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For Foreign Makers, China's Low-Cost Image Fades

September 29 2011 at 11:34 PM
Waffer  (Login d3lta)
Middle Kingdom (China)

BEIJINGRapidly rising wages in China have reached the point at which foreign manufacturers need to give up on the notion of the country as a low-cost production base, a senior Hyundai Motor Co. executive said Thursday.

Jae-Man Noh, head of Hyundai's joint-venture operations in China, said average manufacturing-worker wages in Chinaabout 27,000 yuan ($4,200) a year per worker in 2009are likely to double by 2015 from current levels.

Auto makers are expected to be affected as much as other industries by the trend, if not more, Mr. Noh said, adding that wage costs for many foreign auto manufacturers already have doubled in less than a decade. He said that a rival foreign auto maker that Hyundai has researched has seen worker wages in China rise to 49,000 yuan a year per worker in 2010, up from 24,500 yuan a year in 2003.

"We need to let go of our perception that the Chinese market is a low-cost production base," Mr. Noh told a group of reporters at Hyundai's office in Beijing. He didn't offer specifics on Hyundai's wage costs in China.

Mr. Noh leads Beijing Hyundai Motors Co., a joint venture between the South Korean auto maker and Beijing Automotive Industry Holding Co.

In contrast to earlier decades, when the flow of Chinese workers from the countryside pushed factory labor costs down, China's workers now are demanding higher wages and better jobs. Manufacturing wages, in fact, have begun rising "dramatically" since last year, according to Mr. Noh, with auto makers taking the brunt of it.

The Hyundai executive pointed to a series of high-profile labor strikes that hit Japanese-run auto factories and others in China last year. Normally quick to break up organized worker walkouts, the government tolerated those strikes to a large extent last year, and minimum wages in some parts of China have been rising steadily since.

China still offers other draws, including strong economic growth, an increasingly affluent population and a quickly growing car culture.

Plus, Hyundai's average factory labor cost in China is still one-fifth of that in South Korea, Mr. Noh said. What concerns him most is the dramatic rate of increase, he said.

This trend is "inevitable" as the Chinese economy grows and society improves, Mr. Noh said.

Despite rising labor costs, China's auto exports will continue to increase in part because of excess auto-production capacity in the country, he said.

China's central government will also continue to focus on automotive exports, he said.

online.wsj.com/article/SB10001424052970203405504576600642524256196.html?mod=googlenews_wsj

 
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