Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Is This the End of Cheap Chinese Labor?

Economics / China Economy May 08, 2013 - 12:38 PM GMT

By: Money_Morning

Economics

Greg Madison writes: It's been the lament of everyone for years now: Cheap Chinese labor is killing the job market.

With lower wages and lax regulation, the giant sucking sound we heard was manufacturing jobs headed from Sheboygan to Shenzhen.


But now China's new found riches are starting to turn in on themselves in the form of much higher wages.

In fact, The Wall Street Journal has found that over the past decade - while no one was watching - manufacturing wages in China have gone up - conservatively - by 20% annually.

And as those workers pocket ever-fatter paychecks, they're demanding more in the way of decent working conditions and better hours. And that costs money.

It's not that much different than what happened in the United States in the early 20th century. It's just that China is doing it much faster.

A Victim of Her Own Competitiveness

Like the U.S. once did, China has become a victim of her own competitiveness.

Chinese workers have now seen what's possible when they begin to demand the same conditions that American manufacturing workers enjoy. That crimps profits and manufacturers in China are, for the most part, no longer earning crazy margins.

Stanley Szeto, who runs Lever Style (a manufacturer for Armani Collezioni, Banana Republic, J. Crew, Ralph Lauren, and a slew of other brands) explained it best. He told the Journal, "Operating in Southern China is a break-even proposition at best."

A China Labor Watch report on Lever Style's factories in China is telling in this regard. The study found that, all in all, conditions in Lever Style factories are good, spared the egregious abuses that go on elsewhere in the Asian garment industry. In fact, on an A-B-C, best to worst scale, the Lever Style factories would rate an A.

So what's the problem at Lever Style? ...

In the words of the study: "...even when employed by one of the most sophisticated employers in the industry, workers are still unable to receive a wage that allows them to advance their place in society."

From a business standpoint, that's the fundamental conflict. It's how you go from huge guaranteed margins to just breaking even in a ten short years. In fact, if Lever Style wants to continue to manufacture in China, to stay competitive and do right by its workers, it's going to have to pay workers even more than it does now.

The Home of the Brave

What do rising wages in China mean for the United States?

It's simple. If Chinese workers have their hearts set on American-style working conditions, it's not unreasonable to assume that, maybe, patriotic or civic-minded American brands might think about bringing those jobs back to the America.

The good news is there are already some encouraging signs in that regard. The Boston Consulting Group did a survey of executives of 106 manufacturing companies, each with over $1 billion in sales. Fully 37% of respondents that they were "actively considering" bringing manufacturing jobs back to American shores.

Boston Consulting Group senior partner Harold Sirkin shed some light on the issue, saying that, while Chinese labor is still cheap at an average of $6 per hour, compared with a $26 hourly wage for Americans, American productivity is close to 3.4 times higher than the Chinese. A manufacturer looking for a favorable bang:buck ratio should take note since that $26 American worker starts to look a lot more competitive with the $6 worker from China.

In a welcome, bizarre, case of Americans "stealing" Chinese jobs Beijing-based computer maker Lenovo Group Limited (ADR) (OTC:LNVGY) is hanging up its shingle in Whitsett, NC. Lenovo will build a manufacturing line there, reports The Washington Post. And in this case wages are only a small part of the equation. Lenovo is looking enter the American market while shortening its logistics chain. Rising energy, and therefore transport, costs have had an influence as well.

So What's Next?

Of course, it's just as likely that at least some manufacturers will move just around the corner from China, to markets like Laos, Cambodia, Vietnam, and India. These countries have something of a manufacturing base already, especially in the case of Vietnam, and most would be only too happy for the business. But even these countries are seeing wage increases.

The end result will probably involve at least slightly higher consumer prices for manufactured goods. But that's not where the possibilities end-not by a long shot.

Even further down the line, higher wages could lead to a new kind revolution in China, as Communist dictatorship yields to middle class pressures for democratic reform.

We've seen what a middle class - even the memory of one - can help do in Communist countries; it's one of the reasons why Poland, for example, is a success story while Kyrgyzstan isn't.

Longer term, just don't be surprised if the United States enjoys a renaissance in manufacturing, once again claiming her position as workshop to the world.

Source :http://moneymorning.com/2013/05/03/is-this-the-end-of-cheap-chinese-labor/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules