The Era Of Low Wages Is Gone Forever.

The turning point of population is so strong that low wages will never return. Whether labor productivity can be improved is related to China's manufacturing and life and death.

　　 wages The continuous rise has made the "made in China" face unprecedented challenges.

The latest warning comes from the Boston consulting firm. Its May 5, 2011 report predicts that in the next five years, as the wage gap between the US and China shrinks, people will see more and more commodities in the US market. Made in America "

By contrast, India will replace China's "world factory" formulation for a long time. Southeast Asia, Burma, Kampuchea and other Southeast Asian low labor cost countries are also taking advantage of China's recruitment difficulties, and pay close attention to attracting foreign investment.

The rapid rise in wages of manufacturing workers in recent years is gradually changing the base of China's rapid economic growth over the past 30 years - a large number of cheap labor force. The change of relative resource endowments brings about the pains of transformation. At the same time, it also raises an unavoidable question: how long can China maintain its status as a "world factory"?

"I am not so pessimistic, low-end labor force. Intensive enterprise It is possible to transfer, but the speed and intensity of transfer may be smaller than we think. " Shen Minggao, chief economist of Citibank Greater China, told reporters.

The reality is that in the next few years, China will face the pressure of aging population, the labor force population ratio falling to the top and the wage trend rising. On the other hand, China's economic advantages such as scale effect, industrial chain integrity and excellent infrastructure will continue to exist.

In the process of rising wage level, whether China's economy can continue to maintain a strong vitality, whether the manufacturing industry can continue to maintain its competitiveness and attractiveness in the world, has two key points. First, whether the labor productivity can be improved synchronously or even faster than the wage growth. Two, is the manufacturing industry rising from the low end of the industrial chain to the high-end? The answer to this series of questions is also related to whether China can achieve the goal of synchronizing economic growth and resident income growth during the "12th Five-Year" period.

Farewell to low wage Era

"Wages for unskilled workers have been stable for about ten years, which is not normal."

"Every time the price is quoted, the guests curse me. Once I just quoted, the guest said, you have increased 32% since the beginning of 2010. Miss Chen, who is responsible for setting up two factories in Zhejiang Ningbo, is responsible for Lovely Creations, a toy enterprise in Taiwan. She told reporters that since last year, wages and raw material costs have increased by more than 30 percentage points. If they do not raise their prices, "what will they pay their salaries and materials?"

This is a global problem. Shandong Feixian County Dachang Textile Co., Ltd. is facing the same challenge. Gao Yongjie, the regional manager of the company, told reporters that because of the rise in wages, the price per metre was increased by more than 10 yuan, and wages accounted for 30% of the increase in fabric prices. "Young people are unwilling to do so. Only 35 to 45 years old are able to work now, all of them are people who have been in the early stages of construction."

Over the past 30 years, a continuous supply of cheap labor is an important driving force for China's rapid economic growth and the cornerstone of the success of the eastern coastal world factory model. At present, the cornerstone is being eroded.

In the eyes of miss Lovely Creations, the whole big change began in the late spring and early summer of 2010 in the Foxconn incident. "The whole situation starts to get out of control, workers have been asking for wage increases". By the end of 2010, when workers renew their labor contracts, workers will calculate themselves according to the local government's wage increase. The two factories in Ningbo have been put into operation in 1997, so far nearly 15 years.

In 2010, almost all provinces in the country raised the minimum wage. In the first quarter of this year, 13 provinces increased the minimum wage standard, an average increase of 20.6%. By the end of 3, the highest monthly minimum wage in Shenzhen was 1320 yuan.

However, it is impossible to recruit workers only by paying the minimum wage. Jin Xin, assistant general manager of Dongguan lighting group, told reporters that the increase of 20% of the minimum wage increased to more than eight hours and overtime after holidays. The overtime work during the working day is 1.5 times the minimum wage, the weekend overtime is 2 times, and the statutory holiday is 3 times. "One month, the average salary is 2000 yuan -3000 yuan."

