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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 Iaiken on 6/20/2011 12:36:19 PM , Rating: 1
Let's be blunt: typical factory work is essentially unskilled, and is not a "career" - it categorically should not provide wages that support a family and give benefits.

Assembling part A to part B on a factory line is minimum-wage work. It should be done by students working their way through college - so that they can gain valuable skills and land a job that does provide wages that support a family and give benefits.

Says who? You're making a critical error in thinking that there is even a possibility that 200 million such jobs will exist for them to move in to after college.

I would argue that the ONLY jobs that matter in a consumer market like the US, are those that create actual goods. I would also argue that our quest to keep goods cheap for the masses is the very thing that has helped the concentration of wealth in America to march steadily forward.

More and more I am starting to realize just how little our six-figure household income really is once investments and planning for retirement is involved. People like me are quickly becoming the new middle class as money is siphoned off from the bottom to the top. Trickle down my @$$...

RE: Good...
By MrTeal on 6/20/2011 12:59:12 PM , Rating: 2
Says who? You're making a critical error in thinking that there is even a possibility that 200 million such jobs will exist for them to move in to after college.

There might not be now, but if the supply is there the market will eventually react to use those new resources. It's not much different than the move in the US 150 years ago from having 80% of the workforce employed in agriculture to having only a few percent employed today. That allowed more people to be moved into manufacturing jobs, and allowed the industrial base to expand to the point where most every family can own a car and have a place to live.

It might not be an easy transition, but automating and outsourcing manufacturing will allow more people to be employed in high tech fields and keep up our rate of technological advancement.

RE: Good...
By 91TTZ on 6/20/2011 2:19:28 PM , Rating: 2
It might not be an easy transition, but automating and outsourcing manufacturing will allow more people to be employed in high tech fields and keep up our rate of technological advancement.

The problem is that it's more profitable and probably easier to outsource engineering jobs than it is to outsource a factory job. You can send the requirements to an engineering firm in India or China and they'll send you the finished results with a very low initial investment on your part.

Between India and China, they have a workforce of more than 2 billion people. And while those people have historically been poor, they're not stupid. If even a small percentage of their people go to school for engineering, they can easily saturate the market, driving prices down.

"Nowadays you can buy a CPU cheaper than the CPU fan." -- Unnamed AMD executive

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