SCDigest: Is the Cheap Chinese Labor Party Quickly Coming to an End?
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?