The impact of the minimum wage increase on enterprises also includes the corresponding increase in social insurance according to the minimum wage.

Continuous wage increases cause business difficulties. A person in charge of Zhejiang AIA integrated ceiling company introduces that there are about five hundred or six hundred integrated ceiling enterprises in Jiaxing. Most of them do not have their own brands and high-end resources. Small businesses are especially passive. "Since last year, there has been news of business failures, and it is estimated that about 10% of enterprises will not be able to go on."

In April 26th, the white paper published by the Chinese Chamber of Commerce in the US in 2011, said that the challenge of rising labor costs and labor shortage has become the top priority of many American enterprises in China. 71% of respondents believe that wage increases cause negative effects or significant damage. Wages rose by more than 50% in some US funded enterprises in southern China.

The white paper argues that the rise in labour costs and worker turnover has weakened China's ability to maintain rapid economic development and maintain global competitive advantage.

The nationwide rapid wage increase is, to some extent, a compensatory rise in wages over the years, which is lower than the increase in labour productivity. Nomura's estimates of labour productivity in industrial enterprises show that in 1994 -2008, labor productivity grew by 20.8% annually, while manufacturing wages increased by only 13.2% during the same period.

Meng Kewen, President of the China Chamber of Commerce in the United States, told reporters that wages for unskilled workers had been stable for about ten years, which is not normal.

In the current wage increase, the wage increase of unskilled workers is greater, and the wage gap between skilled workers has been narrowing. Shen Minggao believes that in the first few years of wage increases, compensatory rises will surely emerge, and the momentum will be stronger.

This trend can be seen from the rapid growth of wage income of rural residents. In the first quarter of this year, the wage income of farmers increased by 17.9% on the basis of last year's growth rate, increasing by 18.9%.

The increase in consumer prices of daily necessities and services also requires a corresponding increase in the wages of workers. "Living goods went up badly, and the workers asked me to go around the supermarket and talk about wages." Miss Chen of Lovely Creations said.

During the "12th Five-Year" period, the Chinese government put forward the goal of "double synchronization", that is, the growth of residents' incomes and economic growth are synchronous, and the growth rate of labor remuneration and labor productivity are synchronous.

According to the world bank data, this means that by 2015, employers in China will have to pay 1 trillion and 500 billion yuan (9 trillion and 800 billion yuan) more for the new labor cost. The continuous increase in wages will increase the share of labor cost to GDP by 1 times, from 15% to 30% in 2015.

Demographic dividend disappears.

The old comparative advantage is gone, and the new comparative advantage has not yet been shown. Will China do that?

Day by day wages rise, and many enterprises who hoped to survive the cold winter as soon as possible have a slim future. "Wage increases are not short-term, but long-term changes, the root of which is demographic change." Meng Kewen, President of China Chamber of Commerce, said. {page_break}

In April 28th, the National Bureau of statistics released the data of the sixth national census, confirming the previous researchers' predictions about the decline in population growth and the acceleration of ageing. Since 2000, the average annual growth rate of population has been 0.57%, 0.5 percentage points lower than that of -2000 in 1990, and the rate of population growth has dropped rapidly.

In fact, the aging of population is faster than expected. As of November 1, 2010, at the age of 0, the population aged -14 years old accounted for 16.60%, 6.29 percentage points lower than the 2000 census, 13.26% of the population aged 60 and over, 2.93 percentage points higher than that of 2000, of which 65 and above accounted for 8.87%, up 1.91 percentage points from 2000.

According to Ba Shu song, deputy director of the Finance Research Institute of the State Council Development Research Center, the published data confirm that China has crossed the "Lewis turning point" and that the demographic dividend window period is about to close.

The key indicator to analyze the demographic dividend is population dependency ratio, that is, the age of 0-14 years old and the elderly population over 65, who account for the proportion of working age population between 15 and 64 years old. Since 1970s, China's child dependency ratio has dropped significantly, and the dependency ratio of elderly has slowly increased, and the total dependency ratio has been declining. This means that more people will enter the labor force and provide sustained impetus for economic development.

