HONG KONG - As workers in the United States and Europe face layoffs and growing
unemployment lines, their Chinese counterparts are demanding and getting higher
pay and better conditions as they seek a larger slice of the country's growing
prosperity.
Putting more cash in pay packets also supports the government's twin goals of
reducing threats to social stability and rebalancing the export-dependent
economy by boosting domestic consumption.
Chinese President Hu Jintao in April said the government would take measures to
protect the interest of workers, create more jobs and lift wages. According to
mainland media, Hu's pledge implied that raising incomes was "the only way for
China to
effectively boost domestic consumption to pursue sustainable economic growth".
(That is in line with arguments long put forward on this website by Henry C K
Liu; see most recently, for example,
China and a new world economic order, Asia Times Online, January 12,
2010).
A 100% increase in wages of low-income earners will generate about a 70% to 90%
increase in consumption, according to Reuters, citing Wang Han, an economist at
research firm CEBM.
Big pay awards this month by Honda Motor and Hon Hai Precision Industry, the
world’s largest electronics contract manufacturer, are merely the most highly
publicized examples of industrialists risking thinner profit margins to keep
workers churning out products.
Honda took barely two weeks before caving in to demands, backed by a strike,
for better pay at a key component factory in Foshan, Guangdong province, that
supplies transmissions to the Japanese company's auto plants in China. The
eventual response was an offer of a 24% pay rise after a walkout on May 17
forced a halt in production at four assembly plants.
Taiwan-based Hon Hai stumped up even more - initial pay rises of at least 30% -
on June 1 in its latest effort to halt a string of suicides at the Shenzhen
plant of its affiliate, Foxconn, which puts together computers and mobile
phones for companies including Apple Inc, Hewlett-Packard, Dell and Nokia.
The company attracted worldwide attention last month as it struggled to find
the cause for at least 10 workers killing themselves, and others failing in
their attempts, since late last year. The basic salaries of the lowest-ranking
production line operator at the Shenzhen plant, which employs about 420,000
workers, will now rise to 1,200 yuan (US$176) a month from 900 yuan and more
than double to 2,000 yuan a month in October. More senior employees will also
have their pay increased.
"Companies which have
been taking advantage of cheap labor on the mainland have to raise their
employees' salaries and quality," Liu Buchen, chief consultant at Jiachunqiu Media Institute,
a Henan-based advertising agency, told Asia Times Online. "The old mindset among
big enterprises and local governments of relying solely on cheap labor needs to
change or they will face similar strikes."
Many local governments already recognize that low-pay manufacturing jobs may
help exports but risk unrest closer to home when housing and other basic costs
for workers are relentlessly rising. Shenzhen, formerly part of Guangdong
province and the frontline of China's three-decade transformation into the
world's factory, is expected to increase the local minimum wage by 10% to 1,100
yuan from July 1. That comes after increases of about 15% almost every year
since 2005.
Authorities elsewhere have also raised their minimum monthly wages since
February. Jiangsu province in eastern China raised its minimum monthly wage by
more than 10% to 960 yuan, while Guangzhou, the provincial capital of
Guangdong, immediately to the north of Shenzhen, increased its minimum salary
to 1,100 yuan last month.
The initial 30% wage increase for Foxconn workers could cut its profit between
10% and 15% this year and 21% next year, said Edward Yen, an analyst with UBS
Investment Research. Even so, potential productivity gains would result in
improved yield rates per worker, he said.
Hon Hai in April said first quarter profit rose 34.76% to NT$17.99 billion
(US$560 million) from a year earlier as sales increased 49% to NT$414.8
billion.
Not all analysts agree. Hon Hai's share price in Taipei on Tuesday fell to its
lowest since last September after Macquarie Group and Daiwa Securities
downgraded the company on concern that the steeply higher wages it will pay in
Shenzhen will hurt earnings.
Some analysts said lower margins were a small price to pay for industries to
upgrade their operations or encourage them to move away from the increasingly
expensive coastal regions to the poorer hinterland. The only way out for
labor-intensive industries is to transform themselves by using more research
development and self-branding - or shut down their plants, Stanley Lau Chin-ho,
deputy chairman of the Federation of Hong Kong Industries, told the Asia Times
Online.
Strikes are becoming more frequent as the country's high economic growth,
estimated to be about 11% this year, increases labor shortages in many
industries, adding leverage to workers' demands.
Labor disputes in Guangdong rose nearly 42% in the first quarter of 2009
compared with the same period a year earlier, and surged about 160% in the
northern coastal province of Zheziang, according to The Economist, citing the
official Outlook Weekly magazine. One factor, the report said, was a January
2008 law strengthening workers' contractual rights.
Late last month, more than 1,000 workers at an auto parts supplier of Beijing
Hyundai, a joint venture of the South Korean carmaker, secured a 15% pay rise
followed by another 10% in July after a two-day strike. In early May, about
5,000 workers of Japanese camera maker Nikon Corp went on strike over the
handling of an apparent gas-poisoning incident.
Manufacturers are not the only group where workers are standing up for better
deals. More than 124 bus drivers in Nujiang Lisu autonomous prefecture of
southwest Yunnan province went on strike on April 1 in protest over ownership
and licensing issues. Similar protests by taxi drivers took place last year in
Chongqing municipality, Hainan, Gansu and Henan provinces.
Even so, higher salaries are good for companies in China and the overall
mainland economy, said HSBC China economist Qu Hongbin.
"This is because a rise in wages means the economy has fully recovered. As
income rises, so will consumer spending. This is good for China, which has
stepped up its efforts to embrace consumer-led growth," Qu said.
Liu of Jiachunqiu Media Institute concurred. "With increasing income, workers
have more money to spend. The increase in the consumption power of people will
enhance their standard of living and this eventually will help auto sales in
China - the world's biggest auto market."
High pay awards are certainly not holding back Honda's plans for expansion in
China, the company's third-biggest production base after Japan and the US. It
recently announced plans to spend 930 million yuan to boost annual capacity at
its Chinese factories to 830,000 cars by the end of 2012, up 28% from 650,000
at present. Strong sales in the mainland helped Honda report 72 billion yen
profit (US$785 million) for the first quarter of this year, from a loss 12
months earlier.
Hon Hai chairman Terry Gou meanwhile told shareholders this week that he
planned to boost automation at the company's factories to combat wage
increases, an indication, perhaps, that the present pay bonanza may prove to be
short-lived for many workers.
Olivia Chung is a senior Asia Times Online reporter.
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