China’s rising labor costs prompted Top Form International Ltd. (333), a bra maker for Calvin Klein, to pick Southeast Asia for a new factory, adding to signs of a reshaping of the economy away from export-tied regions.
“We’ve halted plans to open a fourth factory in China,” Eddie Wong, group managing director and co-founder of Hong Kong-based Top Form, which also supplies brands including Maidenform, said in an interview yesterday. “We can consider other cities in China but it’s only a matter of time before wages will rise again and it will get more expensive for us.”
Premier Wen Jiabao’s government is considering accelerated income gains, including higher minimum wages, as officials seek to strengthen consumption in the aftermath of an export slump during the global crisis. Top Form’s move follows plans by Dell Inc. to build a production and operations center in Chengdu, central China, adding to its existing base in port-city Xiamen.
Average wages at factories in China soared 40 percent in Guangdong, a coastal province in the south, and 20 percent in Jiangxi, which abuts Guangdong, in the year through June, according to Wong. While average monthly pay is about $200 in Thailand and the Philippines, and slightly below that level in Jiangxi, the pace of increase is faster in China, he said.
Top Form is considering Thailand, the Philippines and Vietnam for the site of its additional factory, Wong said in Hong Kong. Rising minimum wages have contributed to the increase in Chinese labor costs, said Michael Austin, the company’s chief financial officer.
The central government is reviewing a policy recommendation to boost wages, particularly at smaller and medium-sized businesses, that was submitted by the All-China Federation of Industry & Commerce, a private business industry group chaired by Huang Mengfu, according to Wu Wei, a press official at the federation, said by phone today. Wu declined to elaborate on the proposal.
Huang, who is also vice chairman of the Chinese People’s Political Consultative Conference, an advisory panel to national legislators, in June endorsed a plan to double incomes nationwide in the next five years, through steps including guidelines on annual minimum-wage increases, according to a China News Service report.
“Rising wages will help boost households’ purchasing power and push companies to add value to products rather than overly depend on labor-intensive production,” said Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch. At the same time, forcing faster increases through government action risks fueling inflation, he said.
While allowing local governments to set their own minimum wages, the labor ministry has ordered the levels to be adjusted at least every two years. After halting increases last year amid the global recession, 27 of China’s 31 provinces have increased pay rates this year, mostly by more than 20 percent, the Beijing News reported Aug. 18.
Gong Nanxiang, a press official at the Ministry of Human Resources and Social Security, said he’s not aware of a plan to double wages in the next five years.
China needs to increase domestic consumption to survive in a global economic environment that is growing more challenging, Li Daokui, an adviser to the People’s Bank of China, said Sept. 19 at a financial forum in Beijing.
Rising labor costs have been felt most acutely in China’s coastal regions in the east, a hub of foreign-invested manufacturers that attract a majority of the nation’s 145 million migrant workers, most of whom earn minimum wages.
Foxconn Technology Group (2354), the assembler of Apple Inc.’s iPhones, in June agreed to more than double wages at its Shenzhen factories in southern China after a spate of suicides. The company said last month it will build factories in inland provinces Henan and Sichuan that are closer to employees’ homes.
Labor unrest that disrupted output at Toyota Motor Corp. and Honda Motor Co. (7267) suppliers in China in June also forced the carmakers to boost wages.
--Li Yanping, Wing-Gar Cheng. Editors: Chris Anstey, Lily Nonomiya