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Pressure heats up on south China manufacturers

Posted to Far East Maritime (by on January 3, 2012

It is hard to have sympathy for factory bosses in the mainland moaning about rising wages.

On February 1, Shenzhen will have the highest minimum wage in China. Factories in the manufacturing hub will be paying workers no less than 1,500 RMB a month, or US$237.

Instead of holding off on the increase for a year, the municipality decided to go ahead with a 13.6 percent rise in the wage.

It is the second increase in 10 months and has the mainly Hong Kong-owned factory bosses in a froth. One even accused the provincial authorities of “trying to kill us”.

That is probably not far from the truth. China has made no secret of its intention to force high polluting manufacturers of low value items like toys and garments to relocate to inland provinces. Whether it actually wants to kill Hong Kong’s factory owners is debatable, but it certainly wants them to get the hell out of the neighbourhood and not come back.

It is at this low value end of the manufacturing chain where the minimum wage plays such a huge role. Competition for foreign export orders has never been fiercer with desperate factories slashing their already small profit margins to keep the presses and sewing machines working.

Any rise in the minimum wage will come straight off the bottom line at a time when manufacturers are at their weakest. The sovereign debt crisis in Europe and the lingering US economic woes have resulted in fewer orders for cheap Chinese goods, leading to a very un-merry Christmas all around.

Thousands of factories have already been pushed under with huge job losses, their margins too narrow to absorb the increasing costs in not only labour, but also in raw materials. One of the reasons the low value goods are such big polluters is that their manufacturing involves the use of petrochemicals, and oil is currently clocking in at well over US$100 a barrel here in Asia.

South China factory owners have three options: Hang in there and hope orders pick up before Chinese New Year at the end of this month; move the factory inland or to another country; or close down and do something else.

The rapidly rising minimum wage is having a severe impact, but any sympathy should be reserved for labourers who are losing their jobs, rather than for factory owners. They have been making hay for 30 years while the sun shone brightly on the meagre paypackets.

Struggling factory owners should reflect on how they failed to take advantage of the changes and instead stuck to the same low cost, high volume model for the past three decades.

There will be a painful adjustment period as workers skills improve to match demand for a higher value production chain, but ultimately the labourers will be better off and so will the respiratory problems of the region’s population.

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