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- May 20, 2011 -

 
     
 

Supply Chain Graphic of the Week: Rising Labor Costs in China

 

Provinces Raising Minimum Wage by up to 30%; Is China's Advantage going to Erode?

 
     
 

By SCDigest Editorial Staff

 
 

 

It's no secret that there has been strong upward wage pressure on China in recent years, but that is expected to go higher - a lot higher - in the near future, with many potential ramifications for the supply chain.

As we reported earlier this week, William Fung, CEO of global trading giant lI & Fung, labor costs in China will rise an incredible 80% over the next five years. (See Will Rising Wages in China Significantly Change Outsourcing Economics?)

Though wages had been rising in China for several years, a series of incidents in 2010 caused the rate of those increases to move sharply upward, boith through changes at individual manufacturers and government actions.

As shown in the chart below, a number of Chinese provinces have announced significant double digit increases in the minimum wage recently, as shown in the graphic below from a recent story on the same subject in the Wall Street Journal.

 

Chinese Wages on the Rise

 

 

Source: Wall Street Journal

 

As we reported in our story, Fung says we are entering a period of strong inflation in China that will not only impact the costs of goods produced there but perhaps also give some headroom at long last for manufacturers in many developed countries to wage prices as well, changing consumption patters in the West, as consumers see goods costing a lot more.

What happens as China loses its cost advantage? That is the trillion dollar question.

 

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