Financial Times: China Says Farewell To The "World Factory"

For most of the past decade, China has been the undisputed "factory of the world" - importing raw materials and exporting cheap manufactured products to all parts of the world. But now there are more and more signs that China is losing its biggest advantage as an export base of manufacturing industry as the rising wages push up the costs of manufacturers.

The preliminary research results released by AlixPartners, a business consulting firm, show that during the global economic crisis last year, China's position as the world's lowest cost parts manufacturer was surpassed by India and Mexico.

Just like Japan and the Asian Four Dragons, China is trying to move up the value chain as people become richer. However, there are obvious signs that in the near future, the rate of salary increase will exceed the rate of technology upgrading of many companies.

The Chinese government is studying ways to solve China's income gap, and has made this issue a priority in its "12th Five Year Plan" economic plan - China plans to disclose the "12th Five Year Plan" next year. Official data show that last year, China's urban-rural income gap reached the largest level since modern records began in 1978, which makes this issue urgent.

At the same time, a senior official of the All China Federation of Trade Unions warned last month that the proportion of labor remuneration in China's gross domestic product (GDP) has declined for 22 consecutive years. Low pay, poor working conditions and long working hours are causing more and more disputes and worker unrest. "This poses a serious challenge to China's social stability," said the official.

The Communist Party of China believes that the widening income gap is related to long-term political survival. So far this year, the government has taken measures to raise the minimum wage in most major manufacturing centers.

In March, Guangdong Province announced a 20% increase in the minimum wage. About one-third of China's export products are produced in Guangdong.

In the first quarter, seven other provinces and cities, including Jiangsu, Zhejiang and Shanghai, also raised the minimum wage by 10% to 17%. China's Ministry of Human Resources and Social Security said that 20 provinces planned to raise the minimum wage this year.

The wage increase is not only to appease the public's dissatisfaction, but also to ensure that the world's largest manufacturing machine has enough labor.

Most of the workers in factories in coastal cities of China are migrant workers from poorer inland and western provinces. However, in recent years, more and more manufacturers have moved to the mainland to take advantage of lower labor and tax costs.

At the same time, the improvement of rural welfare, the rise of agricultural product prices and the reduction of rural taxes have also reduced the attractiveness of people to work in Guangdong or other coastal areas.

According to the official report, just after the Chinese New Year holiday in February this year, the manufacturing core of Guangdong Province provided more than 2 million migrant workers with jobs.

China's efforts to increase wages and improve working conditions in order to attract migrant workers are attracting workers from farther afield: more and more Vietnamese workers are illegally sneaking into factories in southern China to work - often earning twice as much as their domestic earnings.

But although China's labor costs are rising, the entire Asian region is also feeling pressure to raise wages - this may not include Japan, which has been struggling to fight against deflation for a long time.

The Vietnamese government recently raised the minimum wage for civil servants and employees of state-owned enterprises, which is the second time that the country has raised wages in a year to combat inflationary pressures.

In Cambodia, the garment industry is facing the pressure of nearly doubling the minimum wage to meet the needs of garment workers. Clothing industry is the main export industry of the country.

Hong Kong, Brunei, Malaysia and other places are richer, but the gap between rich and poor is larger. They have not set minimum wage standards at all. It seems that these countries and regions will also enact minimum wage laws, which will make Singapore and Macao the "islands" in East Asia that persist in opposing the formulation of such laws and regulations.

Wages are rising throughout East Asia, and China is at the forefront of the wave. Governments hope that this trend will reduce the widening gap between rich and poor, but also fear that it will weaken their competitiveness in a globalized economy.

However, although low-end manufacturing industries may gradually migrate to regions with lower labor costs in China or Asia, the infrastructure that has been built will help enterprises move towards the high-end of the value chain, just like Japan in the 1960s and 1970s and the Asian Four Dragons in the 1990s. Translator/He Li