Chinese workers fuel new consumerism

The cost of hiring Chinese workers who supply the world with inexpensive furniture and toys is climbing. But workers having more money to spend is good news for foreign companies that see them as customers, not just factory labour.

Areas throughout China have raised local minimum wages and some foreign employers have given out hefty pay hikes. That, combined with an expected rise in China's currency against the dollar this year, will squeeze exporters of clothing and other low-margin goods, possibly forcing thousands to close or move to cheaper countries such as Vietnam.

"It is very difficult for us," said Danny Lau, chairman of the Hong Kong Small and Medium Enterprises Association. He said some 2,000 to 3,000 of an estimated 50,000 Hong Kong-owned factories in southern China's Pearl River Delta, an export hub, might close this year.

Higher pay drives consumer spending

But putting more money in workers' pockets will help turn them into consumers and accelerate China's growth as a major market for imports from Boeing jetliners to Brazilian soybeans.

"This is good news. It's going to start driving consumer spending," said Standard Chartered Bank economist Jinny Yan.

Beijing and other Chinese cities have raised minimum wages by up to 20 per cent as part of efforts to narrow a yawning income gap that Communist leaders worry is fuelling political tensions. It was the first rise since the minimum wage was frozen in 2008 to help exporters hold down prices amid the global crisis.

Communist authorities who normally bar independent labour activity have allowed workers to demonstrate and sometimes carry out brief strikes for higher wages.

On Sunday, Taiwanese-owned Foxconn Technology Group announced the second in a series of raises that would increase pay by up to 65 per cent at its factories in the southern city of Shenzhen. The company employs 300,000 people there making iPhones and other goods for Apple Inc., Sony Corp., Dell Inc., Nokia Corp. and Hewlett-Packard Co.

The wage hikes fit Beijing's economic strategy, which calls for encouraging China's own consumers to spend more in order to reduce reliance on exports and investment to drive growth.

'Demand is picking up because people have more money in their pockets.' —Jing Ulrich, JP Morgan

The ruling party also is trying to shift more money down the economic ladder to defuse public anger that Chinese workers have gotten too little out of a boom that has created dozens of billionaires.

Rising incomes made China the biggest auto market last year by vehicles sold and a leading market in industries from air travel to fast food. Retail sales in April were up 18.5 per cent from a year earlier.

"Demand is picking up because people have more money in their pockets," said Jing Ulrich, JP Morgan's chairwoman for China equities. She said higher wages could boost demand for products as varied as fast food and sporting goods.

Even after the latest increases, Chinese wages are still a fraction of those in the United States or Europe. Foxconn says pay for its employees in Shenzhen will be about 2,000 yuan ($293 US) a month.

"We don't see an end to an era of cheap Chinese goods," said Yan of Standard Chartered.