Will Every Foreign Worker In China Get A Raise? Will Every Chinese Worker?

There have been an extraordinary number of suicides at Chinese electronics company Foxconn which does a great deal of work for Apple Inc. (NASDAQ: AAPL). Foxconn recently raised salaries by 30%n which may address some of the workers’ stress. The increased compensation is meant to reduce overtime and the anxiety that goes with it.

In a completely unrelated event, Honda (NYSE: HMC) has raised the salaries of workers in one of its China manufacturing facilities after a strike.

Wal-Mart (NYSE: WMT), one of the largest US employers in China, found out two years ago that its workers had not only joined a union but that a branch of the communist Chinese government had been formed among its employees. The movement toward collective bargaining in the People’s Republic, particularly for pay packages for workers at the biggest companies based in the developed world, is gaining momentum,

Labor issues in China are likely to make foreign companies think twice about setting up manufacturing facilities inside the world’s most populous nation. China’s attraction to businesses was its large, low-cost work force. The “low-cost labor” advantage of building products in China seems to be disappearing.

But, worker compensation may be a bigger issue for China than it is foreign firms. Employees at local companies will hear the news of improved compensation at US and Japanese companies. Chinese workers are already clamoring for higher pay from local firms. There have even been labor riots in large cities in China’s interior.

As more Chinese workers migrate from rural areas to large industrial cities, the push for those people to join the middle classes will increase. That means that workers at Chinese companies will expect wages that allow them to live in some comfort.

China counts on its edge as the provider of inexpensive goods to drive its exports. But, that period may be ending. The presence of foreign companies in China and the leverage that workers have at these firms, will drive up costs for manufacturers based on the mainland.

Douglas A. McIntyre