Minimum wage hike coming to Guangdong, the world's factory

Guangdong, the Chinese province in the Pearl River Delta where practically everything you've bought in the past ten years was made, is about to see a minimum wage increase effective Jan 1, with some workers seeing increases as high as 20 percent. Guangdong has experienced high inflation. The wage increases, combined with weak western currencies, suggests that prices for virtually every consumer good in the west will rise significantly in the new year. The experts quoted in this Global Post article say that while other cheap labor markets exist in places like Bangladesh, they lack the scale and infrastructure of south China and are unlikely to provide a substitute.

For decades, Guangdong province and China’s Pearl River Delta have been at the heart of China’s economic rise. And while larger manufacturers and state-owned companies have contributed greatly to the boom, smaller and medium-sized private firms have also helped propel China to become the world’s second-largest economy.

As wages, raw material costs and other costs rise, those smaller businesses say they’re being cut out of the mix.

Lau said at the current rate, he expects 30 percent of factories in Guangdong to reduce production or close down this year, in the wake of a minimum wage increase last year. Another 18-20 percent pay rise would decimate the industry.

But Crothall is less than sympathetic, noting that although China’s inflation rate has slowed somewhat, China’s workers still need more to get by.

Bye-bye cheap, Chinese labor (via Digg)


    1. No, more likely to Africa or the middle-east, bizarre I know. But this it what eventually will happen. In addition to an increased manufacturing base you will also see a reduction in crime in these troublesome areas as the people find gainful employment. Terrorism will lose its recruitment base and indeed the governments of those areas will become proactive in that area in a bid to attract more business. Then of course people in those areas will eventually want better wages too. Give it a century or so and the standard of living will be homogenized across the breadth of the world.

    2. Not until this happens in Southeast Asia, and Africa, as well. Globalization isn’t finished yet.

      Besides, how many people here in the US are willing to work for 20% more than a Chinese factory worker currently gets?

  1. Wow, this is interesting. I wonder how much of an effect it will actually have on prices for goods in the west? It’s interesting timing because I can’t see companies in the west wanting to raise prices too much right now because of the economy, but will they allow a smaller profit margin?

    I would like to see increased prices for Chinese-made goods in the west… this can only be a good thing ultimately, not least for the Chinese factory workers, of course. But then I wonder how this will affect the Chinese economy – the article notes that manufacturing is already experiencing a major slowdown.

    I would like to know a crucial piece of missing information – what is the minimum wage, and what kind of purchasing power does it provide (i.e. what’d be the western equivalent)?

    In Thailand the minimum wage (for salaried/hourly employees) works out to something like the equivalent of $10 a day, which is abysmal but is certainly enough to rent an apartment and to eat and clothe yourself there, equivalent to minimum wage in the US. I’m not sure how anyone could support a family on that (in developing Asia or in the US), though I know people manage it somehow.

    1. “this can only be a good thing ultimately, not least for the Chinese factory workers, of course. But then I wonder how this will affect the Chinese economy – the article notes that manufacturing is already experiencing a major slowdown.”

      Yes – those Chinese factory workers only have jobs because those Chinese factories are able to produce things so cheaply. It should never be a foregone conclusion that raising minimum wage will actually benefit those on minimum wage. At the very least, add “for those who still have jobs.”

      1. Factory jobs, yes, but Job, no. China has a huge labor shortage, which is one reason why the workers are able to demand a pay rise. Their farms are horribly short of workers, especially young ones

      2. So … you think that the workers affected by this are being fairly compensated without the minimum wage hike?

        The reason Chinese factories are able to produce things so cheaply is that they have the government on their side when it comes to their ability to exploit workers. Since the government is really pulling all the strings anyway, you don’t think it’s time the government should give the workers a break?

      3. Maybe they are trying to build a platform for more domestic consumption in anticipation of the West’s economy not pulling itself out of The Great Crumble we’ve been on.

  2. It’s hard to imagine that a 20% increase in Chinese worker salaries will contribute even 1% to the cost of most things in real terms.  CEO salaries on the other hand….

  3. good. raise the prices through the roof. It’s about time that people thought twice about buying cheap plastic wasteful crap from china.

  4. And so we start the long march back from a cheap tee-shirt costing 20 minutes of the UK minimum wage to two or three hours of it – like it used to be when they were manufactured ‘at home’.

    Most people don’t seem to realise just how much of the western quality of life is predicated on people very far away doing quite a lot for very little and how much of an unpleasant shock it is going to be when this goes away.

    1. You’re right that a lot of the western quality of life is predicated on cheap third-world labor, but a developed China won’t mean the end of this any more than a developed Japan or South Korea did. There’s still places like Indonesia and sub-Saharan Africa.

      1. At some point we’re going to run out of high-poverty shitholes willing to do our high labour, low cost work. Yes, there is Indonesia and some of the African nations, but China is in a league of its own when it comes to the ability to suppress Labour disputes, manipulate its currency value and all the other things they’ve done to bring industry to China and to incidentally reduce prices for the rest of us. 

