The widening gap between rich and poor in China is on full display each morning in Beijing’s Sanlitun Village, where labourers on their way to work file past glimmering storefronts advertising a bounty of high-priced goods including Apple computers, Swiss watches and Starbucks coffee.
Thanks to the soaring wealth of its business elite, China is expected to become the world’s largest consumer of luxury goods within five years, a projection that means very little to the estimated 100,000 people in the city who earn the minimum wage of 800 yuan ($123) a month.
A small latte at the Sanlitun Starbucks costs 25 yuan, more than half a day’s pay for a minimum-wage earner.
Cheap labour has propelled the strong economic growth that has made China the world’s factory floor and No. 1 exporter. Yet there are signs the country’s massive low-cost work force is on the cusp of winning major improvements to their working conditions that will have significant implications for the Chinese economy.
Better wages will increase inflation pressures and crimp corporate profits, raising concerns about an economy that is already showing signs of a slowdown. At the same time, however, a Chinese consumer with more spending power will help the country achieve its long-term goal of boosting domestic consumption and reducing reliance on investment and export demand.
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In Beijing, the government recently unveiled an increase in the monthly minimum wage, to 960 yuan from 800 yuan, beginning in July. The move follows a number of minimum-wage hikes in China’s southern provinces and at factories in the manufacturing hubs of the Yangtze River Delta and the Pearl River Delta after a series of unprecedented labour actions and protests amid a shortage of migrant workers.
The Chinese operations of Japanese auto maker Honda were crippled for weeks after workers at a transmission plant in Guangdong province went on strike in May demanding better pay. The company has offered wage increases of between 24 and 32 per cent to the disgruntled employees, bringing their pay to about 1,900 yuan per month.
The Honda unrest comes after a spate of suicides by workers at Foxconn, a Taiwanese company that employs more than 400,000 people in Shenzhen, China, to assemble electronics products including Apple iPhones, iPods, iPads, laptop computers and mobile devices.
The Foxconn workers, who have complained of cramped dormitory living conditions and long work hours, have been given a 30-per-cent pay increase and been offered counselling to deal with work stress. On Sunday, Foxconn said it would go even further by doubling the salaries of many employees.
“Workers’ bargaining power is rising as the labour market tightens,” Patrick Lawrence of research firm GaveKal-Dragonomics wrote in a recent report to clients highlighting inflationary pressures in the Chinese economy.
The wage increases “remind us that labour tensions are set to become a much bigger issue over the next few years as workers fight for larger paycheques and improved working conditions,” Mr. Lawrence added.
Analysts at UBS Securities suggest that a 30-per-cent wage increase will have a significant impact on the profits of PC makers and suppliers in China. Foxconn’s earnings could fall by as much as 13 per cent this year and 19 per cent in 2011, UBS said.
Tao Wang, the head of China economic research for UBS, expects the impact on inflation will be limited. She expects labour productivity improvements to absorb some of the costs and predicts that producers, rather than raise prices, will accept lower margins in the short term to retain competitiveness.
