JAPAN: Rising Wages Won’t Scare Investors Away from China

  • by Suvendrini Kakuchi (tokyo)
  • Wednesday, July 28, 2010
  • Inter Press Service

In recent months, business people and analysts have been following reports of strikes by workers in Japanese factories in China to demand not just higher salaries but the right to form trade unions.

But far from causing worries in Japanese circles — Japan is the third largest foreign investor in China — they see this trend as another sign that the world’s most populous country is shifting from being a cheap manufacturing hub to both a society in reform and an economy that promises to be a big consumer market.

In short, Japan finds China, the world’s fastest growing economy, to be too attractive a business prospect to give up on. If China’s attraction used to be its cheap and abundant labour, it is now also becoming the massive market that many had expected to be.

After all, China is soon to be the world’s second largest economy, expected to account for one-third of global economic growth this year. China’s Gross Domestic Product rose 10.3 percent in the second quarter of 2010 compared to the same period in 2009.

'Rather than move to new factory sites in cheaper Asian destinations, Japanese companies, aware of the benefits of selling in a rich economy, will continue to manufacture in China,' said Hisaki Nakai, a China expert at Japan’s External Trade Organisation (JETRO), a government business research institute.

'Ironically, business benefits have set the stage for labour reform,' he said.

In May, workers at a Honda Motor Co plant in Foshan, Guangdong province, refused to report to work unless their wages were raised. After two weeks, Honda agreed to raise monthly wages by 32 percent, according to news reports.

The strike led to similar disruption at other auto plants. In late May, 1,000 employees at a Beijing factory that manufactures parts for South Korea’s Hyundai Motor Co also stopped working and demanded a raise, the ‘Asahi’ newspaper reported.

Media reports said that the Honda strike highlights workers’ frustration with issues like long overtime hours, overcrowded and unhealthy accommodation, and wages that are barely sufficient to cover their living expenses or send home to their families.

These point to far from just an economic phenomenon, says Tatsuo Matsumoto, an economist at the Japan Association of Corporate Executives.

'Today’s Chinese worker represents a more sophisticated workforce that is influenced by the Internet, where information on labour rights and standards are available,' he said. He added that the Chinese government, acutely aware of the political and economic fallout from the labour unrest, is becoming supportive of these demands as well.

Over the decades, many Japanese companies, like those from other industrialised countries, had moved their parts and assembly line manufacturing bases to China in order to take advantage of lower wages and remain competitive in the global market.

But as China’s economic reforms took deeper root after the late seventies, its middle class has grown along with its double-digit growth rates and is now making the country a formidable market on its own.

In January, Credit Suisse said that it expects China’s share of global consumption to increase from 5.2 percent to more than 23 percent by 2020. By that time, it added, China would overtake the United States as the world’s largest consumer market.

A November 2009 survey by the bank’s China Equity Research section showed that China’s rich have become even richer — and account for 35.7 percent of total household income. Middle-class households’ income also grew by 98 percent between 2004 to 2009, it said.

These trends have also reshaped Japan’s relationship with China. Once the largest donor to China, Japan has become a leading investor in it especially after China’s entry into the World Trade Organisation in 2002.

In 2009, Japan’s direct investment in China totalled 4.1 billion dollars, after Hong Kong and Taiwan. Japanese investment has been growing by 12.7 percent year-to-year, data from the U.S.-China Business Council based in Beijing showed.

In fact, China is now the largest export market for Japan with goods totaling 131 billion dollars, taking over the position that the United States used to hold, according to JETRO data.

Health products maker Omron Corp says the strikes at Japanese factories point to the need for investors to look after their relations with workers. Omron spokesman Takashi Toda says that the company will focus on listening to staff grievances, giving more training and providing more communication venues.

'Omron views our investment in China as crucial to our company survival,' Toda said, adding that it wants its products to be popular with affluent Chinese consumers.

Omron’s local sales have climbed to 15 percent of its total manufactures in China and are almost at par with its exports from China to Europe, which is at 16 percent. Omron’s exports from China to Japan still stand at 48 percent of its total exports, but Toda expects this to change and reflect more sales made in China.

Smaller investors like Tomichi Shimoyama, owner of Culture Goods that has been producing ladies’ handbags in north-eastern Dalian for 20 years, are also keen to stay in the Chinese market. 'I’m keen to keep manufacturing in China given that the workers are improving their skills and the fact that I have invested a lot of money and energy in that market,' he pointed out.

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

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