          1. Neither will I. 

            But I do think we need to start thinking about this new world as world-wide inequality appears to be on the decline and these changes are  going to require a strong readjustment in our expectations.

          2. I’m not going to be too surprised if I see my country (the US) becoming a “high-poverty shithole” producing cheap plastic crap for export to Europe, frankly.  McDonalds and Paycheck Advance can only employ so many people, after all…

        1. At some point we’re going to run out of high-poverty shitholes willing to do our high labour, low cost work.

          … which is why the owners of the US are working so very hard to turn the country into such a place. Can’t go running out of poor people, now can we?

        2. And in the meantime, continued improvements in automation reduce the effect that that change will ultimately have.

  5. It’s the holidays, so companies may be able to squeeze by with a smaller profit margin for the next two months.  But they’re going to need those bigger margins come the slow season.  Very interesting.

    1. That is the Luddite fallacy I believe… Robots are your friend…

      Here’s one jive walkin’ Stayin alive it is… 

      1. Note also that, in the first story to use the word “Robots” the first thing that robots did was form a labour union.

  6. It’s about time, somehow communist China understands capitalism better than the west, London has been advocating advocating a living wage for a while…

    I suppose it is going back to first principle of economics, raising wage increases demand, look back to what Henry Ford did, with the famous quip when ask why did he raise the wage of his workers, he answered who is going to buy his car?

    It did two fold, attracted talent to his factory, increased productivity, betterment of  the livelihood of his employees.

    American should look back to the baby-boomer years and compare with now, how MBA and bankers ruin it.  

    1. The other part is that Henry Ford had a lot of difficulty, at first, staffing his factories because skilled craftsmen flatly refused to do mind numbingly boring and dehumanizing assembly line work.

  7. I’m not saying it’s not new, or that it’s not nice to be told, but it’s not really a surprise, is it? That things will keep getting more expensive.

    In other, equally surprising news, politicians will continue to lie, the dollar will continue to be subject to inflation, and at last report, the sun will continue to rise in the east each morning, though I’m not altogether certain about that last one — there seems to be a trend where it’s rising later and later each day.

  8. Wait, so raising the minimum wage actually does raise costs and kill jobs (almost exclusively for the most vulnerable and least skilled workers)? I was assured that this wasn’t so.

    1. Those things are said about different kinds of jobs. Here in the US minimum wage jobs are service jobs, which are staffed at pretty much the minimum level for the functioning of the fast food restaurant or store no matter what the wage level. If you are a factory, then you can have fewer workers if you are willing to accept less output. And you probably need less output anyway if your prices are going up. But then the richer workers might demand more, so you will need more output. We will have to see where the new equilibrium is.

  9. So, if China says it’s communist, how come these guys sound like any hardcore capitalist you’ll find state-side? 

    “Raising the minimum wage is a terrible idea!  It’ll reduce profits and force companies to cut jobs!”
    “Environmental reform is a terrible idea!  It’ll reduce profits and force companies to cut jobs!”

    1. Really the only thing “communist” about China these days is the name of the ruling political party.  I’d argue China’s system is more fascist than communist.  The egalitarian and utopian ideas of Marx and Lenin have very little currency.

      1. Communism and Socialism can not be sustained without totalitarian fascism to keep all the people in line….otherwise given freedom of choice people will not want to participate if they can do better for themselves, and the takers will be left with no producers to take from.

        Its no coincidence every country that has tried socialism and communism has ended in totalitarian dictatorships or fascist states.

          1. OK, hang on here.  How is that “trolling,” by any definition?  Do you think Han doesn’t believe any of that?  Do you think he’s just trying to get a rise out of us all? 

            I disagree with part of his assessment but I see nothing unreasonable or unsupportable in it.

            Speaking of communal systems, it’d be really nice if we, as a community, could agree to stop calling everything we don’t like a “troll.”  Even if someone’s obviously, objectively wrong, it does no one any good to dismiss them as malicious.

          2. There are three elements of trolling that I can see.  First is the redirection from talking about Communist China to Communism as a political movement to communism as an ideology.  Then there is the un-cited generalization that implementing that ideology is a one way door to bad government.  Finally, we have the concept of takers and makers, which is a trope that casts welfare as a fight between good productive members of society and worthless leeches who are willfully slothful. 

            Now we’re not talking about Chinese workers at all, but about how efforts that help the poor are tied into a inherently faulty political system that any good citizen knows they must oppose.  That’s why I called it trolling.

            EDIT: That said, I didn’t make the previous comment just because I thought someone was trolling. I made it because I thought it was funny for Han Solo to be trolling.

          3. So you don’t see any connection between Communist Ideology and Communist China?  What a wonderful example of the “No True Scotsman” fallacy.

