This is China! BLOG

Seeking the Good Life in China

Despite all my griping about escalating salaries for young Chinese professionals in China, there is a disturbing fact that is difficult to igore: most Chinese are severely underpaid in their jobs. Lets’ face it, the manufacturing model is built on a pyramid of bodies with the CEO on top, a middle management of specialists, and a great swathe of machine operators and assembly people.

The majority of the people on “the floor” are from the countryside of China. James Kynge, in his book China Shakes the World, cites that Chinese factory workers now actually make less than the British factory workers in the 1800s. We all know from Charles Dickens just how dire the working and living conditions were for this underclass.

It is little wonder then that last week in Guangdong province a manufacturer that supplies which supplies plastic toys to several iconic American brands, including Disney, McDonald’s, Mattel and Hasbro, (”An Unhappy Toy Story”, International Herald Tribune) had a massive riot involving about 1000 of its employees. Hundreds of police were brought in to quell the riot, which resulted in injuries to dozens on both sides. The spark that ignited passions was the requirement that an employee work further overtime without pay.

Guangdong in particular has been notorious about keeping its minimum wage rock bottom. Much of the reason for this is more cultural than any other reason: mostly Asian companies are invested in South China - Taiwanese, Japanese, South Koreans, Hong Kong people as well as mainlanders. In general, it’s the Western companies with their lack of cultural knowledge as well as their greater requirement for local employees to cross a wider cultural chasm in business that has seen wage inflation.

The China Economic Review reported, “As of September 1, workers in Guangzhou will earn a minimum US$97.5 (RMB780) per month, in Shenzhen US$101.25 (RMB810), and second tier cities like Zhuhai, Foshan, Dongguan and Zhongshan will see the minimum wage hiked to US$86.25 (RMB690). The increases are an average of 17.8%.”

Another article in the International Herald Tribune (“Billions in trade gap, pennies for workers”) (http://www.iht.com/articles/2006/08/03/business/produce.php) reflected the same sort of grim realities around the northern city of Tianjin. Tianjiin as well has just raised the minimum wage. Employees in the area know they are being overworked and underpaid. So there is certainly a social stability aspect to the government’s move.

But there is another reason minimum wages for the floor workers are rising in both North and South: the workers are no longer flocking to the outskirts of cities for manufacturing work. The micro-economies of many of the villages and small towns that have historically supplied cheap labor are themselves improving. Wages from mom and pop factories in these outlying areas as well as profits from small farms are raising standards of living in the countryside.

Why, then, travel a far distance away from family and likely into a sort of slave-wage labor situation when one can possibly more easily make as much if not more money nearer home. And if there is one cultural secret employers of whatever country should know about Chinese it’s that Chinese like to be very near home.

In the end, wages are so low in China and manufacturers’ margins are so squeezed that a chunky rise in exchange rates will have very little impact on the cost of goods sold in the West. Wages actually account for less than 10% of the total cost of goods to the consumer: the vast majority of costs come from the import of materials into China and the cost of all the middlemen that get product to Western shores and market the product to consumers.

Still, the cost of goods made in China is rising and will rise further as the market responds to the uncompetitive pressures of artificially low product prices and unreasonable basement-level salaries of those themselves seek “the good life.”

William Dodson
Suzhou, China
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