Chinese Strikers Win Wave of Raises_Macro Policy

About_Us Contact Us

Info Data technology Sell Buy Report

Market

Report

Conference

2011 China DRI industry ...

Chinese Strikers Win Wave of Raises

作者：25 发布时间：2010-06-09 文字大小：【大】【中】【小】

By ANDREW BATSON And

NORIHIKO SHIROUZU

A rash of strikes against some of China's biggest manufacturers is winning Chinese workers higher pay and better conditions, a shift that promises to change the nation's economy while complicating life for foreign companies.

Workers at a Chinese company that supplies exhaust pipes to Honda Motor Co. walked out for a second day Tuesday, less than a week after the Japanese auto maker settled a walkout at another supplier—which paralyzed Honda's manufacturing operation in China for 10 days—by granting workers a 24% increase in pay and benefits.

The Honda strikes are part of a series of labor disputes that have dramatized an important, nascent transformation in China's economy toward one more driven by the spending power of its people.

The shift is also changing business for companies that have come to rely on China's low-cost labor to keep a steady flow of inexpensive goods.

"This is a watershed. You can no longer rely on China's cheap labor," said Terry Gou, the founder and chairman of Hon Hai Precision Industry Co., the Taiwanese electronics manufacturer that supplies iPads and iPhones for Apple Inc. and a range of gadgets for other companies, including Hewlett-PackardCo. and Nintendo Co.

Hon Hai, one of the largest employers and exporters in China, said this week it will double wages for some of its roughly 800,000 workers in the country, following earlier announcements of increases of 30% for some workers.

Behind the wage increases are a rapid rebound in the country's economy over the past year, and longer-running demographic shifts that have been slowly sapping the supply of workers.

It is a process the Chinese government has been trying to hurry along by boosting social programs and making it harder for companies to fire workers.

As Chinese workers start to spend more, the nation's economy could become less prone to boom-and-bust cycles and provide greater support for growth in other countries, economists say.

With the U.S., Europe and Japan likely facing years of weak growth, many hopes are pinned on sustainable, domestically driven growth in big emerging economies such as China.

"We are seeing a rapid rise of wages in almost every sector. This is a very positive development," said Bai Chong'en, chair of the economics department at Tsinghua University in Beijing.

Higher wages could reduce income inequality and drive more consumption, he said, if the gains continue—which looks increasingly likely. "It's more of a long-term shift," reflecting the maturing of the Chinese economy and changes in the structure of the population, Mr. Bai said.

Such salary increases are becoming increasingly common in the country's vast manufacturing sector as companies face rising pressure to attract staff and improve conditions for employees.

On Sunday in Shenzhen, the southern manufacturing hub where Hon Hai has its biggest plant, Taiwan's Merry Electronics Co. was hit by a work stoppage that lasted about two hours. A spokesman for the company, which makes electronics components, said the incident was unrelated to an already announced plan for a wage increase in July that would average 10%.

TPV Technology Ltd., the world's largest maker of computer displays, has said it will raise the wages it pays in China by another 15% to 20% this year, after a 15% increase in January.

While companies such as Hon Hai make a huge share of the consumer products bought in the rest of the world, some economists say the wage increases won't necessarily force significant price increases—in part because the companies still have ways to improve productivity and lower costs.

Much of the public attention in China in recent weeks has been on foreign companies—because they are easy targets for labor activists and media here, and because they account for a huge share of China's manufacturing exports.

But the wage changes are affecting domestic companies as well. Local governments across the country in recent weeks have announced increases in minimum wages ranging from 5% to 27% that affect all companies.

"I believe all of China's manufacturing and service sectors will need to increase workers' wages," Hon Hai's Mr. Gou said Tuesday at his company's annual shareholder meeting. He said China's government wants to make sure workers can benefit more from economic growth. "We believe the wage increase is healthy."

The changes could have far-reaching implications. The share of national income going to Chinese households has been declining for a decade, meaning that the benefits of China's growth have gone mainly to corporations and the government.

Turning that trend around is crucial to achieving what China's leaders and the nation's trading partners say they desire: a Chinese economy driven not by government investment and exports but by the prosperity of its own consumers.

U.S. officials, who have been pushing for China to raise household incomes and shift to a more domestic growth model, have welcomed the beginnings of such a shift. "It looks as if there has been a durable shift towards domestic consumption in China," Treasury Secretary Timothy Geithner said in Beijing last month, pointing to a shrinking trade surplus and the rapid growth in domestic demand.

Mr. Geithner and other U.S. officials have been urging the Chinese government to take measures—including but not limited to relaxing its strict control over the exchange rate of its currency—that would increase household incomes and support consumer spending.

The booming Chinese economy—which expanded 11.9% from a year earlier in the first quarter—now seems to be bumping up against labor constraints. A government survey showed a 35% increase in vacancies posted by employers in the first quarter of 2010, but only an 8% increase in the number of applicants for those vacancies.

The result is probably the tightest labor market in recent years, one that is making employers work harder to attract and retain workers.

Much of the change has come from shifts in the nation's population, as fewer young people enter the work force as a result of the nation's one-child policy. Demographers expect the size of the working-age population to peak in the next five years or so, and then gradually decline.

A labor market where a surplus of rural migrant workers once weighed down wages is now more closely balanced, meaning that strong economic growth can translate more quickly into higher salaries. Premier Wen Jiabao signaled the government's recognition of the new environment in his annual work report to the nation in March, when he warned that there is "a structural shortage of labor."

Higher wages have made operating in China likely to become more complex for foreign companies, especially if workers are increasingly emboldened to test the limits. Yet companies have room to lift wages without causing drastic price increases or sharply lower profits, because Chinese factories are increasingly efficient. China's labor productivity—the amount each worker can produce—has risen by more than 9% a year over the past five years, according to estimates by the Conference Board research group.

In part, that reflects companies investing more in factory equipment and automation that allows each worker to do more—a strategy Hon Hai says it will likely pursue.

The increasing prevalence of higher-wage workers and more-automated factories may make low-end products such as plastic toys less competitive in China, but it is a good formula for making electronics and other higher-end manufactured goods.

"Because of its rising wage levels, China will have to move more into the higher value-added segments of the supply chain. And that will open a lot more opportunities, both in exports and domestically," said Bart van Ark, chief economist for the Conference Board in New York. "We'll see China competing in a lot more products and even services than we see them competing now."

—Ting-I Tsai in Taipei and Sue Feng in Beijing contributed to this article.

Write to Andrew Batson at andrew.batson@wsj.com and Norihiko Shirouzu at norihiko.shirouzu@wsj.com

Sourced from www.online.wsj.com