Cost of Chinese labor is on the rise

Scott Tong Jul 6, 2007

Cost of Chinese labor is on the rise

Scott Tong Jul 6, 2007


KAI RYSSDAL: There’s a reason all those Chinese imports are heading our way. They’re cheap. Inexpensive is perhaps a more polite word. But when wholesalers and, eventually, retailers can pay so much less to get something on their shelves, that’s what they’re going to do. It’s a phenomenon known as The China Price — when Chinese competitors can make a widget for less using an almost unlimited supply of low-cost labor.

American workers might have taken some small comfort in today’s report that wages rose 0.3 percent.

But get this: In China, wages are rising by a healthy clip at the bottom end, and by whiplash standards at the managerial level. Marketplace’s Scott Tong reports from Shanghai.

SCOTT TONG: Step inside one of the oldest Western bars here. It’s called Malone’s.

For more than a decade, Malone’s has given Western businessmen what they want: burgers, beer, and in many cases a chance to meet Asian women. Owner Shawn Doyle of Vancouver says things are going well here, except that labor costs are creeping up. It’s hard to keep good staff.

Shawn Doyle: They know what the bartenders are being paid in the bar down the street, and what the waitresses are being paid in the hotels. That’ll be their argument when they ask for more money is, you know, “These guys over here are getting paid this much.” I’m like “Go ahead” sometimes. Or sometimes I’ll have to make an adjustment, you know?

All across China, salaries are going up an average of 12 percent a year. At Malone’s, the chefs make the going rate of $10 a day, but they’re always hunting for a better deal.

Doyle: People are just automatically thinking and talking about that. And Shanghainese are very conscious of money.

Sarah Yuan: It’s very important. Very, very important.

That’s 30-something Sarah Yuan, an executive assistant at an American investment bank. She’s asked us not to name it.

In the last 10 years, Sarah has job-hopped five times. She says she wants to make a lot so she can save a lot.

Financial security is hard to come by these days. In the last generation the government has shredded the social safety net in China. So for workers like Sarah, they could just sit around and wait for their annual review.

Yuan: Maybe you will get a raise of around 10 percent or 15 percent increase. But if you change a job, maybe you’ll get 30 or 40 increase. Or even double.

Why are salaries booming now? Sales consultant Andrew Hupert says multinational companies are now coming to China in droves, and there just aren’t enough skilled, experienced workers available.

So often, these companies poach staffers from one another.

Andrew Hupert: You’re either looking over your shoulder to see who’s stealing your people or you’re keeping a sharp eye out in front of you to see who you can steal.

Labor costs are inching up for some factories, too — especially the low-margin textile and toy makers who pay migrants just $3 a day.

Chip Chaikin of the investment firm Blue Point Capital Partners says China no longer has enough people willing to work under those conditions.

Chip Chaikin: I think it’s running out of people that are willing to totally uproot their life and take a train 20 hours and live away from their family in a crowded dormitory for a couple years.

Chaikin says today many migrants have more job options in more locations. So employers have to jack up salaries to keep them.

The American Chamber of Commerce says wage pressures are pinching profits at nearly half the American firms in China. And the cost of doing business is going up in other ways.

Beijing has just increased taxes on foreign companies. And it’s passed new regulations on labor standards and minimum wage. Add it all up, and China’s becoming a pricier environment these days.

Still, Chaikin sees no signs of a mass exodus by Western firms. What they are doing is making sure all their eggs are not in the one China basket.

Chaikin: What some have done is they’ve said, “Look, China’s got enough risks involved with it, including the risk of political backlash from the U.S., that I need to hedge my risks a little bit. So I’m going to have most of my manufacturing capability in China. But I’m gonna have a little bit in Vietnam, or a little bit in Indonesia, or a little bit in Malaysia.

Those countries have cheaper labor than China, but they have their own problems like corruption and bad infrastructure. They’re further away from a lot of suppliers. So for now, most of the game is still in China. It’s just that for Western companies, The China Price is no longer the bargain it used to be.

In Shanghai, I’m Scott Tong for Marketplace.

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