However, the situation will be reversed in the next few years. The latest demographic data show that China's total population dependency ratio is 34%, the child dependency ratio is 22.3%, and the elderly dependency ratio is 11.9%. Prior to the UN's prediction, by 2015, China's child dependency ratio was 27%, and the elderly dependency ratio was 13%. It can be seen that the decline rate of child dependency ratio in China has already been faster than that of the United Nations.

Ba believes that the severity of aging and the shortage of reserve labor are far more serious than forecast. It is estimated that the stock of China's labour force will begin to decline before and after 2015, that is, the disappearance of demographic dividend.

Cai Fang, director of the Institute of population and labor economics of the Chinese Academy of Social Sciences, predicted that China's population dependency ratio will reach its lowest point in 2013, then rise, and the demographic dividend will be lost.

Chen Yong, a macro analyst at Huatai Securities, believes that this means that the productivity created by the working age population of the unit needs to be improved continuously to make up for the loss of the age structure of the population.

Cai Fang is worried that China will see "the old comparative advantage is gone, and the new comparative advantage has not yet been shown". Due to the shortage of labor and rising costs, the traditional labor intensive industries will lose their comparative advantage. China's current per capita GDP is US $4000, which means that capital accumulation is not enough, coupled with limited technological innovation, capital intensive or technology intensive industries have no advantages, so they are faced with the risk of "middle-income trap".

The tight supply and demand of labor force and the rising cost of wages will be China's long-term trend. Enterprises have already felt the impact of difficult recruitment and rising wages. The white paper of American enterprises in China says that from leading talent to project managers to skilled skilled workers, China's shortage is even more serious than that of other major Asian countries, which has hindered China's attracting new investment and expanding its business in China.

However, Wang Chin, a macroeconomic analyst at Guotai Junan, believes that the rising dependency ratio does not mean that China's labor age advantage has been lost. The special age structure of China makes the dependency ratio of China at this stage far below the lowest point of the dependency ratio in Japan or Korea. Even though the dependency ratio is rising in the next five years, the dependency ratio of China is still at a low level.

Leaving China?

Labor cost is only one of the factors that decide where to set up a production base. In addition, infrastructure, regulation, taxation, labor market flexibility, and integrity of upstream and downstream industrial chains are all very important.

As demographic dividends fade away, will China no longer be an attractive manufacturing base?

Harold L.Sirkin, senior partner of Boston consulting firm, predicts that China's wages will grow at an average annual rate of 17%, coupled with the continued appreciation of the renminbi, and consider the relatively high productivity of American workers. By 2015, the net labor cost of China's manufacturing industry will be comparable to that of the US. "In the next five years, enterprises selling in the US will reduce investment in China, and we will see that more and more products are made in the United States."

Sirkin has calculated an account. Considering the relatively high labor productivity in the United States, the wages of workers in Shanghai and other places are only 30% cheaper than those in some low cost states in the United States. Because wages account for about 20%-30% of the total cost, and even before considering inventory and transportation, China makes only 10%-15% cheaper than the US. If these costs are taken into consideration, the total cost advantage of Chinese products will drop to single digit or even be completely erased.

He believes that the US Mississippi, southern California and Alabama are expected to become low-cost manufacturing bases for the US market.

However, Shen Minggao's view is different. He said that the labor cost of China's manufacturing industry in 2008 was only 8% of that of the United States, even if it increased by 15% annually, it would take a long time to reach the level of the United States.

Hong Kong and Taiwan funded enterprises, which account for quite a large proportion of China's foreign trade enterprises, are more focused on Southeast Asian countries. Last June, Chen Weiliang, chairman and chief executive officer of Foxconn international, said that while considering the relocation of some factories to the north of the mainland, he also considered moving to India and Vietnam.

"It's almost necessary to go somewhere else with lower cost." Hongkong Yu Yuan Industrial (Group) Co., Ltd., investor relations director Cen Li told reporters that for the OEM foundry business, the key is to see the needs of customers, some customers must look for cheaper factories, while others attach importance to product quality and control of delivery time. "When to transfer specifically depends on how fast the Chinese wage rises and the appreciation of the renminbi."

