Monday, June 07, 2010

With Strikes, China’s Workers Seem to Gain Power/Changes in China Could Raise Prices Worldwide

With Strikes, China’s Workers Seem to Gain Power
Copyright by The Associated Press
Published: June 8, 2010

SHANGHAI — Just days after resolving a strike by agreeing to give substantial raises to 1,900 workers at its transmission factory, Honda Motor said Tuesday that employees at another of its parts plants in southern China had staged a walkout.

A Honda spokeswoman in Tokyo, Natsuno Asanuma, said workers at an exhaust-system factory in the city of Foshan had gone on strike Monday morning. She declined to say what demands they had made. But the walkout will force Honda to halt work Wednesday at one of its four auto assembly plants in China, the company said.

The three assembly factories had just reopened after closing for almost two weeks because of the earlier strike. It was unclear how long the assembly plant, Guangqi Honda Automobile, would remain closed.

The second Honda strike comes amid growing signs that China’s huge migrant work force is gaining bargaining power. New pressure to raise pay and improve labor conditions is likely to raise the cost of doing business and could induce some companies to shift production elsewhere.

Foxconn Technology — a giant contract electronics manufacturer that also raised wages in China this month — said Tuesday it was reconsidering the way it runs its operations there.

The company, which has seen a string of suicides among workers at its sprawling, citylike campuses in the southern metropolis of Shenzhen, said it was considering turning the management of some of its worker dormitories over to local governments in China.

“Because Foxconn is a commercial enterprise operating like a society, we’re responsible for almost everything for our workers, including their job, food, dorm and even personal relationships,” Arthur Huang, a Foxconn spokesman, said Tuesday. “That is too much for a single company. A company like Foxconn shouldn’t have so many functions.”

Foxconn, a subsidiary of Hon Hai Precision Industry of Taiwan, makes devices for companies like Apple, Dell and Hewlett-Packard. Hon Hai’s shares fell more than 5 percent Tuesday in Taiwan, to their lowest since last August, after the company said it would seek to pass on its higher labor costs to clients.

As the company held annual shareholder meetings in Taipei and Hong Kong, small groups of people demonstrated outside, urging the company to improve conditions for workers.

Turning over management of employee dormitories to the government authorities would be a dramatic change for Foxconn, which — like thousands of other manufacturers in southern China — has lured peasants from rural areas to work at giant, gated factory compounds.

One of the company’s Shenzhen campuses employs 300,000 workers and covers about 1 square mile, or more than 2.5 square kilometers. The gated campus boasts high-rise dormitories, a hospital, a fire department, an Internet cafe and even restaurants and bank branches.

Foxconn said Sunday that it planned to double the salaries of many of its 800,000 workers in China to 2,000 renminbi, or nearly $300, a month. The huge raise by one of the country’s biggest exporters seems likely to put pressure on other companies to follow suit, analysts say.

Chairman Terry Gou told the Taipei shareholders’ meeting that the company was looking to shift some unspecified production from China to automated plants in Taiwan, Reuters reported.

After years of focusing on luring foreign investment, Chinese officials are now endorsing efforts to improve conditions for workers and raise salaries. The government hopes the changes will ease a widening income gap between the rich and the poor and prevent social unrest over soaring food and housing prices.

On Friday, Beijing’s municipal government said it would raise its minimum wage by 20 percent. Ma Jun, a Hong Kong-based economist at Deutsche Bank, said last week that more cities and provinces would soon raise their minimum wages 10 to 20 percent.

“We therefore believe that a faster-than-expected labor cost increase has now become a political imperative,” Mr. Ma said in a report, citing comments from Beijing’s leadership about improving social justice.

But analysts say wage pressure is also coming from labor shortages in coastal cities as the country’s declining birth rate reduces the number of young people entering the work force.

Factories in southern China that used to advertise in search of employees 18 to 24 years old are now recruiting much older workers.

The labor shortages are being exacerbated by an economic boom and improving job prospects in inland provinces.

TPV Technology, a contract manufacturer that produces computer monitors with about 16,000 workers in five cities in China, says it raised salaries by 15 percent in January and plans to raise them again, perhaps as early as July.

“We’ll adjust our salary to the market and to our competitors’ level,” said Shane Tyau, a vice president at TPV, which is based in Hong Kong. “If Foxconn announces another round of pay raises, we’ll reconsider our wage level, too.”

Economists say that China’s labor force is growing increasingly bold and that over the past year, periodic strikes in southern China — some even involving global companies — have been resolved quietly or not reported in the media.

To resolve the strike at its transmission plant, Honda offered workers raises of 24 to 32 percent. The strike had forced Honda to shut down its assembly plants in China.

Now Honda, Japan’s second-largest automaker, after Toyota Motor, has been a target again. The exhaust-system factory, which is controlled by a joint venture between a Honda subsidiary and a Chinese company.

Honda owns a network of production facilities in China, including the three car assembly factories and three auto parts manufacturers, as well as two motorbike plants, two plants that make generators, pumps and other power equipment and three research centers.

