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Wage hikes boost costs, but help sales

06-10-2010 16:44 BJT

BEIJING, June 9 (Xinhuanet) -- The cost of hiring Chinese workers who supply the world with inexpensive goods is climbing. But workers with a deeper pocket are good news for foreign companies that see them as customers.

China's most big cities and coastal areas have raised local minimum wages and some foreign employers have given out substantive pay hikes. That, combined with an expected rise in China's currency, will squeeze exporters of clothing and other low-margin goods, possibly forcing thousands to close or move to cheaper countries.

"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.

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 economist Jinny Yan.

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

Chinese authorities who normally bar independent labor activity have allowed workers to protest and sometimes carry out brief strikes to demand 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 percent at its factories in Shenzhen. The company employs 400,000 people there making electronics including Apple, Nokia and Sony products.

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.

The Government 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.

Wages as a share of China's gross domestic product have fallen steadily since the 1980s, from 56.5 percent in 1983 to 36.7 percent in 2005, according to figures from the All-China Federation of Trade Unions.


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