Yuyuan group is the world's largest manufacturer of brand sports shoes, producing products for Nike, Adidas and many other brands. At present, about 50% of the production scale is in China, and plans to invest in factories in Vietnam, Indonesia and Kampuchea to gradually reduce the proportion of capacity in China.

Yang Guang, sales manager of Jiangsu Huafang wool textile dyeing and dyeing Co., Ltd., worried that the labor-intensive enterprises in the eastern coastal areas should migrate to the central and western regions, or "in the future to develop Southeast Asia, their labor force will be cheaper."

What is the real situation in Southeast Asia?

According to a survey conducted by the Thailand Investment Promotion Council in August 2010, the median wage for skilled workers in Thailand in the two quarter of 2010 was 258.16 dollars / month, semi skilled workers were 229.81 dollars / month, and unskilled workers were 183.85 dollars / month. In January 1, 2011, the minimum daily wage in Thailand rose by an average of 6.7%.

Labor in Vietnam, Kampuchea, Indonesia and other countries is cheaper. According to the International Labour Organization statistics, from the purchasing power parity, the wages of Vietnamese workers are 85 dollars per month, and Indonesia is 148 dollars / month. The Kampuchea Garment Manufacturers Association (GMAC) stipulates that the minimum monthly wage of Kampuchea textile, clothing and footwear enterprises from October 1, 2010 to 2014 is US $61. {page_break}

According to the current exchange rate, the minimum monthly wage in Shenzhen will be about $190, and the actual wage of enterprises will be more than $350.

Due to the limitations of data, the wage costs of China and Southeast Asian countries are not very strict. But basically, we can see that only in terms of salary level, some countries in Southeast Asia have more advantages than China.

However, Wang Zhihao, a Chinese economist at Standard Chartered Bank, stressed that labor costs are only one of the many factors that decide where to set up production bases. Besides, infrastructure, regulation, taxation, labor market flexibility, and integrity of upstream and downstream industrial chains are very important.

At the beginning of this year, Taiwan Shenghua Polytron Technologies Inc, which provided the original brand phones for apple and many other brand phones, started construction in Vietnam's factories, and is expected to invest 150 million US dollars. Li Rongxing, deputy director and deputy spokesman of the company's finance department, told reporters that Vietnam's wages are indeed cheaper, but Vietnam has its own problems, mainly because infrastructure is not as perfect as mainland China.

Taiwan Lovely Creations toy company is hesitant about whether to set up factories in Southeast Asia. Miss Chen is worried about the industrial chain because the materials used for making toys are complex. "If the other materials are not matched, it will be more troublesome."

Shen Minggao believes that because the infrastructure is not perfect and the scale of the country is small, Vietnam and Kampuchea are basically unable to attract the overall relocation of a certain industry chain. If only a section of the industrial chain is transferred, there will be other inconvenience and difficulties for the enterprises.

In addition, many enterprises reflect that the production efficiency of some Southeast Asian countries is not very high, which may not meet the requirements of fast delivery and high product quality.

Ms. Chen of Lovely Creations said that the toys manufacturers had gone to Vietnam and Kampuchea, but the order that China completed in 60 days might be 120 days over there. The production of toys is seasonal. Once the time is missed, it will have to go by air export.

Lu Ting, a Chinese economist at Bank of America and Merrill Lynch, believes that some Southeast Asian countries with low wages have other problems, such as economic or political instability. In February this year, the Vietnamese shield fell by 10%, and the strike was more serious.

In the short term, no large-scale relocation of manufacturing factories is expected in China. In the first quarter, Standard Chartered Bank surveyed 80 export enterprises, including 58 manufacturers in Hongkong, 9 in Shanghai and 13 in Chongqing. Of the surveyed enterprises, only 6 enterprises considered leaving China due to higher wages, including 4 in the Pearl River Delta, 1 in Shanghai and 1 in Chongqing.

