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China Businesses The Almighty Buck

The End of Cheap Labor In China 422

hackingbear writes "In the past decade, real wages for manufacturing workers in China have grown nearly 12% per year. The hourly cost advantage, while still significant [comparing to the West], is shrinking rapidly. The changing economics of Made in China will benefit both the rich and poor world. Countries like Cambodia, Laos, India and Vietnam are picking up some of the cheapest labor manufacturing left by the Chinese. And there is already evidence of at least the beginning of a shift in manufacturing operations returning to the US. Perhaps we will soon stop picking at 'Made in China' but instead complaining 'Made in Vietnam/Cambodia,' while serving the flood of Chinese tourists stocking up on brand-name merchandises on US tours and Chinese students paying high tuitions to our cash-strapped universities."
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The End of Cheap Labor In China

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  • by jcr ( 53032 ) <.moc.cam. .ta. .rcj.> on Sunday June 19, 2011 @08:24PM (#36494368) Journal

    People move from subsistence farming to factory work, capital investment raises their marginal productivity, employers have to compete for workers, and wages rise. It's the same thing that happened in England and the United States in the late 1800s and early 1900s.


  • Currency Issues? (Score:5, Interesting)

    by ect5150 ( 700619 ) on Sunday June 19, 2011 @08:32PM (#36494434) Journal

    Let's see China pull this off without constantly manipulating their currency to boost the manufacturing while keeping pollution half of what it is currently over those same 10 years. It's okay, because when inflation hits, the sh*t will hit the fan in China (look up the economic trilemma and see where China's weakness is... for the USA, we choose not to peg our currency to fix our trade gap).

  • Re:Not the U.S.! (Score:3, Interesting)

    by jcr ( 53032 ) <.moc.cam. .ta. .rcj.> on Sunday June 19, 2011 @08:34PM (#36494456) Journal

    , I don't know where to buy decent clothes.

    Norsdstroms. You get what you pay for.


  • by goodmanj ( 234846 ) on Sunday June 19, 2011 @08:35PM (#36494464)

    People who oppose globalization should really think about this. In a couple of decades, the globalized economy has elevated a nation of a billion people from the bottom rung of world socioeconomic status to the solid middle ground. No question, the elevation of China has had some negative impacts on the economy of the developed world, but not so bad, really: the US economy has not collapsed during the process, and its manufacturing industry has been weakened but survives. No question, the process has had some negative impacts on Chinese workers, but nothing compared to the servitude, abuse, and death of the West's own industrial revolution. And finally, no question that political freedoms in China have not changed with the economic times, but I consider the *ability* to communicate a prerequisite to the *freedom* to speak, and the Chinese government may soon realize it has a tiger by the tail in that regard.

    And consider on the other hand, the positives. A billion people are now able to live in comfortable housing, free of disease and pestilence, able to travel across the continent and participate in global dialogue. A good chunk of these billion people are now in a position to buy US-made products like World of Warcraft, Ford Explorers, and a million things made in China, but designed in the US by 3M, IBM, and Microsoft.

    A rising tide may not lift all boats, and it surely doesn't lift all boats equally, but still, a billion boats is a damned good start.

  • by Americium ( 1343605 ) on Sunday June 19, 2011 @08:41PM (#36494510)

    With technological advances I would hope Chinese workers see some of the benefits from high tech production facilities combined with new infrastructure.

    The US has a minimum wage well over $5/hr and for long hours manual labor it's about $10/hr for minimal skill work. In China it's now approaching what? $1/hr? Wow, a whole 14% increase in that per year? So in 15-20yrs their wages will compete with ours. I'm sure the petroleum costs just to ship products here has been a bigger burden to manufacturing companies.

    People say they are taking over, yet I still haven't seen anything new from China, it's all designed in the US and Europe. Until we start importing high speed trains, I see China just as a jewel of cheap labor. Let's hope at some point they are developing high tech products for us and cheap manufacturing leaves, but I think it's going to be another 20 years before that happens.

  • Like water (Score:3, Interesting)

    by macraig ( 621737 ) <[moc.liamg] [ta] [giarc.a.kram]> on Sunday June 19, 2011 @09:57PM (#36495046)

    Outsourcing is like water: it flows downhill, and the landscape changes. China isn't the base of the hill any more.

    This is why outsourcing is not a bad thing. It's the global economy attempting to equalize itself. Don't ban it, don't fight it, embrace it.

  • No (Score:4, Interesting)

    by Chicken_Kickers ( 1062164 ) on Sunday June 19, 2011 @10:03PM (#36495096)

    Wishful thinking much? Western economists have been predicting the death of China since the mid 90's. Everything from over heating to under heating, from over population to declining population have been bandied out as the potential causes. There is also blaming China for oil price spikes when it was American speculators who was manipulating the markets. If I am an American, I would not be rejoicing at this news. It means that China is maturing and moving up the tech tree. China also has an advantage that the US doesn't: an autocratic oligarchy, the best form of capitalist governance.

  • by LynnwoodRooster ( 966895 ) on Sunday June 19, 2011 @10:38PM (#36495338) Journal
    Most manufacturing in China has labor costs accounting for 2-5% of the product. The big "cost" increase is the rising strength of the RMB. Four years ago it was 8 RMB = $1 USD. Now it's 6.47 and falling. That's where the cost of Chinese production is coming from.

    Move to Cambodia, or Vietnam, or Thailand or Laos and their economies will also grow and you'll see their currency appreciate in value as well, leading to the same issue. In the mean time you'll need to live with greatly reduced infrastructure and shipping capacity as compared to China.

