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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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It's a damned shame...
By Iaiken on 6/20/2011 12:19:01 PM , Rating: 3
China is becoming wealthier with a stronger currency, and the time of cheap labor is coming to an end.

It's time to play everybody's favorite game,'Follow the money honey!'

During the 1997 Asian currency crisis, the IMF $40 billion in loans to numerous countries (South Korea, Thailand, Malaysia, Singapore, Indonesia, Philippines). These countries then experienced a strange phenomenon... Each country experienced a brief period of stability, followed by a rapid crash of the nations currency and then almost total economic collapse.

The problem was that these loans were actually being used to rescue western investors who were at risk of losing everything. Almost all of the money that came into the country from the IMF had wound up in the hands of investors, leaving the tax payers saddled with billions of debt. Within months, hundreds of millions of people were plunged back into poverty, debt and the equivalent of slavery.

Fast forward to the 2001 crisis and an amazing thing had happened. The market crashed after the world trade center collapsed and Enron and WorldCom had the covers blown off their bad books, but nothing had happened. Greenspan had cut interest rates to practically nothing and the consumer boom was on, sans inflation. This was an illusion, the reality was that the stability had come from the a deliberate exercise of political power by the Chinese Politiburo.

The Chinese currency was artificially held down and cheap goods continued to flood into America and US dollars flowed back to China. Rather than spend these dollars on their own people, the Chinese government instead sent the money straight back to America through the purchase of US Treasury Bonds at even lower interest rates than the Federal Reserve. This recycling of cheap money allowed the banks to make large loans to even the riskiest prospects.

It was a mirror image of what the US and the IMF had done to Asia not even 5 years earlier to start the Asian financial crisis. Jump forward to 2008 and the US economy and the value of the dollar have collapsed. Once again there was another exercise of political power by the financial elite to rescue themselves and saddle the tax payers with the debt.

Now people are stuck feeling like helpless components in a powerful global system governed by a logic that we are powerless to challenge or change. The problem is that we've been tricked into believing in the idea of growing stable markets in spite of all evidence to the contrary.

RE: It's a damned shame...
By myhipsi on 6/21/2011 11:24:59 AM , Rating: 2
In other words, what you're saying is that the U.S. should just default on the national debt?

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