Why Factories Are Leaving China ($300/mo wages in China too high, Vietnam only $100/mo)

[The Straight Story]

Why Factories Are Leaving China
A labor shortage is trimming margins for exporters, who are moving to Vietnam, India, and elsewhere


As costs climbed in Taiwan two decades ago, Ben Fan moved his lighting factory to take advantage of China's cheap labor. Now, with Chinese wages on the rise, he's moving again. "It's just like what happened in Taiwan," says Fan, chairman of Neo-Neon Holdings, which sells lamps and lighting fixtures to big retailers including Home Depot (HD), Target (TGT), and Wal-Mart (WMT). "Chinese don't want to work in factories anymore."

So Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China. He plans to shift 85 percent of his production across the border, and by December he'll have 8,000 workers in Vietnam—up from 300 a year ago—and just 5,000 in China, down from 25,000 in 2008.

Over the past two years, millions of jobs have moved to China's interior or elsewhere in Asia as factory owners try to cut costs. In Guangdong, the mainland's top exporting province, wages have almost doubled in the past three years, and more than half the factories can't find enough workers. The number of migrants who traveled to coastal provinces for work fell by 9 percent last year, to 91 million. "This lack of labor will only get worse," says Willy Lin, chairman of the Textile Council of Hong Kong, a trade association.

Factory owners complain that the higher wages are devastating profits, especially as their customers continue to squeeze them for lower prices. "Wal-Mart won't raise what they pay us," says Poh-Heng Toh, general manager of teddy bear producer Lovely Creations. Another Wal-Mart supplier, jewelry maker Profit Grand, has cut its staff to 450 from 600 largely because it can't find workers at the rates it's willing to pay, says Chairman Hsu Chi Lin. Wages, Hsu says, have risen from 2 percent of total costs a decade ago to 12 percent today, while net margins have fallen from 15 percent to about 8 percent. Factory owners are also worried about a potential revaluation of China's currency. The yuan is up 21 percent vs. the dollar since 2005, and many economists expect it to rise an additional 5 percent this year.

http://www.businessweek.com/magazine/content/10_21/b4179011091633.htm?chan=magazine+channel_news+-+global+economics

[WillParkinson]

1. Sigh...

I cannot think of anything to even comment on this. The wages of human suffering, I suppose. As long as the vultures get theirs they continue to be happy.

[KILL THE WISE ONE]

2. so all we need is labor of 100$ a month or less and they will move back here?

[Liberal_in_LA]

18. No, we still have our health and safty laws to keep them away. it's more than pay

it's also how they can treat workers

[Vincardog]

3. How is that race to the bottom working for you?

[GreenPartyVoter]

21. It's goin' great! You betcha!

[TampaAnimus2010]

4. There really isn't a good solution for this...

except that over the next couple of decades... the technology will be available to produce most of these goods in your home with your own 3D printers. Google up the term and read up. When everyone has a factory on their desktop, it's going to change the game.

[provis99]

7. is that like rapid prototyping?

sounds like an exciting technology. Too bad energy costs will skyrocket to the point where no one can afford it.

[TampaAnimus2010]

8. How do you figure? It has to be cheaper to create a fork...

on a 3D printer at your house then have it shipped all the way from China. I would think the trend would push energy prices down even - everything else being equal.

[kenny blankenship]

5. And just think: when wages rise in Vietnam there's all of Africa to exploit!

Or maybe just back to China, after wages collapse there. Still a billion Chinese living in mud brick huts out in the interior provinces who've never seen a raise since the Cultural Revolution.

Oh yeah, we can keep this good thing going as long as there are densely populated centers of human misery anywhere on the planet.

[Jkid]

13. That's what I am afraid of!

As a person of African-American decent they will reach that inevitability and it will be a sad day when that happens.

[kenny blankenship]

16. It will look good at first probably. The world will be told how this means a bright new future

for country X, Y, or Z, "long afflicted with poverty." In each country, people will dream maybe we are becoming the next China. Who wouldn't leap at that chance, or roll the dice and hope for the best?

