It’s been a tough few months for consumer electronics giant Foxconn Technology, China’s biggest exporter, also known as Hon Hai Precision Industry (2317.TW). Whether or not poor working conditions were to blame for the spate of suicides in the Taiwan firm’s Shenzhen factories, the large wage increases subsequently awarded to workers suggest that the balance of power between factory bosses and migrant labor is shifting.
Foxconn was the highest-profile example of unrest amid growing labor shortages in the Pearl River Delta (PRD). The strike at Honda’s (HMC.NYSE, 7627.TYO) components plant in Foshan, which shut down the Japanese car maker’s entire China production in May, was further evidence that workers’ bargaining power is rising as the labor market tightens.
Manufacturers in the PRD are not about to abandon the low-cost, labor-intensive model that has served them so well for the past three decades. But after years of talking about moving production inland to take advantage of lower costs, some of the biggest players are finally doing just that.
Foxconn is tightlipped about its plans. Executives were unhappy when government officials in Zhengzhou, capital of Henan province, recently spilled the beans on plans to open a giant Foxconn plant that would eventually employ 300,000 workers in the city. This comes a year after Foxconn finally confirmed rumors that it would establish a US$3 billion base in Chongqing capable of producing 20 million laptop computers a year. Other unconfirmed reports in the domestic media refer to plans for a plant in Chengdu, a few hours up the road from Chongqing in Sichuan.
As the biggest suppliers of China’s 150 million migrant workers, Henan, Sichuan and Chongqing are obvious places to set up inland production bases. An estimated 22 million of Henan’s 100 million population work outside the province. And as more migrant workers seek work closer to home, the coastal labor market is set to tighten further.
Yet much more investment in labor-intensive jobs in the interior is needed. A decade after Beijing launched its "Go West" campaign to develop backward western provinces, the hinterland remains poor. Despite the attention lavished on the west, central China is barely more developed, with average per capita GDP in Anhui and Jiangxi hovering around US$2,500.
Beijing’s solution to the conundrum is squarely focused on improving transport infrastructure. The goal is to open up China’s continental economy to domestic trade, just as the booming cities of the eastern seaboard feed off markets overseas. The economic stimulus investments over the past 18 months helped speed up the process. Now that much of the infrastructure is in place, planners hope that domestic trade will flourish organically around regional dynamos – the big western cities of Chengdu, Chongqing and Xi’an, and the big central cities of Zhengzhou, Wuhan and Changsha.
The noises emanating from the boardrooms of Shenzhen and Taipei suggest that the plan is beginning to work. Better roads, faster railways and bigger airports mean that the cost of moving goods around the country has fallen considerably, and over the next decade we can expect a steady stream of manufacturers to open production facilities inland.
For factory bosses and migrant workers alike, the story is the same: The future will mean looking closer to home. If that means happier workers and fewer suicides, then so much the better.