By Enid Tsui in Hong Kong
18 March 2010
Guangdong, the province that produces about a third of China’s exports, on Thursday announced plans to raise its minimum wage more than 20 per cent, fuelling inflation fears and dealing a blow to manufacturers emerging from the global credit crisis.
The province, which borders Hong Kong and forms part of the manufacturing powerhouse known as the Pearl River Delta in southern China, was not the first to introduce a mandatory wage rise this year, but the increase was sharply higher than the 13 per cent introduced by Jiangsu province last month.
The local government said the move was necessary to attract labour to work in local factories and improve the lives of low-income earners. The minimum wage increase of 21.1 per cent will take effect on May 1.
It added that wages were set to reflect rising inflation and the region’s acute labour shortage – a problem that is paralysing plants rushing to complete an unexpected surge in orders after Chinese new year in February.
One factory owner on Thursday said the move would bring limited benefits to business.
“A lot of our workforce traditionally come from the poorer regions in western China, but factories are moving out there to take advantage of cheaper wages and lower taxes. Those workers who used to come here can now find work close to home. I don’t think we will see many of them moving back here,” said Au Yiu-chee, a Hong Kong owner of a textile factory in Dongguan.
He said he had about a third of the workers required to complete an order due in May from a European brand. His workers receive the current minimum wage of Rmb740 plus an output-based commission, which took their monthly pay to about Rmb2,000.
Guangdong exported $53.3bn of goods in January and February, 22.1 per cent more than the same period last year.
The province, once the preferred location of manufacturers chasing low-cost labour and dubbed “the world’s factory floor”, now competes with cheaper industrial bases in China and other parts of Asia.
“Factory owners around here certainly did not expect the government to suddenly pull up wages by so much. This is crazy. How can we compete for orders when our rivals in Cambodia are offering much lower prices?” Mr Au said, adding that the spectre of a renminbi appreciation made the wage increase doubly worrying.
On Thursday a trade association in China published a survey of 1,000 businesses showing that exporters in labour-intensive sectors – mostly original design manufacturers making products to order for international brands – had profit margins as low as 3 per cent. The China Council for the Promotion of International Trade added that a renminbi appreciation would force many exporters to close.
Labour representatives, however, said the government had to bring wages up to a realistic level.
Geoffrey Crothall, spokesman for the China Labour Bulletin, a non-government organisation, said he had expected wages to increase just 10-15 per cent. He said the fact that Guangdong had introduced a higher-than-expected minimum wage meant the government was concerned about the ability of enterprises in the delta region to function without a steady flow of workers.
While there were fears that higher wages would feed wider inflation – China’s consumer price inflation reached a 16-month high in February – existing wages were below the cost of living.
According to official data, nearly 9m people in Guangdong worked in the manufacturing industry in 2008, but that did not take into account the massive population of migrant workers, which swells the province’s working population.
Additional reporting by Andy Ho in Hong Kong