Higher pay no deterrent in China
By Suvendrini Kakuchi
TOKYO - Common business wisdom would have it that rising wages are bad news for
foreign investors, but analysts in Tokyo say that workers' clamor for higher
pay in Japanese factories in China will not send them packing from that country
anytime soon.
In recent months, business people and analysts have been following reports of
strikes by workers in Japanese factories in China to demand higher salaries.
But far from causing worries in Japanese circles - Japan is the third-largest
foreign investor in China - they see this trend as another sign that the
world's most populous country is shifting from being a cheap manufacturing
hub into both a society in reform and an economy that promises to be a big
consumer market.
In short, Japan finds China to be too attractive a business prospect to give up
on. If China's attraction used to be its cheap and abundant labor, it is now
also becoming the massive market that many had expected it to be.
China is soon to be the world's second-largest economy, expected to account for
one-third of global economic growth this year. China's gross domestic product
rose 10.3% in the second quarter of 2010 compared with the same period in 2009.
"Rather than move to new factory sites in cheaper Asian destinations, Japanese
companies, aware of the benefits of selling in a rich economy, will continue to
manufacture in China," said Hisaki Nakai, a China expert at Japan's External
Trade Organization (JETRO), a government business research institute.
"Ironically, business benefits have set the stage for labor reform," he said.
In May, workers at a Honda Motor Co plant in Foshan, Guangdong province,
refused to report to work unless their wages were raised. After two weeks,
Honda agreed to raise monthly wages by 32%, according to news reports.
The strike led to similar disruption at other auto plants. In late May, 1,000
employees at a Beijing factory that manufactures parts for South Korea's
Hyundai Motor Co also stopped working and demanded a raise, the Asahi newspaper
reported.
Media reports said that the Honda strike highlights workers' frustration with
issues like long overtime hours, overcrowded and unhealthy accommodation, and
wages that are barely sufficient to cover their living expenses or to send home
to their families.
These point to far from just an economic phenomenon, says Tatsuo Matsumoto, an
economist at the Japan Association of Corporate Executives.
"Today's Chinese worker represents a more sophisticated workforce that is
influenced by the Internet, where information on labor rights and standards are
available," he said. He added that the Chinese government, acutely aware of the
political and economic fallout from the labor unrest, is becoming supportive of
these demands.
Over the decades, many Japanese companies, like those from other industrialized
countries, had moved their parts and assembly line manufacturing bases to China
to take advantage of lower wages and remain competitive in the global market.
But as China's economic reforms have taken deeper root since the late 1970s,
its middle class has grown along with its double-digit growth rates, making the
country a formidable market on its own.
In January, Credit Suisse said that it expects China's share of global
consumption to increase from 5.2% to more than 23% by 2020. By that time, it
added, China would overtake the United States as the world's largest consumer
market.
A November 2009 survey by the bank's China Equity Research section showed that
China's rich have become even richer, and account for 35.7% of total household
income. The income of middle-class households also grew by 98% between 2004 to
2009, it said.
These trends have also reshaped Japan's relationship with China. Once the
largest donor to China, Japan has become a leading investor in it, especially
since China's entry into the World Trade Organization in 2002.
In 2009, Japan's direct investment in China totaled US$4.1 billion, after Hong
Kong and Taiwan. Japanese investment has been growing by 12.7% year-to-year,
data from the US-China Business Council based in Beijing showed.
China is now the largest export market for Japan, with goods totaling $131
billion, taking over the position that the United States used to hold,
according to JETRO data.
Health-products maker Omron Corp says the strikes at Japanese factories point
to the need for investors to look after their relations with workers. Omron
spokesman Takashi Toda says that the company will focus on listening to staff
grievances, giving more training and providing more communication venues.
"Omron views our investment in China as crucial to our company's survival,"
Toda said, adding that it wants its products to be popular with affluent
Chinese consumers.
Omron's local sales have climbed to 15% of its total manufactures in China and
are almost at par with its exports from China to Europe, which is at 16%.
Omron's exports from China to Japan still stand at 48% of its total exports,
but Toda expects this to change and reflect more sales in China.
Smaller investors like Tomichi Shimoyama, owner of Culture Goods, which has
been producing ladies' handbags in northeastern Dalian for 20 years, are also
keen to stay in the Chinese market. "I'm keen to keep manufacturing in China,
given that the workers are improving their skills and the fact that I have
invested a lot of money and energy in that market," he said.
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