Wang Zhihao told reporters that considering leaving China is mainly a textile enterprise, as well as a shoe-making enterprise.

Low labor costs are not the only reason why companies invest in Southeast Asian countries. Li Rongxing, Taiwan Shenghua technology, said that the main reason is to follow the downstream customers and have clients in Vietnam.

Zhejiang HOLLEY group is a Chinese partner of the Luo Yong China Industrial Park in Thailand, and entered the Thailand market in 2006. A person in charge of a company in Thailand told reporters that the salaries of workers in Thailand are basically the same as those in Jiangsu and Zhejiang provinces, plus transportation subsidies, which is about 2000 yuan -3000 yuan / month, but the cost of insurance paid by workers for workers is 30% lower than that in the domestic market. Domestic enterprises should pay various kinds of insurance premiums, which probably account for 40%-50% of wages, while Thailand enterprises only need to pay 5%-10%.

At present, 31 enterprises have entered the Luo Yong Industrial Park. The head of the Zhejiang HOLLEY group in Thailand believes that there are many direct motives for Chinese enterprises to invest in Thailand, including the diversification of their origin, the avoidance of trade barriers, or the development of local or regional markets for the sake of internationalization of enterprises, or the use of resources on the ground.

Midwest buffer zone

We should not just look at the nominal wage differences between the eastern coastal areas and the central and western regions, but also compare the level of labor productivity and transaction costs and circulation costs.

Southeast Asian countries have their own advantages and disadvantages, but in the short term, they will not lead to large-scale relocation of southeastern coastal enterprises in China.

Qin Xiaobin, a strategist at Galaxy Securities, believes that the transfer of labor-intensive industries to countries or regions with lower labor costs is an irresistible trend. China should take advantage of the ladder characteristics of the eastern and central western economic structure and replace some foreign industries by transferring some industries from the east to the central and western regions.

Compared with the eastern coast, the labor costs in the central and western regions are slightly lower. However, the gap between them has narrowed down and workers are more willing to stay closer to home.

More companies choose to move to the Midwest instead of leaving China. Of the 9 Taiwanese funded enterprises surveyed by Standard Chartered Bank in Shanghai, 8 companies plan to establish diversified production bases in China.

Zhou Shikun, deputy director of the Northwest Office of Renmin electric group, headquartered in Wenzhou, told reporters that the company has built production bases in Nanchang and Henan.

Zhou Shikun said that low wages are only one reason for building factories in the Midwest. Many enterprises in Wenzhou are willing to go to the Midwest. The biggest reason is that the land is cheaper. There are preferential policies for attracting investment, and the products are sold in the central and western parts of the country, and the traffic is more convenient.

Jiangsu Huafang group weaving and dyeing Co., Ltd. has built factories in Anhui and Xinjiang. Yang Guang, sales manager, said that the reason for going to Xinjiang is close to the cotton producing area.

At present, raw materials from the Midwest, or products sold in the Midwest, are more willing to transfer to the Midwest.

For enterprises outside the raw material and market sectors, we need to consider carefully. Dan Fujian, from the national luggage city and Zhejiang Pinghu city's rookie Group Co., Ltd., told reporters that the enterprises producing bags and suitcases did not want to go to the central and western parts of the country, because most of the raw materials were imported, the products were mainly sold abroad, the market demand in the western part was small, and the bags occupied much space and the transportation cost was high.

Xinxin group has built a new factory in Luzhou, Sichuan, while enjoying low wages and transportation costs. "It can be shipped out through the Yangtze River." Shan Fu Jian said.

Peng Xizhe, vice president of the China Population Association and professor of Fudan University, said that labor-intensive industries are mainly transferring to inland China, and labor-intensive industries will still have opportunities in the next five years, but then they may shift to India and Vietnam.

However, Shen Minggao reminded enterprises that we should not just look at the nominal wage differences between the eastern coastal areas and the central and western regions, but also compare the level of labor productivity with transaction costs and circulation costs.

How to make in China

Demographic dividend is disappearing, but national income and demand are also rising. China's manufacturing enterprises are faced with difficult choices to innovate and upgrade industries or to transfer passively.