People will stream from the countryside to coastal cities to get jobs in the new factories. For a new managerial class, the wages will actually represent an advance on their previous standard of living. The endless influx of workers will drive the prices of housing and food and other basic necessities higher, even as it tends to depress wages. The factory owners will strive to keep wages down, but eventually they must rise, even if they badly trail behind the rise of prices. Wages will rise first slowly, then accelerate; but standards of living for the vast majority will plateau early on, unable to keep pace with inflation. Then, after years of uprooting people and crowding them into cities, the factory owners will pull up stakes in the middle of the night and move to another country or region offering rock bottom standards of living and negligible labor rates for workers with non-existent political rights. When the factories move, none of the countries will have the option of a "service industry" to cushion the loss of its manufacturing jobs. The country "long afflicted with poverty" will have its dreams rescinded, and the poor people who were once farmers, but now live crowded together in coastal cities without either jobs or farms, will see their standard of living crash. The service industry swindle worked for a couple of decades in the US because the profits of the globalized manufacturers were partly funneled back to the US, since many of the companies in question were originally based here. Profits from globalized manufacture helped drive creation of service sector jobs, even though the labor these profits were based had been "exported" to other countries. (Borrowing from the world's savers to create booms in tech and real estate and the even larger speculative frenzies surrounding these industries drove the rest of the growth of service sector employment) Other countries like Vietnam, the current darling of the nomadic outsourcers, or Bangladesh who may be on deck, or Ghana or Zimbabwe or South Africa won't get the wash of global enterprise profits back through their economies once the manufacturers are done with them and pull out. Foreign profits of foreign registered corporations will remain foreign. China's economy and reserves of foreign currency are big enough that they could weather a (orderly, gradual) transition of cheap manufacturing out of their country, as they move to compete in higher tech, higher margin industries. Smaller countries won't be so lucky.

[progressoid]

25. Eventually even North Korea,

They are bound to collapse sometime soon.

When that happens...CAPITALISM TO THE RESCUE!!

[dipsydoodle]

6. May also help explain

how come the guy in Taiwan who makes ornate pearl inlaid necks for banjos, mandolin, guitars etc quite aside from complete instruments also has a workshop in Vietnam.

[Uncle Joe]

9. Next up Bangladesh; where the workers pay to work.

Thanks for the thread, The Straight Story.

[Initech]

10. Maybe a worldwide economic revolt against these scumfucks is what we need.

Human suffering to make a buck... it's just so damn sickening.

[moondust]

11. The road to slavery.

Who are the last, most destitute people on Earth who will gladly work for room and board and an occasional whipping?

[KILL THE WISE ONE]

12. most of us are all ready doing just that

we are just deluding ourselves when we think we are much more then "free range slaves".

[sandnsea]

14. From union wages to $100 a month

and there are still people who fight the unions. People can blame the government and the WTO and the IMG and the illegal immigrants and whoever they want. Until they get that laborers around the world have to stand together, this is what will continue to happen.

[Bonhomme Richard]

15. This is why we need a world wide minimum wage......

and labor laws.

[pampango]

23. Great idea, but doesn't that require a degree of global cooperation (even global government)

that most Americans are afraid of? World wide minimum wage and labor laws would be great, though.

[Bigmack]

17. Stand by... it's gonna change.

Us gloom-and-doomers figure that once shipping becomes too expensive, and the disposable income for toys disappears, making everyday necessities halfway around to the world to save 2 cents on labor won't be so important.

[Statistical]

19. Come on $300 a barrel oil.

Most of these outsource to save a nickle schemes require ultra cheap oil.

If oil was $300 a barrel the shipping costs start becoming more than you save from building cheap shit overseas.

[conspirator]

20. The race to the bottom continues. Plunder and move on. That's how rich people work n/t

[WinkyDink]

22. Wealthy capitalists = the Mob.

[SmileyRose]

24. I don't think we can blame it all on the rich.

The masses decided one purchase at a time to opt for lower cost over responsible production. Some of us are old enough to remember the 17% or so with college educations telling laid off factory workers to suck it up and learn something new for half the wages they made before. The college graduates are in the same boat now and all of a sudden the national conversation has changed. I've seen article all over the place touting "frugal" as the new "cool". There is even talk of building houses again without walkin closets the size of my living room.

Unfortuately, now that there's a dollar store and walmart on every other corner people are still out there demanding low lower lowest on pricing. I realize the pressure on EVERYONE'S wages is forcing less of a consumerist lifestyle but honestly, we can't blame ALL of the race to the bottom on the rich.