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Toyota, Honda Boost China Pay; Yuan May Slow Exports

Chinese 100-yuan banknotes
China’s yuan declined the most since December 2008. Photographer: Nelson Ching/Bloomberg

Toyota Motor Corp. and Honda Motor Co. suppliers sacrificed earnings in China by raising wages to end strikes, and the government’s decision to allow greater exchange-rate flexibility may slow plans to export vehicles from the nation as the currency appreciates.

China’s central bank will allow the yuan more flexibility, it said in a statement on June 19, signaling an end to the currency’s two-year-old peg to the dollar. The currency climbed the most in 20 months against the dollar and forwards jumped.

The looser currency stance comes “on the back of all these moves to endorse the wage increases,” Jim O’Neill, Goldman Sachs Group Inc.’s chief global economist, said in a Bloomberg Television interview yesterday. “It’s all part of moving to the consumer, more domestic-demand-driven economy.”

Labor unrest that disrupted output at Toyota and Honda’s plants in China in the past month forced their suppliers in the country to increase wages. In addition to the higher labor costs, an appreciation of the yuan may hamper plans to export Chinese-made vehicles by carmakers including Honda, which operates an export-only factory in Guangzhou, Guangdong province.

“Honda probably has to have second thoughts on its export plant,” Koji Endo, managing director at Advanced Research Japan, said today in a Bloomberg Television interview.

Yuan Gains

The yuan advanced 0.36 percent to 6.802 per dollar as of 1:45 p.m. in Hong Kong, the biggest gain since Oct. 7, 2008, according to the China Foreign Exchange Trading System. The 12-month non-deliverable yuan forward rose 1.4 percent to 6.6209, implying traders are betting on a 2.7 percent appreciation.

Toyota, Japan’s biggest automaker, gained 1.7 percent in Tokyo trading, while Honda, the second-largest, gained 3.7 percent. Nissan Motor Co., Japan’s third-largest carmaker, advanced 2.8 percent.

The Chinese government aims to boost exports of vehicles and parts to $85 billion by 2015 from at least $19 billion last year and the equivalent of 10 percent of the global auto trade by 2020.

Japanese carmakers won’t change plans to build vehicles in China for the domestic market, in part because of import duties, Endo said.

“China will continue to be the biggest car market in the world, and the growth rate will continue to be strong,” he said.

Labor Unrest

A stronger Chinese currency will help contain inflation, which may reduce worker wage demands, David Cohen, director for economic forecasting at Singapore-based Action Economics, said in a telephone interview yesterday.

Japanese carmakers and other foreign manufacturers including Taiwan’s Foxconn Technology Group, are spending more on labor as a result of recent unrest. Foxconn, which makes iPhones for Apple Inc., said it will double salaries for its lowest-paid workers after at least 10 Chinese employees killed themselves this year.

Toyoda Gosei Co., an affiliate of Toyota, ended a strike on June 19 that had disrupted car assembly, said Mieko Iwasaki, a Tokyo-based spokeswoman for Toyota. The company’s car plants in China are operating normally today, she said.

Akemi Ando, a spokeswoman for Honda, said the Tokyo-based company’s Chinese factories were also running as usual.

Iwasaki and Ando both declined to comment on the yuan decision’s impact on the companies.

Higher investment and improved wages in western China are deterring workers from migrating, pushing up pay in more industrialized regions like Guangdong in the south, said David Abrahamson, project manager at the China Center for Labor and Environment.

Minimum Wages

More than 20 Chinese provinces and cities raised minimum wages this year, the Shenzhen city government said on its website. In Shenzhen, which raised minimum wages an average of 15.8 percent, the government said higher pay will help companies recruit workers and will boost consumption.

Honda Lock (Guangdong) Co. ended a strike after employees at the Honda supplier agreed on June 18 to accept wage increases, said Takayuki Fujii, a Beijing-based spokesman for the carmaker. He declined to comment on the raise. Workers at the Zhongshan, Guangdong province, plant began their walkout on June 9 and suspended industrial action five days later as union leaders and management negotiated pay raises.

Honda ended the first strike at an affiliate on June 3 after agreeing to a 24 percent wage increase.

The fourth Honda affiliate to be hit by a walkout in the region, Nihon Plast Co., agreed to raise wages on June 19, Mutsuo Suzuki, a spokesman for the Shizuoka, Japan-based parts maker, said by phone today.

Nihon Plast

The pay increase was smaller than workers had demanded, Suzuki said, declining to specify further. The plant lost a day and a half of production before resuming output late on June 18, he said.

Nihon Plast is 21 percent owned by Honda, according to data compiled by Bloomberg. The company also supplies parts to Nissan and Suzuki Motor Corp., according to its website.

The Zhongshan factory, a joint venture between Nihon Plast and Osaka, Japan-based Itochu Corp., makes steering wheels for all models produced at Nissan’s Chinese venture, Dongfeng Nissan Passenger Vehicle Co. Mitsuru Yonekawa, a spokesman at Nissan, said the Yokohama-based company’s car production in China wasn’t affected by the Nihon Plast strike.

Workers at another Toyota supplier in China, Tianjin Star Light Rubber and Plastic Co., also walked out briefly on June 15. The issue was resolved when the company offered a pay increase.

Chongqing Brewery Co.’s operations returned to normal on the evening of June 18 after workers ended a strike, the Shanghai Securities News reported today, citing an unidentified company official.

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