China Power

Wage Demands

Do recent labour disputes in southern China herald a significant round of pay rises?

I’ve focused a lot on foreign policy recently, especially with covering the Shangri-la Dialogue over the weekend in Singapore. But I’ve also been keeping an eye on recent domestic developments in China, one of the most interesting of which has been a series of labour disputes in southern China that have prompted significant pay rises.

The latest company to be hit was Honda, which is reported this week to have been forced to halt production at two of its factories in China—the second time in recent weeks that production has been halted over pay. The Japanese carmaker eventually earlier this month offered workers in its Guangdong Province factory a 24 percent pay rise after a walkout on May 17.

But Honda is by no means alone. Hyundai’s Kia Automotive Group has seen strikes in China and India, and Foxconn, a Taiwanese company that makes a range of electrical goods including the iPhone on Sunday announced a second set of significant pay rises at its factories in Shenzhen.

The Foxconn pay hikes follow a series of suicides by employees of the company. So far this year, 10 Foxconn employees have killed themselves, and there have been numerous reports about the tough conditions at the company, ranging from conversations being banned on the production line to regimented bathroom breaks.

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I asked Guy de Jonquières, senior fellow at Brussels-based think tank ECIPE and former chief Asia columnist and commentator for the Financial Times, for his take on the wage increases. He noted that aside from the Foxconn wage hikes that minimum wage increases of about 20 per cent have been announced in a number of provinces. He said that this was somewhat higher than normal, but added: ‘Levels were frozen because of the crisis last year so there’s an element of "catch-up". And remember that these are minimum wages, not total pay packets.’

Indeed, according to AP, wages have fallen as a share of China’s GDP since the 1980s, from 56.5 percent in 1983 to 36.7 percent in 2005. So, if the cost of hiring Chinese workers is indeed now rising, how is the government likely to respond?

According to de Jonquières:

‘Provided wage inflation—or industrial unrest—doesn’t get out of hand, the government should be reasonably comfortable about these developments, the economic impact of which is likely to be offset by continuing productivity growth. By raising income levels among the poorest workers, they boost potential consumption and should thereby favour “re-balancing” of the economy—all stated policy objectives.’

And he added: ‘They may also be seen as contributing to an “internal revaluation” that enables Beijing to defer for longer an exchange rate adjustment and its attendant domestic political problems.’