SCDigest Editorial Staff

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In the southern coastal province of Guangdong, where there is a lot of apparel manufacturing, the monthly minimum wage rose on average by more than 20% starting in May. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

UPDATE: This article is an update to our piece two weeks ago on the rising labor activism in China, focused on the strike at Honda's Foshan transmission plant, which went on for more than a week.  The labor action caused Honda to shut down its four Chinese assembly plants and led to an increase in wages of 24% for workers there, while in the early days of the strike the labor action received unusually open media coverage. Our origianl piece can be found below, after some updates to the story here.

Following in the footsteps of the Honda action, some workers at a Chinese Toyota plant also walked on the job this week, if briefly. Factory workers at a parts plant in Tianjin, which is 51% owned by Toyoda Gosei Co., a Toyota affiliate, left the job this Tuesday, citing unfairly low wages.

The action caused the plant to close sometime on Tuesday, but the workers agreed to go back to work the enxt day after the company promised it would review current wages versus market rates.

Still, a Toyota executive in China was quoted as saying that "There is a distinct feel to this that not just us but factories around China are going to face more demands for pay hikes."

Harley Seyedin , president of the American Chamber of Commerce of South China, had much the same perpsective last week, saying that "There are internet cafes everywhere, so workers can get information. Thet are starting to ask for more. The days of cheap labor are gone."

Meanwhile, the Wall Street Journal reports that rising labor costs are already driving many apparel manufacturers to look to lower wage countries for production.

"We are looking to move production into lower-cost geographies, most notably Vietnam and India," Mike Devine, chief financial officer of high end purse and accessories company Coach, at a conference last week. While Coach already has some manufacturing in each of these countries, Devine said Coach plans to increase its presence in both of them.

Overall, China's labor costs are up 5-15% this year already, with continuing upward wage pressures. In the southern coastal province of Guangdong, where there is a lot of apparel manufacturing, the monthly minimum wage rose on average by more than 20% starting in May. Amid those upward wage pressures, the Journal reports that apparel maker Guess is also casting its eye outside of China, looking to build its production capabilities in Vietnam, Cambodia and Indonesia.

While apparel production has been drifting out of China for several years, the accelerating rate of Chinese labor cost increases is causing many apparel companies to move faster to leave China for other Asian sources to keep margins from tumbling. In some cases, the companies are asking existing Chinese suppliers to move their operations to Vietnam or Cambodia, rather than finding new suppliers in these countries.

However, there are issues. China is also a major textile manufacturer, while the textile industries are nascent at best in many of these lower cost countries. That means apparel likely would have to be shipped in to these new sourcing locations. Combined with the lack of logistics infrastructure found in China, especially the small number of routes by ocean from ports say in Vietnam of Bangledesh back to the US, logistics costs could eat away much of the gains achieved by the lower labor costs.

Original Story:

The rapid rise in manufacturing wages in China took a brief respite with the start of the global recession in 2008, but as China’s stimulus fed expansion quickly took hold, once again wages are on the rise – as well as labor activism.

What does it all mean? That is difficult to say, but the seeming general acquiescence of the Chinese government to the moves suggest it’s long planned strategy for competing other than by low wages is advancing to its next phase.

The symbol for this changing dynamic is clearly the current strike at Honda’s massive transmission plant in Foshan, China, in the Guangdong province, involving nearly 2000 mostly young workers who have been on strike since May 21. The strike has shut down auto production at Honda’s four Chinese assembly facilities for now.

While word today is that a resolution to the labor conflict may be over, that is happened at all is telling.

Strikes are now allowed in China, by custom, but it is not clear if there are any actual laws banning strike activities.

The strike highlights in part the growing income disparity and inconsistency in China. Workers at the Honda factory make about $150.00 monthly in US terms, whereas in many other parts of China, similar manufacturing workers take home about twice that per months. At the Honda factory, that $150-200 per month currently requires 10-12 hour days, six days per week.

According to reports today, almost all of the striking workers have agreed to an increase in the total starting wage by about 24 percent to now about $280 per month. However, there were also reports of minor fighting between local police guarding the plant and some of the workers on Monday.

Workers also have complained about a lack of air conditioning in the plant, as well the fact that they are forced to rise at 5:30 a.m. at the worker dormitory for a shift that starts at 7:00 a.m.

The workers additionally get free lodging and subsidized meals in the dormitory – but sleeping with 4-6 per room in bunk beds is not exactly easy living.

As China’s middle class grows, that kind of lifestyle and low wages are meeting increasing resistance – which ultimately will drive costs back into products being manufactured there for export back to developed markets.

What has been highly interesting to most observers there is that the strike is taking place with little interference from the Chinese government, which not only has made no moves to stop the strike effort, but is initially allowed state media to provide high levels of television and Internet coverage of the labor action. That is significant because it obviously sends a message about striking as a tactic to laborers all over the country.

However, after allowing two days of such coverage, over the weekend the reporters and coverage suddenly were gone – with the government perhaps realizing this labor activism thing could quickly spin out of control elsewhere in the country

Though some believe that the government is taken a low posture approach because Honda is a Japanese company, and there is bad will in China towards the Japanese dating back at least to World War II, the Chinese government has to know it is letting something of a cat out of the labor bag no matter what company is experiencing the strike.

This new permissiveness, the New York Times reported this week, “coincides with growing sentiment among some officials and economists that Chinese workers deserve higher wages for their role in the country’s global export machine.” 

Role of Unions is Different in China

There are many unions in China, but their role is generally one much different than that found in most developed economies.

The unions are usually state-controlled, and play more of a management role in overseeing workers, not bargaining for higher wages or improved labor conditions. Labor organizing outside the government-controlled All China Federation of Trade Unions and company branches of the ruling Communist Party is illegal.

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