Wednesday, June 2, 2010

China: labor strikes ?

Workers at several of Honda's auto factories in Guangdong province staged a strike last week demanding higher wages and better benefits. Websites such as also reported that a strike by 1,000 workers took place at Xingyu Auto Tech, a component manufacturer for Beijing Hyundai Motor. A wave of recent suicides or attempted suicides at Foxconn in China also highlights the 'malaise' affecting a large segment of the labor force.

Broader implications for policymakers?
- Labor actions may spread out to other parts of China. A large section of the population is unhappy about rising income inequality, unaffordable housing and corruption. Recent studies show that the income gap between the richest 10% and the poorest 10% of the population was 23 times in 2007, versus 10 times in 1988 - Professor Li Shi, Beijing Normal University.
- Low-end manufacturers could see their profit margins squeezed by having to increase wages in order to retain workers. Many local governments will be forced to raise minimum wages in the near future. In labor intensive industries such as garments, shoes, auto parts, labor costs account for around 30 to 35% of value added.
- Consumer prices may rise.
- A rapid increase in labor costs, reducing competitiveness, may reduce the chance of a Renminbi revaluation.

These events reveal the urgency for the Chinese government to significantly reform and upgrade the economy.

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