Many analysts believe that although the demographic dividend is gradually disappearing, the advantages of China's manufacturing sector will remain in the next few years. "One of the important reasons is that China has the advantage of great power and the industry chain is very long, which is unmatched by Southeast Asian countries." Shen Minggao said.

Meng Kewen, President of the China Chamber of Commerce in the United States, believes that businesses that rely partly on low labor costs will move out, but in other areas, such as laptop manufacturers, labor costs in the industry are very small and are very dependent on China's supply chain.

In addition, China has a huge domestic consumer market. Lu Ting said that the domestic demand market is the main reason for many enterprises to stay in China. Even the enterprises that originally made external demand can turn to domestic demand, and Vietnam or Kampuchea need much less domestic demand.

The Boston consulting firm's report also believes that although the companies sold in the US will reduce investment in China, China is still a major and important manufacturing base because investment in the domestic market will continue.

According to the white paper of American enterprises in China, 61% of the 350 enterprises surveyed were produced and purchased in China and supplied to the Chinese market. Only 10% of the enterprises who supplied the US market accounted for 8% of the market in China and the United States.

The "12th Five-Year plan" put forward that the consumption potential of urban and rural residents should be further released in the next five years, and the scale of China's domestic market will gradually become the top in the world. Undoubtedly, China already has the first element of a large population. The second element is the improvement of residents' income and actual purchasing power. From this perspective, the rise in wages of Chinese workers is not a bad thing for China's competitiveness. {page_break}

Wang Zhihao believes that China will lose its strength unless the Chinese government suddenly changes the labour market regulation, makes the unions stronger, and raises the minimum wage by three times. As long as laws and regulations are still market friendly, higher wages are not the greatest concern.

At present, investment in China's manufacturing industry continues to grow. For many enterprises, China is still a very attractive investment environment. In 2010, Hongkong Yuyuan Industrial (Group) Co., Ltd., which has OEM for Nike, Adidas and other brands, increased 15 production lines in China. This year, Taiwan Shenghua Technology Co., Ltd. is building a new factory in Songshan, Dongguan.

The trend of demographic change, though not fatal to China in the short term, is the beginning of change. The Chinese manufacturing industry is speeding up industrial transformation and upgrading to win time to maintain competitiveness.

Some enterprises have taken the initiative to upgrade to the high end of the industrial chain. Taiwan Lovely Creations toys do not plan to go to new factories in Southeast Asia and Midwest in the short term, but will "slightly adjust the direction of products" and make more high-end, special, patent licensed products.

"Orders that are won by low wages are not very advantageous, even at a loss." Miss Chan said that if the product design ability is strong, can make the product with high unit price, it will survive, otherwise it will be eliminated.

Zhejiang AIA integrated ceiling company is also forced to create more brand added value, digesting the cost increase through innovation. "AIA has been walking along this road from the beginning, and has been working with many big brands, so it has little impact on this wave of pay increases." The person in charge said.

The new trend of import and investment of machinery and equipment is evidence that the change of population structure is forcing the upgrading of manufacturing industry. Beginning in the second half of 2010, China's machine tool imports increased and exceeded that of the United States as the largest source of orders for Japanese overseas machine tools. The proportion of fixed assets investment in manufacturing industry also increased from less than 30% to 35% in the early stage.

Lu Yanjin, an analyst at Xingye securities, believes that the coexistence of "rising labor costs" and "acceleration of manufacturing investment" indicates that China is also experiencing the stage of the upgrading of manufacturing industry in the late 1980s. From 1986 to 1990, the import growth rate of machinery and equipment in Korea increased step by step. During the same period, the proportion of equipment purchase in the overall fixed capital formation increased significantly.

Shen Minggao believes that improving labour productivity is crucial to China. "If we can't raise it, the enterprise will go." He reckons that in the past 10 years, the labour productivity of China's manufacturing industry has increased by 10% every year. If we consider 4% growth in CPI, then enterprises can bear about 14% of nominal wages.