Those numbers do not include factories opened in China by Honda subsidiaries like Yutaka Giken, which separately runs four auto parts manufacturers in the country.

Honda denied Tuesday that it was vulnerable to more strikes because it had already shown a willingness to increase wages to get employees back to its production lines. “It's not at all clear at this point whether the two strikes are related,” said Ms. Asanuma, the Honda spokeswoman.

“It's too early at this point to say whether we are looking at some kind of chain reaction.”

Hiroko Tabuchi reported from Tokyo. Bao Beibei contributed research.

Changes in China Could Raise Prices Worldwide
Copyright by Reuters
Published: June 7, 2010

SHANGHAI — The cost of doing business in China is going up.

Coastal factories are raising salaries, local governments are hiking minimum wage standards and if China allows its currency, the renminbi, to appreciate against the U.S. dollar later this year, as many economists are predicting, the cost of manufacturing in China will almost certainly rise.

Although the salaries of factory workers in China are still low compared to those in the United States and Europe (the minimum wage in southern China is close to $125 a month), economists say the changes will eventually ripple through the global economy, driving up the prices of everything from T-shirts and sneakers to computer servers and smart phones.

“For a long time, China has been the anchor of global disinflation,” said Dong Tao, an economist at Credit Suisse, referring to how the two decade-long shift to manufacturing in China helped many global companies lower costs and prices. “But this may be the beginning of the end of an era.”

The shift was dramatized Sunday, when Foxconn Technology, one of the world’s largest contract electronics manufacturers and the maker of everything from the Apple iPhone to Dell computer parts, said that within three months it would double the salaries of many of its assembly line workers.

The announcement follows a spate of suicides at two Foxconn campuses in southern China and criticism of the company’s labor practices.

Taiwan-based Foxconn, which has more than 800,000 workers in China, said the salary increases are meant to improve the lives of its workers.

Last week, the Japanese auto maker Honda said it had agreed to give about 1,900 workers at one of its plants in southern China raises of between 24 percent and 32 percent in the hopes of ending a two week-long strike, according to people briefed on the agreement.

The changes are coming about because of the growing clout of workers in China’s sizzling economy, analysts say, and because soaring food and housing prices are eroding the spending power of migrant workers.

But there are other reasons. Analysts say Beijing is backing wage increases as a way to spur domestic consumption and make the country less dependent on low-priced exports. The government hopes the move will force some export-oriented companies to invest in more innovative or higher-value goods.

But Chinese policymakers also favor higher wages because they could help ease a widening income gap between the rich and the poor.

Last Thursday, the Beijing municipal government said it would raise its minimum wage 20 percent to about $140 a month; several other cities are preparing to implement similar increases.

Big manufacturers are moving to raise salaries because they are desperate to attract new workers at a time when many coastal factory cities are struggling with labor shortages.

A Foxconn executive said last week that the turnover rate at its two Shenzhen campuses — which employ over 400,000 — is about five percent a month, meaning that an astounding 20,000 workers are leaving every month and need to be replaced.

Marshall W. Meyer, a China specialist at the Wharton School at the University of Pennsylvania, says demographic changes in China are reducing the supply of young workers entering the labor force, and that’s behind some of the wage pressure.

“Demography will do what the Strategic & Economic Dialogue hasn’t: raise the cost of Chinese goods,” he said, referring to U.S.-China talks on Chinese currency reform and other economic issues. “There is no way out.”

Economists say many of the same forces that were at work in 2007 and 2008 — when China’s economy was overheating — have returned and even intensified this year.

Local governments have stepped up enforcement of labor and environmental regulations, driving up production costs.

And perhaps most troubling for companies here is the prospect of an appreciating Chinese currency, which would make their exports more expensive overseas.

Beijing has long promised to allow its currency to fluctuate more freely. But when the global financial crisis shuttered many Chinese factories, the government effectively re-pegged the renminbi to the dollar. That was a way to protect exporters.

Even though labor accounts for a small percentage of the final cost of many products, salary increases are expected to affect much of the supply chain and force companies to raise prices.

For many exporters, profit margins are already razor thin, and raising prices could hurt business.

“They’re going to have to find a way to pass this on to the end user,” says Mr. Tao at Credit Suisse.

Still, economists say a necessary restructuring is under way, one that should allow the nation’s huge “floating population” of migrant workers to better share in the benefits of growth and spur domestic consumption.

United States and European Union officials have been pressing China to help improve the health of the global economy by consuming more and reducing the country’s massive trade surpluses.

Rising labor costs here aren’t the end of cheap production in China, analysts say, but they are likely to help change the country’s manufacturing mix.

“China isn’t going to lose its manufacturing base because it’s got a huge domestic market,” said Mary Gallagher, director of the Center for Chinese Studies at the University of Michigan. “But it will move them toward higher-end goods. And that matches the Chinese government’s ambition. They don’t just want to be the workshop of the world. They want to produce high-tech goods.”

Chen Xiaoduan contributed research.

No comments: