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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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RE: Good...
By guffwd13 on 6/20/2011 12:33:48 PM , Rating: 2
learn a skill that's worth paying you a non-minimum wage for.

in most instances i would agree with this sentiment. but the problem is, and its getting worse, is that labor - even cheap labor - is a big ticket item, which is of course why we're farming it all out to china, india etc. all that money, even if less than it would be here, is permanently removed from our economy... hence the trade deficit.

until we bring manufacturing back home, even if every person who can work in this country has a "skilled" job, we'd still be losing money - not making it. that whole concept is impossible anyway.

on the other hand, even when those labor jobs come back, those people should expect a job that pays what its worth to society. you want more money? go find yourself some skills. society doesn't owe anyone any well-paying job just because everyone else has one.

RE: Good...
By Jalek on 6/20/2011 1:19:54 PM , Rating: 3
West Africa was the next tech target for labor, if HP is to be considered a leader. They've had mixed results shutting down US R&D labs but tech support can be done by anyone that can pretend to speak English.

RE: Good...
By Breakfast Susej on 6/20/2011 3:25:14 PM , Rating: 1
I was just about to make a comment that read, In other news cheap labor in Africa is soon to be off to a roaring start.

What will happen though when the world runs out of dirt poor populations to exploit for cheap labor? I wonder.

RE: Good...
By TSS on 6/21/2011 4:39:15 AM , Rating: 2
Somebody will always be poor, because without the poor there wouldn't be any rich people.

When Africa becomes too expensive labor will move to the USA. How can you possibly be "rich" when it costs you 19% of federal revenue to pay off *interest* the the national debt? As in your wasting nearly 20% of your income every year to keep the pile of debt you already have, at INSANELY low interest rates. Negative rates even on inflation protected treasuries.

According to Wikipedia for the US fiscal 2010, mandatory spending was $2.173 trillion. According to, income revenue for 2011 will be $2.193 trillion.

You can't even cut spending to get out of this mess anymore, even if the politicians wanted to. The only awnser is hyperinflation, a la Zimbabwe. Annualized inflation has already jumped 2% in 4 months. It's not hyper inflation, no, but the only way to combat normal inflation is rising interest rates, and guess what that does to the interest paid on the national debt.

RE: Good...
By Zoomer on 6/21/2011 10:12:58 AM , Rating: 2
Not true. People put the mandatory label on things. Similarly, that label can be removed.

RE: Good...
By Bad-Karma on 6/21/2011 4:06:11 AM , Rating: 2
I'm not sure we'll see production moving to Africa, at least not in our lifetimes. A companies desire for cheap labor on a sustainable basis would have to be tempered with Africa's horrible political instability. Most African nations are constantly teetering on collapse and have constant social upheavals. Just look at how many fly-by-night dictatorships appear on the scene only to displaced by the next one a decade down the line.

To my recollection Da beers is one of only a few companies that has been able to endure in Africa. Even then they've nearly lost their mining rights many times over the years.

RE: Good...
By Ringold on 6/20/2011 2:14:29 PM , Rating: 2
until we bring manufacturing back home

Siemens reported in the Economist last week that it's having significant problems finding skilled labor in engineering, manufacturing, etc., and is having to resort to expensive education and training programs itself, including on the job apprenticeships. There's over 200k job openings available in the manufacturing sector in the United States, a number thats been growing even as unemployment has increased. Siemens, Manpower and others reported that the average manufacturing job now involves a variety of high-tech equipment.

So, manufacturing is already here, it's just that we Americans got fat and lazy, started letting our kids get useless college degrees in liberal-arts degrees, and we stopped updating our skills. People also forget that the US is still a massive manufacturing power, we simply have replaced humans with robots.

Bottom line: We could ask manufacturers to return to the US, but once they got here, if the current markets any indication they wouldn't be able to fill anything but the lowest skilled of jobs. If this doesn't also serve as a dual indictment of our failed worth-ethic as a nation in terms of our young and of our education system I don't know what does.

RE: Good...
By guffwd13 on 6/20/2011 4:04:20 PM , Rating: 3
If this doesn't also serve as a dual indictment of our failed worth-ethic as a nation in terms of our young and of our education system I don't know what does.

I'll have to disagree with your generalization of the young as a whole, the emerging college graduates have the same if not more engrained "work, work, work" ethic more so than previous generations. Our (which I say because I am in my 20s) generation's parents both worked full time and often overtime and while it has been recognized that our generation has been taught to seek out a profession that we enjoy, we also have been exposed to nothing but work all-the-time mentality. If you're referring to the social media and computer/console game addicted members of our generation, I'd say that's more a failing of parents of the previous to instill that work ethic in their kids and used their kids lack of needing to work as bragging rights along the lines of "look at how well I'm doing, my kids don't even have to work".

While that's a gross generalization in itself, my point is I don't think the emerging workforce generation is any more lazy than previous ones.

I do, however, agree with you that the education system in this country is getting worse, especially relative to other countries, and is at least in part due to the "no child left behind" policy. Also, in more well-to-do areas, it has been observed that too many parents are putting their kids in a "needs special help" system in the public schools to get more one-on-one attention even though those kids would previously have been thrown in with the rest.

The real problem lies in the overall American mentality that everyone deserves something and "its ok, honey, not winning/doing well is ok." Parents need to be more strict with their children and push them for higher standards. Positive reinforcement only does not work.

RE: Good...
By room200 on 6/20/2011 2:55:14 PM , Rating: 2
Well, being a garbage man doesn't take much skill, but I don't know many people who want to do it, and your neighborhood would be crap without it.

"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain

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