MNCs in China face higher wage costs and labor unrest;Foxconn,Honda,Toyota all increase worker salaries

Labor shortage and improved opportunities for workers driving up wages

China’s massive manufacturing base near the Eastern coast has been driven by cheap migrant labor from the western part of China.Most of the world’s major MNCs have set up manufacturing plants s in China taking advantage of the low labor costs and government support as local authorities compete with each other in promoting  industry through subsidies.However things seem to be changing as China has recently been in the news with reports that  “underpaid” Chinese workers are resorting to strikes and protests to demand increasing wages.I had mentioned it as one of the Seven reasons why China’s economy might be slowing down.Note China has seen a much  faster rise in productivity than a rise in wages due to excess supply of workers from the underdeveloped Chinese hinterland.But looks like the situation might be changing with a labor shortage developing in China’s Eastern Provinces.Improved opportunities in their home provinces,demographic changes with “single child policy” and increasing affluence are perceived to be the causes of this shortage. The most interesting part is that the authorities have also subtly supported the wage hike argument by workers.This is a major  shift as local authorities quickly quell any labor agitation to keep the MNC’s in good humor.

China Toyota supplier reopened after brief strike – Reuters

China must lift the incomes of workers to protect stability, the country’s top official paper said on Thursday, after the latest in a series of labour disputes briefly closed a supplier for Toyota Motor Corp The Toyoda Gosei plant, in the northern port city of Tianjin close to Beijing, was shut down on Tuesday by a strike but employees went back to work the next day after managers agreed to discuss wage increases, a company spokesman said.The firm, 43 percent owned by Toyota Motor and a supplier of items such as door components for compact cars, has not fallen behind its production schedule because it cancelled a holiday on Wednesday, the spokesman said.

Honda strike over, concern grows  – Macau Daily Times

Striking workers at a Honda factory in China resumed their duties yesterday as Premier Wen Jiabao called for better treatment of migrant workers, highlighting growing concern over a wave of labour unrest.A string of suicides among Chinese assembly line workers at Taiwanese IT giant Foxconn, three work stoppages at Honda plants and other labour actions have focused attention on conditions in the so-called “workshop of the world”.
The 1,500 workers at the Honda Lock factory in the southern province of Guangdong – the heart of China’s industrial belt – have disrupted production of car locks and key sets for Japan’s number two carmaker for a week over pay.
Most employees agreed to an undisclosed pay rise, said Hirotoshi Sato, a Japan-based company spokesman. For those still seeking a higher salary, he said the wholly-owned Honda subsidiary had “promised to continue talks”.
“Operations at the plant have returned to normal,” Sato said.

Strikes have led to Upward Revision in Wages

However it seems the day of dirt cheap labor seems to be over as workers are increasingly demanding better wages and conditions.A spate of suicides at Taiwan’s Foxconn factories made media headlines forcing the company to increase wages under international customer pressure.Honda has seen a major strike at its own automobile plant and a strike at one of its supplier’s as well.Toyota has seen a one day strike as well.The common outcome of these strikes have been the same- Management has had to increase the wages of the workers.

Foxconn confirms wage rise for Shenzhen staff – Reuters

Foxconn International confirmed on Tuesday another salary rise for staff on its Shenzhen production lines but said it was not clear how the adjustment would impact its 2010 operating results.The increase in operating costs due to the wage increase may impact the company’s results but could also be offset by increased revenue or cost reduction in other areas, Foxconn said in a filing to the Hong Kong stock exchange.Foxconn said based on a recommendation by its controlling shareholder Hon Hai it had approved a proposal to further increase salaries of its staff on Shenzhen production lines, subject to a three-month work performance assessment, after its recent move to raise China staff salaries by 30 percent effective June 1.

Growing Wages a Positive for China and Global Economy

This trend is a positive one as it increases the disposal income of Chinese workers which  would lead to a more balanced economy in the future for China.The export led growth model of China is fast reaching its expiry date as pressures grow on China to appreciate its currency and reduce its mammoth Trade Surplus.Increase in Consumption led growth will be better for China and the rest of the world as well.It will also benefit poorer countries like Vietnam and Bangladesh who can expect some MNCs to locate their plants in lower wage locations as China moves up the wealth curve.China’s per capita income is already much greater than that of poorer countries in Asia and it would make  sense for the most labor intensive,low value addition work to move to these countries.