Mon, 05 Jul 2010

From: AFP

By Stephen Coates
Labor costs and the value of China’s currency are sending ripples around Asia as countries jostle to lure manufacturers that are rethinking their Chinese operations, analysts and officials said.

Worker unrest at foreign-owned factories and the prospect of higher wage costs are causing some manufacturers to consider Indonesia as well as Bangladesh, India and Vietnam, where wages remain relatively low.

Trade Minister Mari Elka Pangestu said in January that there was a “permanent trend” of shoe manufacturers shifting from China to Indonesia, resulting in $1.8 billion of investment over the past four years.

Bruce Tsao, an analyst with Capital Securities in Taipei, said dramatic wage hikes in mainland China were “adding more woe to labor-intensive industries in China already troubled by low profit margins. Such factories may not move out of China soon, but the trend is inevitable in the long term,” he said.

Taiwan’s Feng Tay Group, which supplies about a sixth of Nike’s sports shoes, said it was planning to boost production in India as its Chinese manufacturing base shrank.

The company made 51 million pairs of shoes last year, 20 percent in five Chinese plants.

“The ratio will keep falling in the years ahead,” said a company spokeswoman, Amy Chen. She added, however, that the company’s five Chinese plants would “remain our production base of high-priced products.”

“We’ll keep expanding our capacity in India over the next five years, considering its competitive edges like ample supplies of quality workers, relatively low wages and concessions offered by the government,” she said.

China’s central bank last month pledged to let the yuan trade more freely against the US dollar but ruled out dramatic moves in the currency or a one-off appreciation. The yuan hit five-year highs of 6.8089 to the dollar in the days that followed, but it remains firmly within a tightly controlled trading band.

Analysts said a more robust yuan would further erode China’s labor-cost advantage over other links in the global supply chain, amid growing signs that the country’s apparently limitless pool of cheap workers might be drying up.

Production at a Japanese-owned electronics factory in northern China was suspended from Tuesday until Saturday as 3,000 workers went on strike over pay and benefits.

It was the latest in a spate of unrest to hit foreign-run companies in China, highlighting growing discontent among millions of workers over poor salaries and conditions.

Japanese automakers Toyota and Honda have been forced to halt production at assembly plants in China several times in recent weeks after strikes at auto-parts suppliers.

The China Daily newspaper, a state mouthpiece, has warned of “an end to cheap labor in China.”

Bangladesh, which has the lowest minimum wage in the world at just $25 a month, is poised to reap the benefits as long as it can resolve its own chronic labor disputes and fix its crumbling infrastructure, experts say.

“Bangladesh has a huge opportunity to capitalize on rising costs in China,” said Ifty Islam, an investment banker at Dhaka-based Asian Tiger Capital.

“But it is difficult to get more foreign firms to come if we can’t prevent labor unrest.”

Nissan chief Carlos Ghosn recently said the Japanese automaker was paying “a lot of attention” to strikes in China but this did not mean there would be any change in its plans to ramp up production in the country.

Even so, Ghosn announced last week that the company intended to double the capacity of its assembly plant in Indonesia, which he said could become an “export force” if it improved its creaking infrastructure.

His point underscored the fact that despite the slight appreciation of its currency and corresponding higher wage costs, China was light years ahead of its rivals in supply-chain infrastructure such as ports and railways.

Analysts also said China-based manufacturers could easily offset the higher yuan by increasing efficiency and boosting production.