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.