China’s manufacturing wages: The Olympic hangover

A recent newspaper article reported in early July that a Japanese manufacturing company in Guangdong Providence China received a formal letter from the local government informing it to increase the minimum monthly wage by approximately 20 percent to 900 RMB.

The Guangdong government announced plans to double income for workers in five years, and the July wage increase signals the first step in this overall plan.

The Shanghai government announced a 14 percent increase in the minimum wage beginning in April. This was the second increase in the last seven months, raising the minimum wage in Shanghai by more than 27 percent in one year.

If wages continue to increase at the same percentage, salaries will double every three or four years.

Salary levels in China rapidly increased prior to the start of the Beijing Olympics.  To prepare as the host country for this year's Olympics, construction projects were plentiful, labor was in high demand, and local governments did not hesitate to increase minimum wages.

While workers in manufacturing companies are happy with the bump in wages, the increase was not met with open arms by executives from foreign companies doing business in China.

Manufacturers have to deal with overall cost of labor increases as well as a currency appreciation from the Chinese RMB.

The RMB has risen steadily since 2005, and has appreciated 20 percent when compared to the US dollar. Additionally, exporting power for companies has continuously weakened over the last few years. Rising inflation directly affects the cost of materials and this cancels out any importing power from a strong RMB.

Unfortunately, governments are not concerned with productivities from manufacturers. Individual companies must formulate their own plans to increase productivity and survive under such difficult circumstances.

Originally, foreign manufacturers moved production facilities to China to take advantage of low labor costs compared to their own domestic work force. Now, faced with rising wages throughout China, foreign manufacturers are faced with two choices to keep costs down.

The first is to move their manufacturing operations to other countries with low labor costs, and / or the second is to make capital investments in their Chinese operations and automate most of the facilities to increase productivities.

    

Average rating           (1 vote) Rate this: ---Excellent!Great!GoodQuite goodNot so great