country that is most energy efficient and independent. China is hardly being challenged on this front. If China’s leadership continues to make the kind of decisions that they have in the last 15 years this country will lead the world with no one in a close second place.
Even as the Renminbi is being revalued and the labor rates are increasing, the leader in energy efficiency will always have a competitive advantage against the rest of the world. As the South Asian markets grow and mature, the need for Western markets become less and less.
And before anyone considers that Chinese workers can not make world class products, consider, more components of the new Boeing 787 Dreamliner are being made in China than in the U.S.
OK! So there was a strike at the Honda plant resulting in a 24% rise in wages for those workers. I get that. What I don’t get is how this is going to make a significant impact in China’s overall wage rate system when there are so many more workers available. Economists never said supply and demand only works in English speaking countries.
Doesn’t it stand to reason that a communist nation would tend to tolerate a vigorous labor movement? China is producing huge amounts of goods destined for foreign markets, but its workers represent the largest potential market of all. Decently paid middle class Chinese could consume vast amounts of manufactured products, further building its economy.
Even when $150-per-month assembly line workers win a raise to $185, Chinese labor still looks like a colossal bargain compared with wage-earners here in the U.S. or Europe. I think Chinese leaders correctly perceive that the gap needn’t remain so large for its own economy to flourish best.
The demands of workers combined with a rise in the Renminbi will make Chinese goods less competitive on a price basis. The question is whether China can begin to compete on other dimensions such as novelty and quality, often thought to be the advantages of US product designers and manufacturers. China has been graduating large numbers of engineers and PhDs. If they can use their new knowledge to change their product output they will be a force to reckon with.
It’s hard for me to imagine the Chinese leaders allowing wages to a level that would significantly impact their exports and trade surplus. That is the source of the current geopolitical standing, and I would think that maintaining that standing is their primary objective.
Perhaps all Chinese workers can be fired and converted into “independent contractors.”
Or perhaps not.
But the telling sentence is this one:
“Workers at the Honda factory make about $150.00 monthly in U.S. terms”
In short, (these particular) Chinese workers make in a month what their American counterparts make–or made–in a couple hours.
High labor costs??? Not anytime soon.
Interesting stats recently in the Wall Street Journal and the Economist. Over 700 million cell phone users and 350 million Internet users have made the dissemination of information much easier. They also have a number of rights that are guaranteed to them by the constitution that corporations have not told them about, but now they are being informed of their rights and it is going to lead to more and more price increases, and “sitouts.”