A spate of suicides at Hon Hai Precision Industry’s Shenzhen plant and strikes at Honda’s Guangdong facilities have once again put pay and worker conditions under the spotlight. Fears have been growing that the mainland may no longer appeal to foreign firms as an oasis of low-cost production. However, talk of rising wage costs pushing manufacturers out of China may be exaggerated.
Taiwan’s Hon Hai, also known as Foxconn, raised wages 30% for its assembly line workers after 10 employees jumped to their deaths over the first several months of the year. The hike was designed to prevent further discontent with wages and work conditions for more than 300,000 employees. Foxconn’s head, Terry Gou headed a PR blitz, showing off worker perks, including restaurants and a large swimming pool.
Even so, Foxconn was quickly displaced from the labor news headlines by Honda, which bowed to worker demands for a wage rise. The move, which will cost the automaker an estimated US$109 million in profits, ended a strike that had halted production at four of Honda’s Guangdong assembly plants. Strikes, walkouts and scuffles with the police have been recorded elsewhere in the country, and several local governments, including Shenzhen, Guangzhou and Beijing, have responded with increases in minimum wages of up to 20%.
Premier Wen Jiabao took the opportunity to remind the country of the importance of migrant workers. "Our wealth and our tall buildings are all distillations of [their] hard work and sweat," Wen said.
But labor worries should not be overplayed. The fall in surplus migrant labor supply, which began several years ago, naturally leads workers to seek more competitive wages and demand a bigger piece of the ever-growing pie.
Wages have never been completely stagnant: Some estimates show that average wages have been rising steadily by about 7% per year on the mainland. Moreover, when China finally introduced its Labor Contract Law in 2008, many employers argued that wage inflation would get out of control, that China was becoming too expensive to operate in and that they would be forced to leave.
They didn’t. Even now, according to CLSA, labor accounts for less than 10% of production costs. Margins are more regularly affected by inputs like raw materials and energy.
Weak transport logistics and infrastructure in countries like Vietnam and Bangladesh mean that China will remain the key production base for both domestic and foreign manufacturers. More importantly, as more companies look to capitalize on domestic consumption, having workers with a bit of extra cash in their pockets can only be good for business.