            Similarly we can say that, just because Hitler’s Germany and every other implementation of Fascism was a disaster, there’s no reason to make the generalisation that Nazism is inherently bad. Once you write success and goodness and niceness into the definition of a political system it’s trivially easy to shut up any criticism of it by saying that the failures don’t count because, although they have every single other characteristic, they didn’t succeed and weren’t nice to people.

          4. “So you don’t see any connection between Communist Ideology and Communist China?  What a wonderful example of the “No True Scotsman” fallacy.”

            It’s a wonderful fallacy!  If I call myself a Christian and state it’s my right to murder my children under my religion, and someone else decides I represent Christianity, all you have to do, when someone points out the error, is shout “No true Scotsman!’

            You also just slayed the common Libertarian argument that a free market hasn’t been tried, since the general consensus is that our Fed-backed, government-regulated market is a free market.  When one points out it’s NOT a free market, simply shout, “No true Scotsman!”

      2. I think you’re right, which is why I say “communist” and not “Communist.”  Which really might be a pointless distinction since big-C Communism is virtually impossible to ever enact. 

        But yes, China’s taken all the best parts of Stalinist communism and American capitalism and smooshed them together into one big happy oppressive regime.

        I disagree with Han Solo; maintaining Communism is not the problem.  The problem is that you need people with ultimate control (The Party) to GUIDE a society into Communism, and then step down once that society is self-sustaining.  It’s impossible to recognize when that has occurred, and impossible to get all of your Party-mates to cede their power.

      3. What’s the difference between Communism and Fascism supposed to be?  They’re the identical twin monsters of Totalitarianism  that came out of the collapse after WWI. Both are based on zero-sum class warfare and the God-powers given to some tiny elite of the Vanguard of the Enlightened.  Both are justified on half-witted Utopian apologies that it’s all excusable  in order to get to the promised Utopia any day real soon now – just as the other non-evidence-based religions used Heaven instead of Heaven-On-Earth.  No one is more ruthless or despicable than a Utopian.

        Marx’s “Das Capita” said nothing of either Utopianism nor Egalitarianism although, in person, he was an Egalitarian – but not a Marxist.  Lenin was simply a thug who, although he might have been a Utopian, was an anti-intellectual snob.

    2. So, if China says it’s communist, how come these guys sound like any hardcore capitalist you’ll find state-side?

      China announced that it was becoming capitalist quite some time ago.

  10. Do Guangdong minimum wage laws apply in the Special Economic Zones where a huge percentage of manufacturing is actually done?  Three of China’s four main SEZs (Shenzhen, Zhuhai and Shantou) are all geographically located in Guangdong, but I have no idea if provincial minimum wage laws actually apply there.

  11. 20% increase in labor cost could raise the cost of an electronic gadget a couple of percent.  But 20% increase in minimum is not 20% increase in labor because Chinese factories don’t pay everyone minimum.  Also, we don’t know yet if this applies to Special Economic Zones or to foreign companies.  Foreign companies already had a higher minimum wage in China, including Taiwan based companies such as Foxconn.

  12. Stuff wil be more expensive on two counts – the work will cost more to do, and 20-30% of the businesses in the city are going to shut down.

    If I’m honest, I won’t miss the cheap and obviously combustible pink fairy costumes my mother in law buys for my kids – I’ll be more relaxed at birthday parties.  I’m all for clearing out the clutter.

    ooooh and remember China is at some point going to have to let its currency depreciate, which will inflict more $$ onto the price tags in the west.

    Farewell, plastic rubber ducky!  Hello, locally made wooden duck!

  13. Step 1: Create a larger and larger gap between the 99% and corporate owners
    Step 2: Maintain a high unemployment rate in the U.S., creating a pool of desperate workers to fill the cheap labor market the economy demands
    Step 3: ???
    Step 4: Profit!

    It’s brilliant, I tell ya!

  14. It’ll be interesting to see how long the single-point-of-failure in our technological society of Guangdong province will be able to hold on.  The Red Chinese have put the cart before the horse by putting free markets, which are caused solely and only by political freedoms despite what the Loonitarians might say, before political freedoms.  That’s not sustainable through a single economic downturn.

    On the other hand, like everything else that gets tried out in China, Communism has ended up begin assimilated by Chinese culture and Chinese Imperialism.  The life-span of any Communism regime so far has been a single generation – that of the local Supremo who installed it.  However the life-span of a Chinese Empire is at least three generations: the “From clogs to clogs in three generations” idea wrt the Imperial family.  I’m guessing they’ll split the difference at two generations.

  15. Oh no, the factory workers in China will be slightly more than slaves now, and that means we can’t get cheap goods. Come on people, look at yourselves for a minute, these workers deserve the pay rise, they earn in day what you probably earn in an hour. And we’re objecting to this wage increase because we want cheap goods? Christ almighty, I thought human kind was better than that. Apparently not.

  16. Did I miss something? It seems like I read an article and 30 comments on a raise in the minimum wage in Guangdong without ever finding out just what the amoung of the minimum wage in Guangdong is. 

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