beyondbrics

As technology manufacturers in China battle rising wages and labour unrest, it may give them some relief that things are expected to get no worse than last year – at least from a statistical point of view.

Overall, labour costs for tech manufacturers in China will stay almost flat in 2012 because moving factories inland last year caused such large extra expenses, according to Fitch. “The wage rises at Chinese technology manufacturers in 2012 [will] be largely offset by the absence of one-off costs incurred [in the 2011 move],” the ratings agency said.

The global tech industry has been trying to diversify its manufacturing footprint for several years as costs in coastal China have risen.

Foxconn, the world’s largest electronics contract manufacturer, has its biggest factory in Shenzhen, the export manufacturing hub close to Hong Kong. It began building plants in other Chinese provinces at least eight years ago.

Large component makers in Guangdong decided as long ago as 2005 to build new factories in neighbouring Jiangxi instead of expanding existing plants. Others based in Shanghai opted for Jiangsu province.

But the big move came only over the past two years, following jumps in coastal wages. Foxconn set the tone with massive new factories in Sichuan province, where Intel and several PC makers also decided to put new manufacturing hubs, and Henan province, which had no tech manufacturing before that.

Yet even this big adjustment is unlikely to bring costs down for long.

Fitch says apart from the one-off costs companies face do to the change, the inland move is likely to lead to a catch-up in wages in inland provinces. China’s national bureau of statistics estimates that the gap between wages in inland province and those on the coast shrank to 11 per cent in 2009 from 19 per cent in 2003.

China is moving from an abundance to an overall shortage of labour. Young, unskilled workers are less willing than their parents were to endure hardship in exchange for the distant hope of a better life. Companies will have to deal with a much more confident, demanding workforce.

Recent signals of this have been very clear.

In early December, hundreds of workers at a factory of Singaporean-owned Hi-P Electronics in Shanghai went on strike over what they said were redundancy plans. At around the same time, staff at a Hitachi subsidiary protested over compensation issues. LG Display had to suspend some production in a Nanjing plant later in the month after workers organized a strike to protest what they felt were unfairly low year-end bonuses. Foxconn, which employs nearly a million people in China, has seen a handful of small-scale labour disputes this month. This week, workers clashed with police in Shenzhen over the threat of redundancies at a plant owned by Sanyo Electric.

Many of the recent protests came as workers tried to get the best deal possible as they prepare to switch employers over Chinese New Year. Even if weakening demand due to the crisis in Europe starts to eat into export orders for China-made technology goods this quarter, the labour shortage will not go away.

Related reading:
China’s city population outstrips countryside, FT
Sombre signs for China growth prospects, FT
No sign of China hard landing yet, Lex video
China labour unrest flares as orders fall, FT