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2010 The Significance Of Wage Rise In China

2010/8/19 14:55:00 36

Chinese Wages

The hope is to use China for a lot of cheap.

The labor

For many years at home and abroad, China's coastal manufacturing center has always been the top choice for production bases.


However, since May this year, the labor dispute in China has increased significantly, coupled with the strong Renminbi and the government's actions to curb pollution and overcapacity, indicating that this low-cost production mode is no longer stable.


Traditionally, enterprises that use China as a source of cheap labor are increasingly moving low margin production lines to lower labor costs, especially in the inland areas of China. The main means is to accelerate the implementation of the factory automation plan and, if possible, pfer costs to consumers.


Foxconn, a manufacturing company with the largest number of employees in China, announces that Foxconn will raise prices and increase production automation.


The rise in labor costs, though doubting China as "

World factory

But it can also be seen as part of the process of pferring to high value-added manufacturing and increasing attractiveness of China's consumer market.


In recent months, tight labor relations have led to the closure of many large factories in China, including factories producing Honda (Honda) and TOYOTA (Toyota) cars, and recently involved parts suppliers Atsumitec and OMRON (Omron).


Official data show that since the beginning of this year, labor costs in China's two manufacturing centres, the Pearl River Delta and the Yangtze River Delta, have risen by 20%-25%, and the national minimum wage has increased by 12% on average.


In some cases, rising labor costs have limited impact on profits (because labor costs account for a small proportion of the cost of goods sold), but the greater risk comes from downtime.


Accordingly, we believe that management will be more willing to adapt to the requirements of workers.

Wage pressures are not limited to manufacturing. The management of Yum Brands, the largest catering group in the Chinese market, has said that labor costs will rise sharply in the second half of this year.


Labor costs in a relatively small proportion of the total cost of the industry will be able to withstand a substantial increase in wages, not to mention that they can improve labor productivity and maintain cost competitiveness.


Investors should also bear in mind that the Chinese companies that invest in the industry are obviously biased towards industries such as finance, telecommunications and energy.

manufacturing industry

The impact of wage rises on these industries is likely to be small (wages in these sectors are far above average).


In labor-intensive and low margin industries, the situation of producers will be less stable.

We analyzed the average wage growth rate and wage and profit ratio in various industries, and found that construction, manufacturing, wholesale and retail industries were most affected by wage increases.


Under the policy support, central China has become another excellent manufacturing location. There are a lot of cheaper labor force and improved traffic facilities, and local governments have also introduced many incentive policies.


In general, the production of high value added commodities may still be concentrated in the old manufacturing centres to make use of better local distribution networks, supply chains and skilled workers.


Demographic factors are the root cause of the labor problem.

In recent years, the phenomenon of surplus labor in China has been gradually reduced, and the number of labour force aged between 20-39 years old (they account for a large proportion of employees in labor-intensive enterprises) is decreasing.


Under the situation of global demand recovery, young migrant workers who can or are willing to leave their homes and go to the coastal cities with high cost of living are working hard.

Another factor contributing to the shortage of labour in coastal areas is the obvious expansion of construction opportunities in inland areas as a result of the expansion of infrastructure caused by economic stimulus policies.


In the next few years, the annual growth rate of non skilled migrant workers' wages may exceed the annual growth rate of total wages.

Therefore, we believe that the continuous growth of income will benefit China's economic rebalancing so as to get rid of its excessive dependence on investment and net exports.


With the increase of the disposable income of China's large number of working population, we expect that China will have a considerable number of families with a higher income level, and they will be able to afford more diversified food, brand clothing, education and entertainment and tourism services. We also believe that the process of migration to the central region will boost the demand for logistics, and the increasing wage pressure will encourage many companies to invest in automation.

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