China's position as the "factory of the world" could be under threat as widespread calls to increase workers' wages in the face of rising inflationary pressures push factories to consider relocating outside the country, analysts said. The direct impact on the petrochemicals sector was relatively minor, though calls of wage hikes from sectors such as the electronics and consumer goods that attract scores of migrant workers would compel manufacturers to relook their business models.
A few cities in China have already begun to raise minimum wages, with many more cities and provinces to follow suit in the coming weeks, amid concerns that factory owners in China were underpaying their workers. In China's southern manufacturing hub of Shenzhen, the local labor department recently announced that it would raise minimum wages by 10-22% to Yuan (CNY) 1100 ($161) per month from July 2010, while the Beijing municipal government earlier announced a 20% rise in the minimum wage in the city to CNY960 a month.
"We expect the forthcoming wage increase to be around 20% in most provinces and cities?" said Jun Ma, chief economist of the greater China region at Deutsche Bank in Hong Kong. An increase in wages may cause a big dent in the cost of doing business of downstream industries that are more labor intensive such as textiles and toy manufacturers, analysts said. "Workers' salaries in these smaller downstream factories make up 10-15% of their costs so any enforced increase could push them out to cheaper countries like Vietnam, Bangladesh, Sri Lanka and India," said Danny Ho, a petrochemical analyst at brokerage firm Yuanta Securities.
A 10% wage increase in low-end, labor-intensive sectors including apparel and electronic components could push up China's consumer price index (CPI) by 0.4% and reduce employment by 700,000 jobs, Ma of Deutsche Bank said. "At the sector level, electronic components, apparel, furniture, and auto parts are most obvious victims of wage inflation," he added.
Foxconn, which manufactures products for companies such as Apple and Dell, has been criticized over its labor practices after a number of suicides at two Foxconn facilities in southern China. The company's recent move to increase the wages of its workers came amid continuing signs of worker unrest in southern China. Officials in China are very concerned about the social impact of the strikes and are placing pressure on low-end manufacturers to raise wages, Ma of Deutsche Bank said.
Recent comments from Premier Wen Jiabao on improving "social justice" would also imply that the government was looking at more aggressive measures to improve the wages of low-income workers in China, he said. "The faster-than-expected labor cost increase has now become a political imperative," Ma added. Rising labor costs in China in the long term would help change the country's manufacturing mix and upgrade its economy, analysts said, adding that it would also help reduce the income gap in the country.
Q45. An increase in wages by 20% by the government might lead to
China's position as the "factory of the world" could be under threat as widespread calls to increase workers' wages in the face of rising inflationary pressures push factories to consider relocating outside the country, analysts said. The direct impact on the petrochemicals sector was relatively minor, though calls of wage hikes from sectors such as the electronics and consumer goods that attract scores of migrant workers would compel manufacturers to relook their business models.
A few cities in China have already begun to raise minimum wages, with many more cities and provinces to follow suit in the coming weeks, amid concerns that factory owners in China were underpaying their workers. In China's southern manufacturing hub of Shenzhen, the local labor department recently announced that it would raise minimum wages by 10-22% to Yuan (CNY) 1100 ($161) per month from July 2010, while the Beijing municipal government earlier announced a 20% rise in the minimum wage in the city to CNY960 a month.
"We expect the forthcoming wage increase to be around 20% in most provinces and cities?" said Jun Ma, chief economist of the greater China region at Deutsche Bank in Hong Kong. An increase in wages may cause a big dent in the cost of doing business of downstream industries that are more labor intensive such as textiles and toy manufacturers, analysts said. "Workers' salaries in these smaller downstream factories make up 10-15% of their costs so any enforced increase could push them out to cheaper countries like Vietnam, Bangladesh, Sri Lanka and India," said Danny Ho, a petrochemical analyst at brokerage firm Yuanta Securities.
A 10% wage increase in low-end, labor-intensive sectors including apparel and electronic components could push up China's consumer price index (CPI) by 0.4% and reduce employment by 700,000 jobs, Ma of Deutsche Bank said. "At the sector level, electronic components, apparel, furniture, and auto parts are most obvious victims of wage inflation," he added.
Foxconn, which manufactures products for companies such as Apple and Dell, has been criticized over its labor practices after a number of suicides at two Foxconn facilities in southern China. The company's recent move to increase the wages of its workers came amid continuing signs of worker unrest in southern China. Officials in China are very concerned about the social impact of the strikes and are placing pressure on low-end manufacturers to raise wages, Ma of Deutsche Bank said.
Recent comments from Premier Wen Jiabao on improving "social justice" would also imply that the government was looking at more aggressive measures to improve the wages of low-income workers in China, he said. "The faster-than-expected labor cost increase has now become a political imperative," Ma added. Rising labor costs in China in the long term would help change the country's manufacturing mix and upgrade its economy, analysts said, adding that it would also help reduce the income gap in the country.
Q45. An increase in wages by 20% by the government might lead to
The correct option is A (a) Closure of small-scale units.
In context with the passage, costs to small-scale companies are at 10-15% and an increase by 20% by the government might lead to closure of small-scale units.
(a) Closure of small-scale units.
In context with the passage, costs to small-scale companies are at 10-15% and an increase by 20% by the government might lead to closure of small-scale units.
