Rising China labour costs spell mixed future for manufacturers

In the past few months a number of high profile labour disputes have hit the headlines. Work pressures at electronics company Hon Hai / Foxconn led to the promise that wages for the company’s employees would be doubled in the coming year.

Pay rises of this order have drawn a big line under the issue, causing market observers to fear that pay rises will eat into the profits of the big multi-nationals.

Last week Japanese cosmetics company Shiseido, which is one of the biggest international players in the country’s personal care segment, highlighted its concerns when it warned that pay demands were likely to affect its performance in China.

Shiseido cites concerns over China pay rises​

“Shiseido regards the Chinese market as the driver of its growth,”​ Masaru Miyagawa, CEO of Shiseido’s China division told the Macau Daily Times.

But in the same interview Miyagawa also highlighted the fact that labour costs in China are putting ‘upward’ pressure on its operations in the country, pointing to the fact that labour disputes over full-time and part-time wages are now common.

It is believed that this upward pressure is inevitable, particularly in view of the fact that China wages are still very low, even when compared with those in other developing markets.

Indeed, many of the wage disputes have strong grounding, highlighting significant disparity between workers doing similar jobs, whether it be in the same company, or neighbouring factories.

Likewise, looking at the international picture also highlights this disparity. In the fast growing Brazil market average wages are estimated to be around four times that of China.

But as Chinese workers grow more confident about their rights and increasingly aware of the disparity, the gap is closing and will inevitably continue to do so in the coming years.

Higher wages likely to translate into higher consumer spend​

Once settled, these disputes are likely to lead to fairer conditions and better wages for workers, which in turn will translate into greater spending power for workers who, until now, have had very limited disposable income.

The bottom line is that although this may may lead to higher costs for personal care companies operating in China, it could also positively impact sales.

Likewise it could also help prop up falling demand for China-manufactured products. Although the Chinese economy has been growing at a breakneck pace during the last couple of years, falling consumer demand in developed countries has impacted growth in the manufacturing sector in China over the past year.

Indeed, in the personal care and cosmetic products segment the rise in incomes is most likely to boost domestic demand in the higher end of the market, where many of the big international players have positioned themselves.