The Wall Street Journal today says in China the “annual flow of 10 million workers from countryside to city has suppressed wage growth.”
But in his newsletter today, my friend Dominique Numakura of DKN Research argues the opposite, pointing to recent evidence of more state-mandated wage hikes in China. A Japanese manufacturer in Guangdong Province claims receipt of a government letter raising the minimum monthly wage 20% to 900 RMB.Â â€œThe Guangdong government announced plans to double workerâ€™s incomes in five years, and the wage increase in July signals the first step in the overall plan,â€ Numakura writes, adding that Shanghai announced a 14% increase in the minimum wage beginning last April (overall, the minimum wage in Shanghai is up more than 27% over the past year).
As you might expect, between higher wages and currency inflation, China is getting more expensive. Numakura points to data suggesting more than 150 Taiwanese operations in Shenzhen â€“ or roughly 8% of the areaâ€™s factories â€“ closed during the first half of 2008 because of the increasing labor cost.
The Journal doesn’t dispute this, but it minimizes the effect. “[O]nly a narrow slice of workers is covered by this move and the minimum wage is still quite low relative to average wages. A new labor law mandates that employers provide pension and insurance contributions, pay laid-off workers a month’s wages for every year worked, and that they provide an overtime premium of 50% on weekdays and 100% on weekends. However, as with many Chinese laws, enforcement remains very much in question.”
Remember, what China supplies is â€¦ low cost labor. The service and technology available in the nationâ€™s factories are easily duplicated â€“ or bettered â€“ elsewhere. Without low wages, China Inc. is just China. The question is, does China Inc. get that?