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Cost-conscious exporters wary of China’s spreading labor unrest

by Hiroko Nakata

The ongoing wage disputes at group plants of Honda and Toyota in coastal Chinese cities may signal a turning point for many Japanese exporters that rely heavily on the country’s cheap labor, analysts said.

The backlash in China against the labor imbalance, as well as a growing local worker shortage, will continue to put pressure on large Japanese manufacturers to raise wages, forcing them to rethink their basic strategy in China of taking advantage of cheap labor to remain globally competitive, they said.

“It is possible what has happened may spread to all sectors and to all parts of the country,” said Koji Sako, a senior economist who tracks Asia at Mizuho Research Institute Ltd.

Strikes, sparked by walkouts at Honda Motor Co. and its group plants in China, as well as at Foxconn Technology Group, a Taipei-based assembler of Apple Inc.’s iPhones and other high-tech firms hit by more than a dozen worker suicides, continued at plants Friday.

Toyoda Gosei Co., a unit of Toyota Motor Corp. that makes plastic parts such as handles, air bags and instrument panels for cars, said Friday it has halted output since Thursday at a plant in Tianjin due to a strike. “The outcome of the settlement is not yet clear,” said Toyoda Gosei spokesman Tomotaka Ito.

Meanwhile, the company said a strike shut down its rubber parts plant in the same city Tuesday, with workers demanding better working conditions and higher wages. The strike ended Wednesday after the firm announced a wage hike would be considered. It will take more time to decide the specifics, Ito said.

Meanwhile, the strike at Honda Lock Co. in Zhongshan, Guangdong Province, continued Friday. “The negotiations are still going on, while the plant continues operations,” said Honda spokesman Yoshiyuki Kuroda.

He declined comment on details, including how much workers are demanding in the strike that started June 9, but reports said employees are seeking a 72 percent wage hike to 1,600 yuan ($234) a month.

It was just after Honda’s transmission plant in Foshan, Guangdong Province, went on strike last month, leading to a shutdown of four car factories in China as they ran out of components.

The move was followed by a walkout at another Honda parts supplier plant in Foshan that stopped operations from June 7-9.

But not only automakers face strikes.

Sharp Corp. was hit by a strike at a plant making white goods in Shanghai in late May.

“It was a small-scale strike and it is already settled,” said corporate spokeswoman Miyuki Nakayama. She declined to elaborate on the specific scale and duration of the strike.

Japanese manufacturers have been stunned by the walkouts in China.

“We have anticipated that local wages will gradually rise in line with economic growth. But after what happened (to Honda and others), we are worried over more harsh demands for higher wages in the future,” said a spokesman at a Japanese precision electronics manufacturer that has a plant in southern China.

The largest production site in Asia is showing signs that it may no longer be a cheap labor market, experts said.

“It is likely the people in (the) growing country will demand a more affluent lifestyle,” said Lei Zhou, a manager handling the auto industry at Deloitte Tohmatsu Consulting Co. “What Japanese companies need to do is to look at China not only as a large production site but also one of the world’s largest markets.”

The push for higher wages and better working conditions stems in part from the structural labor shortage in China, experts said. The shortage has been attributed to the shrinking younger generation due to the country’s one-child policy, and coastal cities experiencing rapid economic growth.

In addition, the recent growth of inland cities has boosted demand for labor, exacerbating the problem, they said.

Wage hike demands eased a bit temporarily during the global economic crisis but have returned with a vengeance.

It would not be easy, however, for Japanese manufacturers to move their plants to other developing economies from the world’s largest market, where demand is growing, experts said.

Chinese pay remains low, with the minimum wage standing at one-tenth that of Japan, according to Japan External Trade Organization. Also, other candidates for production centers, including India and Thailand, probably face tough, if not worse, labor struggles as well. “It is not easy to shift the production sites,” said Sako of Mizuho Research.

Analysts said Japanese manufacturers would have to absorb the rising costs by streamlining production and cutting other spending, or pushing up product prices.

The needs for such reviews are expected to be stronger in the future, particularly as it would be a double blow to Japanese producers if there is any rise in the value of the yuan, which is virtually pegged to the dollar despite China’s swelling trade surplus, they said.

“Japanese manufacturers will one day have to introduce more automation into their factories in China and procure parts from local makers,” said Sako. “In that sense, they stand at a turning point.”