Pay Hike

Counting the cost of rising wages in Chinese industry

(China Daily)
Updated: 2010-06-30 10:18

Chen Gong, chief economist of Anbound Consulting

Rising wages have sparked concerns over what impact this will have on China's export processing industry and whether it will lead to large-scale industrial transfer within or outside China and policy adjustment.

We should face the fact that China's low-wage era is over. Data shows that the minimum wage for unskilled labor in Vietnam is between 400 and 500 yuan ($59-74) per month, and is lower than in Bangladesh. Chinese workers' wages - generally around 800 yuan per month - exceed those in countries such as India and Malaysia. We think it's a trend that wages in China's manufacturing industries will rise more strongly in the next 10 years.

Industrial transfer is inevitable in such a scenario, especially among low-end, small-scale processing industries.

According to a survey by the Federation of Hong Kong Industries, 37.3 percent of 80,000 Hong Kong companies based in the Pearl River Delta are planning to transfer part or all of their production capacities out of the region, and 63 percent of surveyed companies are prepared to move away from Guangdong province.

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Soaring costs such as the rising wages have forced them to turn to areas with lower costs, they said.

However, rising wages are unlikely to lead to large-scale industrial transfers. Companies such as Foxconn and Honda not only have manufacturing bases in Guangdong, but also need the local environment of industry agglomeration, including factors such as the market, logistics, efficiency, tax policies and living conditions.

Given China's comprehensive advantage such as logistics, foreign companies exporting from China are unlikely to move their Chinese operations to other countries.