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Foxconn workers  (Source: Kotaku)
A growing Chinese economy and a need to tend to manufacturing workers' needs has upped the cost of labor

Years ago, several U.S. manufacturers moved production plants to China in an effort to cut labor costs. However, the age of cheap labor in China is ending as annual wages for manufacturing workers continue to grow, and now, some of the larger plants in China are looking for a new home.

Originally, toys, footwear, and textiles were among the first to go to China decades ago. With 1.3 billion people, cheap labor in China seemed unlimited at the time. But in the last two decades, this began to change as a "frenzied" infrastructure and housing build-out caused a flourishing economy that has grown nearly 12 percent per year. In addition, the Chinese government raised the minimum wage 14 percent to 21 percent this year alone in the five largest manufacturing provinces. 

"We've seen our wage costs in China go up nearly 50 percent in the last two years alone," said Charles Hubbs of Guangzhou Fortunique, which is a medical supply company for some of the United States' largest health care companies. "It's harder to keep workers on now, and it's more expensive to attract new ones. It's gotten to the point where I'm actively looking for alternatives. I think I'll be out of here entirely in a couple of years."

But where will plants go to next? Countries like India, Laos, Cambodia and Vietnam are a few options for cheap labor. Also, some companies like Wham-O, a toy company, are returning to the U.S. Last year, Wham-O moved 50 percent of its Frisbee and Hula Hoop production to the U.S. According to a study by the Boston Consulting Group (BCG), China's average wage rate was 36 percent of the United States' in 2000, and by the end of 2010, this "gap" shrunk to 48 percent. By 2015, BCG predicts it will be 69 percent. 

"So while the discussion in the short term favors China, the spread is getting down to a smaller and smaller number," said Hal Sirkin, leader of the study and senior partner at BCG. "Increasingly, what you're seeing [in corporate boardrooms] is a discussion not necessarily about closing production in China but about 'Where I will locate my next plant?'"

Production in China will not close entirely for most companies because even though labor costs have increased, they're still cheaper than most other places. Right now, the average manufacturing wage in China is about $3.10 an hour, while it is $22.30 in the United States. In the eastern part of China, it is about 50 percent more than the average $3.10 wage elsewhere. 

China sees this new shift as a good thing. After the Foxconn suicides and high-profile labor protests last year, wages were increased. Also, many multinational and Chinese companies have relocated or even expanded inland for cheap labor, meaning that people in Henan or Sichuan can find jobs closer to home and do not have to live in a company dormitory. Manufacturing workers, like 24-year-old Wu Dingli, say they prefer working closer to home, even if it means making a bit less money than jobs further away. 

"Life is much easier for me here because I'm closer to home," said Dingli, who left an electronics factory job in Dongguan for a electric cable supply job in Chongqing. "I much prefer this job to the old one."

In addition to making life easier for employees, rising wages will give more money to the people, which will in turn increase Chinese consumption. This will benefit Beijing's major trading partners, who can then decrease "drastic imbalances" in global trade. 

While exporters like Hubbs will feel the effect of higher wages, the bottom line is that China is becoming wealthier with a stronger currency, and the time of cheap labor is coming to an end.



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Just wait until the unions move in.
By Cerin218 on 6/20/2011 11:44:08 AM , Rating: 2
There are already groups in China tired of working for a dollar a day. The unions will move in and China will go the way of the US while the next third world country with low wages will be the new hot spot to manufacture. China has nothing to offer except low wages.




RE: Just wait until the unions move in.
By 91TTZ on 6/20/2011 11:47:35 AM , Rating: 2
Is it possible to have a union in a communist country? It sounds like the government doesn't like competition there.


By Cerin218 on 6/21/2011 2:23:20 PM , Rating: 2
Look up and see what happened between the Chinese government and Foxconn.


By melgross on 6/20/2011 12:36:14 PM , Rating: 2
As you read, they're not getting paid a dollar a day, but $3.10 an hour. Prices in China are also lower than they are here.


RE: Just wait until the unions move in.
By Arsynic on 6/20/2011 12:37:25 PM , Rating: 2
Unions are an extreme solution to a major problem. It's like euthanizing someone after they have just been diagnosed with skin cancer.


By Motoman on 6/20/2011 1:11:34 PM , Rating: 2
Unions can only be beneficial in regulating business in the absence of proper government regulation.

One a strong government is in place, unions serve only to destroy companies and the communities that depend on them.


"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)














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