BEIJING — Plans to hike minimum wages yet again in China’s prime factory zone are causing consternation among manufacturers, who say they’re already squeezed by rising costs and increasing demands.
Several Hong Kong-based industry groups have formally complained to the government of Guangdong province about plans to raise the local minimum wage by 18-20 percent as of Jan. 1. That increase follows an earlier minimum wage hike just 10 months earlier. Factory bosses say given declining orders and rising costs for not just workers, but also raw materials, the extra salaries will push some companies out of businesses. Currently the local minimum wage is 1,300 renminbi, or $205.12, per month.
Stanley Lau, deputy head of the Federation of Hong Kong Industries, said in a telephone interview that by next spring, he expects about 30 percent of manufacturing businesses in the Pearl River Delta will have reduced their production or shut down entirely. Lau said another wage hike in January could worsen the situation.
While factories generally support and want to be involved in China’s central government plans to upgrade production and turn toward higher-value manufacturing, the transition takes time and investment, Lau said. Thus far, companies have not had much of either, instead simply grappling with declining orders and higher costs. Lau’s and a coalition of other manufacturing groups have asked Guangdong for a freeze on minimum wages through the ongoing transition period and slowdown in orders.
Labor groups, on the other hand, say China’s rising inflation is cause for higher wages. Additionally, they say, many companies in the Pearl River Delta skirt wage laws through creative math like increasing costs for company dorms and food. In any case, experts from both perspectives agree that the end of cheap manufacturing in China is likely near.
The Pearl River Delta is losing its luster as a low-cost production center and it allure may remain only in infrastructure and supply chains, plus a better educated workforce than in developing nations with emergent manufacturing industries.
Although inflation remains a problem for China, there are signs that government efforts to tamp down China’s overheated economy are having an impact.
The country’s consumer price index rose to 5.5 percent last month compared to the year before, the National Bureau of Statistics said Wednesday. October was the third straight month the inflation rate has slowed. The consumer price index was 6.1 percent in September and 6.2 percent in August. In July, the index reached a three-year high of 6.5 percent.
Controlling inflation has been one of the chief concerns of the government, particularly as unrest grows among consumers whose budgets are being continually squeezed by rising prices on everything from real estate to food. Beijing began implementing policies earlier this year to try to slow its breakneck economic growth of 9 percent to more sustainable levels.
Food prices, a key component of the basket of goods used to measure inflation, declined 0.2 percent in October from the previous month. The food-price component of the index rose to 11.9 percent compared to the year before and a 13.4 percent increase in September.
Meanwhile, the producer price index eased to 5.0 percent in October, down from 6.5 percent in September. Clothing prices rose by 3.7 percent year-on-year, a slight increase from the 3.2 percent rise in September. Producer inflation for clothing rose 4.5 percent compared to the year before.
In recent weeks, Beijing has been discussing measures for “fine tuning” its economic policies to maintain economic growth. Easing inflationary pressure could leave more room for the government to implement loosening measures, such as cutting interest rates. However leaders do not seem convinced that lowering inflation rates will continue to be a trend — at least in the short-term.
During his visit to Russia on Tuesday, Chinese Premier Wen Jiabao said efforts to control inflation could become more difficult this winter.
“There will be difficulties as winter is a hot season for [consumer] demand and a light season for vegetable production in the north,” he said, according to the state-run Xinhua news agency.