On January 1, the minimum wage will rise as much as 20 per cent in China’s Guangdong province, a move that could affect the region’s status as a hotbed for low-cost manufacturing — or even raise the prices of the world’s electronics. Harold Sirkin, an analyst at Boston Consulting Group, tells Wired that wages have been rising in China at a rate of 15 to 20 percent a year, echoing a story on the Guandong minimum wage hike from GlobalPost.
For electronics, “Made in China” typically means “Made in Guangdong”. China has long concentrated manufacturing in particular regions to make the most of local resources and lower shipping costs for foreigns companies. Myriad American manufacturers contract with chip and hardware makers in the Guangdong region. The higher wages could mean higher costs for the goods produced there.
Since market forces have already pushed wages higher in recent years, many workers are already above the wage floor. But as wages continue to rise, it may make sense for companies to move manufacturing elsewhere. Sirkin notes that high value products like electronics typically have a labor cost of about 25% of the price of the good. “The math works for American companies when average wages are at 50 cents per hour,” Sirkin says. “But by 2015, it should hit about six dollars per hour.”
That’s still considerably lower than in the United States, but when you factor in foreign shipping costs and the risk of stolen intellectual property, the cost of building electronics in China approaching the cost in places like Mexico. Many economists believe this gap could shrink even faster if China unpegs its currency, the yuan, from the dollar, causing the cost of goods in the country to rise.
China Labour Bulletin, a labor rights monitoring outfit based in Hong Kong, notes a long string of strikes and worker’s rights protests that have broken out throughout the country in recent years. Foxconn — one of the largest manufacturer’s in the world — came under heavy political fire last year after a string of seventeen suicides at their electronics plants. Many, including Wired, attributed the tragedies to oppressive conditions.
Still, rising wages Guangdong and China’s eastern provinces does not mean the changes are ubiquitous across the country. Famous for taking the long view on development, Chinese officials have often referred to the country’s “Go West” program, whereby healthy socio-economic conditions start on the eastern shores and gradually progress west, towards Quinghai and the contentiously governed (or, occupied) province of Tibet.
