China Inc. Hits a Snag

DigiTimes is reporting that a new round of fees levied by China on MNCs doing business there has bankrupted hundreds of electronics companies, and threatens the solvency of thousands more. The fees, which underwrite worker medical and injury insurance, are on top of government-mandated salary hikes. China has quietly extended the structure from covering just workers during their actual time of employment to underwriting their post-employment coverage as well. (Employees contribute a portion, but the businesses cover by far a majority share.)

More than 300 firms are said to have gone under already, and a Hong Kong official forecasts some 2,500 to 3,000 firms face bankruptcy this year alone.

And they say the US is unfriendly toward business.

It’s a fascinating turnabout for China Inc. and its “if we build it, they will come” attitude toward business, manufacturing in particular.

Now, there are many ways to view this. One is that, given the dollar amounts involved are rather low, the companies affected probably lacked the resources to compete over time anyway. A second is that China is targeting Taiwanese companies as part of its long-term strategy to force the island nation further under its umbrella (although from the story, non-Taiwanese companies are also being hit hard). A third is that China sees this as easy money and a way to look out for its domestic citizenry much in the way, say, the US levies Social Security taxes on alien seasonal workers even if they return to their home countries each fall and will never draw upon that retirement fund. And a fourth is that China recognizes that growth alone won’t pay for the soon-to-be top-heavy population it faces as the 1 child per family policy changes the age-plot dimension from rectangular to an upside-down pyramid.

But coupled with the staggering increase in wages seen there over the past few years — with many more to come — and China’s long-term dominance of manufacturing no longer feels like a fait accompli.

 

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About Mike

Mike Buetow is editor-in-chief of Circuits Assembly magazine, the leading publication for electronics manufacturing, and PCD&F, the leading publication for printed circuit design and fabrication. He is also vice president and editorial director of UP Media Group, for which he oversees all editorial and production aspects. He has more than 20 years' experience in the electronics industry, including six years at IPC, an electronics trade association, at which he was a technical projects manager and communications director. He has also held editorial positions at SMT Magazine, community newspapers and in book publishing. He is a graduate of the University of Illinois. Follow Mike on Twitter: @mikebuetow