Friday, March 19, 2010

China’s exports powerhouse lifts wages

China’s exports powerhouse lifts wages

By Enid Tsui in Hong Kong

Published: March 18 2010 10:30 | Last updated: March 18 2010 10:30

Guangdong, the province that produces about a third of China’s exports, on Thursday announced plans to raise its minimum wage more than 20 per cent, fuelling inflation fears and dealing a blow to manufacturers emerging from the global credit crisis.

The province, which borders Hong Kong and forms part of the manufacturing powerhouse known as the Pearl River Delta in southern China, was not the first to introduce a mandatory wage rise this year, but the increase was sharply higher than the 13 per cent introduced by Jiangsu province last month.

The local government said the move was necessary to attract labour to work in local factories and improve the lives of low-income earners. The minimum wage increase of 21.1 per cent will take effect on May 1.

It added that wages were set to reflect rising inflation and the region’s acute labour shortage – a problem that is paralysing plants rushing to complete an unexpected surge in orders after Chinese new year in February.

One factory owner on Thursday said the move would bring limited benefits to business.

“A lot of our workforce traditionally come from the poorer regions in western China, but factories are moving out there to take advantage of cheaper wages and lower taxes. Those workers who used to come here can now find work close to home. I don’t think we will see many of them moving back here,” said Au Yiu-chee, a Hong Kong owner of a textile factory in Dongguan.

He said he had about a third of the workers required to complete an order due in May from a European brand. His workers receive the current minimum wage of Rmb740 plus an output-based commission, which took their monthly pay to about Rmb2,000.

Guangdong exported $53.3bn of goods in January and February, 22.1 per cent more than the same period last year.

The province, once the preferred location of manufacturers chasing low-cost labour and dubbed “the world’s factory floor”, now competes with cheaper industrial bases in China and other parts of Asia.

“Factory owners around here certainly did not expect the government to suddenly pull up wages by so much. This is crazy. How can we compete for orders when our rivals in Cambodia are offering much lower prices?” Mr Au said, adding that the spectre of a renminbi appreciation made the wage increase doubly worrying.

On Thursday a trade association in China published a survey of 1,000 businesses showing that exporters in labour-intensive sectors – mostly original design manufacturers making products to order for international brands – had profit margins as low as 3 per cent. The China Council for the Promotion of International Trade added that a renminbi appreciation would force many exporters to close.

Labour representatives, however, said the government had to bring wages up to a realistic level.

Geoffrey Crothall, spokesman for the China Labour Bulletin, a non-government organisation, said he had expected wages to increase just 10-15 per cent. He said the fact that Guangdong had introduced a higher-than-expected minimum wage meant the government was concerned about the ability of enterprises in the delta region to function without a steady flow of workers.

While there were fears that higher wages would feed wider inflation – China’s consumer price inflation reached a 16-month high in February – existing wages were below the cost of living.

According to official data, nearly 9m people in Guangdong worked in the manufacturing industry in 2008, but that did not take into account the massive population of migrant workers, which swells the province’s working population.

Chinese province raises wages 13%
By Tom Mitchell in Hong Kong and Geoff Dyer in Beijing

Published: February 7 2010 19:17 | Last updated: February 7 2010 19:17

A decision by the province that is China’s second-biggest exporter to raise minimum wage rates has heightened expectations that other provinces and cities will soon follow, just as the central government’s attention is shifting from economic stimulus to rising inflation.

Eastern Jiangsu province, which exports more than Brazil and South Africa combined, raised its monthly minimum wage rate 13 per cent to Rmb960 ($140) last week. It was the first time the rate had been adjusted in two years.

The potential round of minimum wage increases comes amid signs that inflationary pressures are picking up in the Chinese economy after a rapid recovery in the second half of 2009, fuelled by a huge government stimulus programme. Government officials are debating whether to slow the pace of new loans and begin appreciating the currency to dampen inflationary expectations.

