New minimum wage laws, a looser yuan and worker strikes like those affecting Honda and Toyota are raising costs at plants in China’s Pearl River Delta, leading to increased automation of assembly lines.
Foxconn, Nissan’s Chinese venture and VTech Holdings Ltd said they are investing in factory equipment to reduce their reliance on labour. Wages in the region called the world’s factory floor increased 17 per cent in the past six months, according to a survey by the government-backed Hong Kong Trade Development Council.
Factory owners in China face declining profit margins from a rising yuan as the government drops a two-year policy that curbed the currency’s gain. Labour costs will probably bloat to 30 per cent of gross domestic product in the next decade from 15 per cent now, Morgan Stanley estimated this month. Higher wages in urban areas may cost companies about $1.5 trillion by 2015, according to Credit Suisse Group.
“Factories need to think seriously about how they produce more with less,” said Ian Spaulding, Hong Kong-based Managing Director at INFACT Global Partners, which advises plant owners on China work practices. “Factories need to begin to enhance their productivity so that they are in a position to remain competitive,” he added.