China wages

China’s ruling State Council last month released a much-anticipated plan meant to kick the country’s huge state-owned enterprise (SOE) sector into shape. No small amount of kicking is required. Not all but many of China’s 155,000 SOEs are inefficient and often loss-making. Where SOEs do make money, it’s usually because of markets and lending rules rigged by the government in their favor.

Finding a truly good SOE, one that can take on and outcompete private sector rivals in a fair fight is hard. Gong He Chun is one. Customers throng daily to buy its high-quality products, often forming long queues. The employees, unlike at so many SOEs in China, are helpful and enthusiastic and take evident pride in what they are doing. Though local private sector competitors number in their hundreds, Gong He Chun has them all beat. Read more

By Wesley Wu-Yi Koo and Lizhi Liu

Behind China’s impressive economic rise is the biggest human migration in history. By 2013, some 269m rural residents had become migrant workers in cities, offering cheap labour and sustaining urban growth. However, unable to register and settle their family members in the cities, these migrant workers are forced to leave behind children, spouses, and old people in the villages. This has taken a tremendous toll on the rural society.

Today, there are 61m “left-behind children” and 40m “left-behind elderly” in Chinese villages. Some 79 per cent of the left-behind children are under the care of grandparents, who are often uneducated and lack parenting resources and energy. As a result, the academic scores of 88 per cent of these children fall below what would be the passing line in cities. Read more

Over many years, China has gained acclaim as the world’s manufacturing powerhouse. But today, innovation is flourishing in the world’s most populous nation, which is rapidly becoming a trendsetter with the potential to disrupt business models globally.

On a recent research trip to China, we were struck by the huge enthusiasm for locally developed smartphones and the entrepreneurial spirit sweeping the country. Indeed, the number of patents filed by Chinese residents has surged in recent years, both locally and abroad, to exceed the world’s largest developed economies. Read more

The ever ingenious Chinese financial system has developed a new kind of shadow bank – insurance companies.

China’s $586bn stimulus package in 2009 caused a flurry of lending through the country’s financial arteries. Some of this money ended up leaking out of the banks into unofficial channels, including the country’s state banks and the giant provincially-owned pseudo banks called Trust Companies. By the end of 2014, these off-balance sheet loans accounted for 18 per cent of all financing, up from less than 2 per cent a decade earlier. Read more

There is more gloomy news for the world’s second largest economy. A comprehensive official survey of Chinese households, businesses and banks finds demand for loans slackening further in the third quarter, suggesting scant prospects of a reprieve from the credit slump seen in August and July.

Some 3,100 banks interviewed by the People’s Bank of China (PBoC), the central bank, reported a significant easing in loan demand among all three categories of firms – small, medium and large – for the third quarter, which ends at the end of September.

The loan demand index fell to 66.6 per cent, down from 71.5 per cent (see chart). The muted demand for loans is set to create headwinds for the PBoC’s initiative this week to boost economic growth by injecting Rmb500bn ($81bn) into the five largest state-owned banks, economists said. Read more

By Qu Hongbin, Co-Head of Asian Economic Research, HSBC

For many, China’s growth model, which has delivered average annual GDP growth of 10 per cent over the past three decades, simply looks wrong: a national savings rate of around 50 per cent is unheard of in a large, modern economy.

A typical diagnosis states that China invests too much and consumes too little. The prescription is “rebalancing” – moving the economy away from investment towards consumption-led growth. However, a consumption-led growth model has little in theory or evidence to support it. Read more

Two out of the four BRIC economies of Brazil, Russia, India and China face severe labour shortages as soon as 2020.

“Many emerging markets are reaching the final phase of their demographic peak,” say the authors of a report by Boston Consulting Group which quantifies the extent of potential labour shortages and surpluses globally over the next 16 years.

The danger of a declining work force is well recognised in China, which is already suffering the impact of the one-child-per-family policy, in effect since 1979. BCG estimates that China’s surplus of about 65m workers in 2020 could turn into a shortage of up to 24.5m people by 2030. Recent proposals to ease the one-child policy, if implemented, would have only a limited impact, since children born now would not enter the workforce until after 2030. Read more

For Chinese, Africa is the new El Dorado. An estimated 1m Chinese have moved to Africa in the last two decades in pursuit of a more prosperous life. They are opening shops, buying land, and exploiting mines. But how welcome are the Chinese in Africa? And is their arrival a force for good?

Looking for answers to these timely questions, Howard French, a former Shanghai bureau chief of the New York Times, undertook a grand voyage through the African continent. He met with a diverse array of Chinese merchants, entrepreneurs and business men and asked them about their practices, methods, and outcomes. Read more

The stereotypical Foxconn worker is a low-paid Chinese labourer, coming from a rural Chinese province to work on one of the contract manufacturers’ assembly lines making iPhones.