“This could be a red flag about wage inflation,” says Arthur Kroeber, editor of China Economic Quarterly. “Inflation in China is becoming systemic because of rising wages caused by a tighter labour market.”

In the immediate aftermath of the global financial crisis last year, local governments were reluctant to raise wage rates and put extra strain on already struggling factories. But now that officials are confident the worst is over for China’s export sector, they are more willing to address workers’ concerns.

“The economy is picking up again,” said Geoffrey Crothall, of the Hong Kong-based China Labour Bulletin. “Inflation and basic cost of living are increasing. It’s clearly in local governments’ interests to make some accommodation.”

Jiangsu’s adjustment of the highly symbolic minimum wage also reflects growing competition among different regions to attract migrant workers after the Chinese new year holiday next week. Neighbouring Shanghai is expected to raise its rate by double-digits on April 1.

Beijing and cities in southern Guangdong province, the country’s biggest exporter, are considering adjustments. Deputies to Guangdong’s people’s congress have even suggested linking minimum wage levels to the consumer price index.

The consumer price index rose from 0.7 per cent in November to 1.9 per cent in December, which some economists believe is the start of a concerted rise in inflation. However, some analysts said the sharp jump in inflation could have been the temporary result of severe winter weather on vegetable prices and that inflation for January, which will be announced this week, will have moderated.

An estimated 20m migrants did not have jobs to return to after the country’s biggest holiday last year, as overseas retailers ran down their stockpiles and factories closed. But after orders began to recover during the summer, most migrants seeking work in coastal manufacturing zones were able to find jobs and local officials began to fret about incipient labour “shortages”.

“We have trouble getting staff because other factories keep popping up and offering workers as many hours as they want,” said one manager, whose Guangdong factories supply Walmart and other brand-name retailers. “Workers don’t want to waste time sitting on their butts when they could be making more money at another factory.”

Labour shortage hits China export recovery
By Tom Mitchell in Shaoguan

Published: February 25 2010 18:50 | Last updated: February 25 2010 18:50

An export recovery in the world’s most populous country is running up against an unexpected constraint – manpower.

With Chinese exports back to their early 2008 levels, factory owners are worried about their ability to service a surge in orders now that a new manufacturing cycle has begun after the lunar new year holidays.

The problem is particularly acute in southern Guangdong province and its Pearl river delta manufacturing heartland near Hong Kong, the region known as “the workshop of the world”.

Guangdong accounts for a third of China’s exports and would rank as one of the world’s 10 largest exporters if it were a country in its own right. But the province’s ability to attract and retain migrant labour from China’s vast interior is slipping.

“Labour availability is tight right now in Guangdong compared to other regions,” said Paul Hussey, chief executive of Strix. The Isle of Man company, which dominates the global market for thermostatic controls on electric kettles, maintains most of its manufacturing operations in the provincial capital, Guangzhou.

Quantifying labour shortages is extremely difficult given large variances by region, industry and skill level. Recruiters for Galanz, the world’s largest manufacturer of microwave ovens, were this week offering production line workers a relatively robust monthly base wage of Rmb1,700 ($250). Skilled technicians in much greater demand were commanding 65 per cent more.

In Dongguan, a manufacturing centre near Guangzhou, the local government estimates that there is now just one worker for every two jobs. At the height of the crisis, which for Chinese manufacturers came last spring, local officials calculated there were four workers competing for every three jobs.

Beijing’s successful economic stimulus programme has contributed to a coastal scramble for labour, by increasing investment and employment opportunities elsewhere.

“Fiscal stimulus has spurred jobs growth in the interior provinces,” Ben Simpfendorfer, Royal Bank of Scotland economist in Hong Kong, said.

In December, China unveiled the world’s fastest passenger train service between Guangzhou and the central city of Wuhan, covering 1,100km in just three hours. The Harmony Express line has reduced travel time between Guangzhou and Shaoguan, an industrial backwater in Guangdong’s remote mountain region, to just 40 minutes, anchoring local workers closer to home.

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