After a massive revolt at one of the infamous Foxconn plants, is this the beginning of the end of China's low-wage manufacturing edge?
TAIPEI--Adam Yin, showing off plastic injection-moulding machines at a trade fair in the Taiwanese capital on Sept. 22, could be expected to be upbeat. But even he admits that business at Liguang, his Taiwanese-owned factory based in Ningbo in south-eastern China, is getting worse.
The factory operated seven days a week in 2011 and until June 2012, says Yin. "Now we are down to a five-day week. We are still making a profit but we have less work. And all the time, the Chinese workers want higher wages."
The combination of rising wages and the global economic slowdown isn't a good one for China's jobs market. The consensus at Taipei PLAS--a plastics and rubber trade fair frequented mostly by Taiwanese owners and managers of Chinese plants--was that China is losing its competitive edge as a low-cost manufacturing hub. Rising Chinese labor costs are squeezing Taiwanese firms who make products there. At the same time, the Taiwanese companies' order books are thinning due to the ongoing economic crisis in Europe and lacklustre growth across the developed world. The solution, they say, is to move somewhere cheaper.
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The possible dent in Chinese employment is hard to estimate, but it could be large. The political relations between Taiwan and Beijing, which claims the island as part of China, may be cool, but business links run deep: After the then Chinese premier Deng Xiaoping opened China up to capitalism in 1978, Taiwanese manufacturers--who had built up a solid export industry while China's economy slumbered--gradually shifted their workforces to the mainland, where wages were lower. Among them is Hon Hai Precision Industries, also known as Foxconn, the world's largest contract manufacturer of electronic components and Apple's top supplier. Quanta Computers, which claims to be the world's largest contract maker of laptop PCs, is also headquartered in Taiwan and does the bulk of its production in mainland China.
Data on the role Taiwanese firms play in China's job market are thin, but Taiwanese investment is a major force in China's economy. According to economists at BBVA (pdf; see page 5), US$6.7 billion of China's foreign direct investment (FDI) last year came from Taiwan, compared with $3 billion from the US and $6.4 billion from Europe. An older estimate put the total stock of Taiwanese FDI in China at the end of 2008 at $130 to $150 billion (pdf, page 31). According to estimates from Taiwan's government there were about 70,000 Taiwanese firms in the mainland in 2009.
And the China Beige Book, a survey of more more than 2,000 heads of companies across China, found that the rate of hiring had slowed by 9% for the third quarter of this year. The number of companies cutting staff also rose from 13% of the sample to 20%, and 5% of firms reported strikes.
And manufacturers are looking elsewhere. "With basic salaries rising all over China, I know of many Taiwanese manufacturers who are starting to look at Vietnam, Cambodia and Indonesia," says George Wang, another trade show attendee who describes his company, JoyFly Technology, as a sales agent for several Taiwanese plastics companies.
Sway Su, another attendee and a researcher for Taiwan's Plastics Industry Development Center, a trade association, echoes that view. "Manufacturing wages in some wealthier cities in mainland China are the same as in Taiwan now. So Taiwanese manufacturers want to move their production to Indonesia, Vietnam, Cambodia or Thailand and are looking at how to make that work." The minimum wage in Vietnam's capital, Hanoi, is 2 million dong ($95) a month. By contrast, in China's cheapest province for manufacturing, Jiangxi, in the nation's poor interior, monthly wages are around $137.