But the Taiwanese company also employs thousands of mid-level and senior engineers and designers tasked with developing the processes needed to put together electronics. Competing for those workers, says founder and head Terry Gou, is increasingly difficult, as the US and, in particular, Chinese companies try to poach them. Read more

Wage pressures in China show no sign of easing.

Manufacturers operating in the Pearl River Delta (PRD) in southern China, for instance, said labour shortages and pay rises will see manufacturing wages accelerate 9.2 per cent this year for migrant workers, according to an annual employment survey by Standard Chartered Bank. Read more

Clad in a blue plaid shirt and speaking with a rural accent, Miao Cuihua trips over her words as she demands unpaid wages, her “blood and sweat money” for toiling on a construction project.

Miao is certainly not the first migrant worker in China to complain about unpaid wages, but her act of protest has probably been seen by more of her fellow citizens than any other salary dispute in history. Read more

Big pharma often waxes lyrical about why it makes sense to do more and more R&D in China: the size of the market; the need to be close to that market (and learn about the diseases that affect it particularly badly); and the local talent pool.

According to a study out this week from McKinsey, Healthcare in China, 80 per cent of global life science groups will be conducting R&D in China and other emerging markets by 2016. But it’s worth debunking a few of the myths about Chinese pharma R&D. Read more

By Kathrin Hille and Patti Waldmeir

It is no secret that it is no longer that cheap to make things in China. But now, it is becoming expensive to sell there, too.

Neiman Marcus, the US multi-brand luxury retailer, plans to enter China via e-commerce rather than traditional bricks-and-mortar. And it is not the only one. A report due to be published on Friday shows that the spiraling cost of doing business in the country is driving other foreign companies with new products away from traditional retailers and into the arms of e-commerce firms. Read more

Even as sharply rising wages push some manufacturers to expand outside of China, it is unlikely to lose its reputation as the world’s workshop any time soon. The country’s vast scale and superior infrastructure and supporting industries see to that.

Yet big is not always best. In addition to offering lower wages, countries like Vietnam can capitalise on their smaller size to win new manufacturing business at a time of global economic uncertainty. Read more

While rising wages and tightening credit lines have led some manufacturers to move outside southern China, others are choosing stay and move up the value chain to remain competitive. Josh Noble visits two factories that have been operating in Guangdong for over 30 years to find out how they are shifting up market.

By Ifty Islam of Asian Tiger Capital Partners

The macro uncertainties for 2012 remain daunting. The prospects for the next phase of the eurozone crisis still looms large, while an ongoing Chinese real estate crash (and a prospective banking crisis) and the sharp decline in the Indian Rupee suggest that Asia EM may not be the counterbalance growth optimists would hope for. US consumer confidence has been surprisingly resilient but fiscal reality and housing gloom is likely to re-assert itself.

So the balance of risks remains for the global economy to slow significantly more than consensus. Against this backdrop, investors may wish to consider increasing exposure in the less correlated frontier markets such as Bangladesh. Read more

The new year begins with what ought to be good news for workers in southern China.

First, Shenzhen announced that it would raise local minimum wage from Rmb1,320 ($210) a month to Rmb1,500, the highest in the country. Then, a Guangzhou newspaper reported that cities in Guangdong province were planning to raise wages by 13 per cent on average this year.

The reaction from factory workers is cynical. Read more

By Ben Simpfendorfer of Silk Road Associates

It’s the change the world was waiting for – factories are finally leaving China, pushed out by rising wages and other costs. Politicians in Brussels and Washington can finally point to stories of factories returning home.

Yet, while China’s title as the world’s most competitive exporter is slipping, the economic fallout will be different to that popularly expected. Read more

By Jane Rickards in Taiwan
Terry Guo, founder and chairman of Hon Hai - the Taiwanese parent company of Foxconn
How could Taiwan’s Hon Hai Precision Industry (Foxconn’s parent company), the main manufacturer of Apple’s popular iPad, create so much success for Apple and yet still fail to enjoy Apple’s rate of profit growth?

Are Hon Hai’s shrinking profit margins testimony to the power of Apple’s branding? The negative impact of poor labor conditions, a deadly factory explosion and a string of workers’ suicides last year for Hon Hai and its parent company Foxconn Group? Terry Gou, the chairman of Taiwan’s Hon Hai Precision Industry, says no. Read more

Ouch. First the suicides. Then the plant explosion. Now Foxconn International, the scandal-hit Taiwanese company that toils in the shadow of high-profile clients such as Apple, is being stripped of its blue-chip status after it was dropped on Tuesday from Hong Kong’s benchmark Hang Seng index. Read more