    And yes, I do a lot of work in Asia, and live half my life in Shanghai supporting manufacturing in China, Thailand, and Vietnam.

  • by wvmarle ( 1070040 ) on Sunday June 19, 2011 @11:14PM (#36495586)

    China's interests in Africa are natural resource related. As other posters said already.

    Secondly, Africa has a simple reason that it does not develop well economically: no political stability. Say what you want about the Chinese government, at least it's a fairly stable, safe and thus predictable environment to work in, and that's all businesses need. You do not need your own private army to protect your business, like you do in many African countries. There are no people walking around the streets with an AK47 over the shoulder.

    Africa, as it stands, has no proper infrastructure, no stable government, corruption issues that are far worse than China's, and so on. It's just not an easy environment for businesses. And yes I know I'm generalising here, there are countries in Africa that have a working government.

    Incidently, this morning I just read about problems for textile factories. There is talk about a cut in the VAT rebate they can get from 15% to 11% on exports (they have to pay 16% VAT - so effectively their VAT goes up from 1% to 5%). A large number of factories has indicated they would probably close, as they lose competitiveness. Wages go up, the Yuan goes up, raw material prices are high. And that wages go up is not as much a result of improved productivity, it's more a result of labour shortages. There are currently huge labour shortages in China, especially the coastal regions. And that's what's driving up wages most.

    Furthermore they mentioned the next destination is probably not Africa, but, surprisingly, Europe. At this moment production costs in Romania are already lower than in China. Add to that the obvious advantages of sitting closer to your market, I wouldn't be surprised if very soon more European producers will set up shop there.

    Other Asian countries indeed seem more likely candidates, but with few exceptions infrastructure is a major issue. Indonesia for example only has a few short stretches of highway around their capital, making transport slow. They also don't have any main ports, and are limited to feeders and shipping via other ports such as Singapore. Vietnam is in slightly better shape, Bangladesh is a total mess.

    And about moving up the ladder: you're absolutely right. The government wants it, but it's going to take a long time. Other than heavily government supported industry (you mention airliners already, don't forget railways: the US is shopping in China for high-speed rail technology already) there is not much happening as yet. It is still Taiwan that's doing development, design and marketing, Hong Kong that's doing finance and logistics, and China that's doing manufacturing. Not much new coming out of China yet, they're still in the "copy" stage, and a lot of quality that comes out is poor at best. It's very much time they move on to the "copy-and-improve" stage but I haven't seen this really happening yet.

  • by tloh ( 451585 ) on Monday June 20, 2011 @04:23AM (#36497456)

    I usually find myself on the other side of the debate on slashdot when "yellow-peril" fear/hate mongering gets out of hand. However, in this case, I feel the need to balance the other end of the wheel. All those things you cite *are* indeed unique experiences in Chinese history. But I think it would be insincere to conclude that Africa is lacking in the same type of experiences in the span of it's more recent history.

    Remember that a great deal of the Cold War fought by proxy between east and west went down in many parts of post-colonial Africa. Many of these local conflicts were heavily sustained by the same ideology that produced the Great Leap Forward, etc. Command-style leadership is nothing new to most regions of Africa.

    On the other hand, a large number of the more stable nation-states in Africa eventually wised up to the need for independence from both sides of the Cold War. As marginally effective as it actually turned out to be, the Non-Aligned movement emerged as an attempt to balance all aspects of the different operating philosophies between east and west, forging a path that does not capitulate either side. It is reasonable to draw a parallel between this and the blending of socialism/capitalism exemplified by "Socialism with Chinese characteristics". With that said, Africa is almost unanimously represented in the organization. For one example of how eastern and western resources have been integrated, many African military have equipment and weapon systems from both east and west working side by side. A cynic may point to the fungibility of cold hard cash when exchanged for good from either side. However, I think one needs to appreciate the subtleties of good business and acknowledge that Africa already knows how to play in the camps of different parties that have different rules.

    Economic reform is perhaps the best/strongest argument you have made here. But I would like to point out that in this area, China isn't *that* much further ahead than the rest of the pack is many critical areas. Corruption and lack of industrial regulatory oversight is still something that China has a *lot* of room for improvement. At present, the difference in the size of the economy is the most important factor here.

    The way I see it, the major difference and the fundamental root of the issue is that compared to China, Africa is so much more culturally/ethnically fractured. On this point, I sometimes surprise many of my liberal friends when I tell them I cut Bush a lot of slack for calling Africa a nation. In order to emerge as a world power, it truly needs to become and function like a unified nation in the same way China did post-colonialism. Unified by the shared history and culture of the Han ethnic group, the Chinese people did finally emerge as a nation of consequence after the collapse of the Ching imperial dynasty. But this was a painful and costly process that occurred over two world wars and a drawn out civil war that cost millions of lives. And despite the unifying effect of a common identity, I don't think many foreigners actually appreciate the linguistic distance between speakers of different dialects. Without the benefit of the common tongue Mandarin, I might as well be a medieval Spaniard outside my birthplace of Nan Chang.

    So there you have it: I think the one critical thing that Africa doesn't have going for it is a more compelling sense of "Pan-Africanism". Unless all the people of the continent are willing to back a common course for the future, none of the existing infrastructure achievements such as numerous hydro-electric dams, irrigation projects, etc. can be utilized to the fullest extent of their capacity.

The intelligence of any discussion diminishes with the square of the number of participants. -- Adam Walinsky