Unlimited labor supply in China? Not anymore! Wages are hiking!

According to Business Week report “How Rising Wages Are Changing The Game In China”, a labor shortage in China is having  pay soaring!

“Labor shortages are forcing the company to boost wages. Last year salaries surged 40%, to an average of $160 a month, and Yongjin still can't find enough workers ....... Guangdong Province says it has 2.5 million jobs that remain unfilled, while Jiangsu, Zhejiang, and Shandong provinces say they, too, face shortages of qualified workers......Reports of labor shortages first cropped up in late 2004, but companies thought the phenomenon was temporary. Now a surge in both turnover and wage costs is convincing multinationals and their suppliers that the China game is changing permanently.”

The good news  (for China) is that what China is selling is not only cheap labors, but the whole package (first-world infrastructure, business-friendly and efficient bureaucracy, skilled labors....), and thus there are no signs multinationals are moving their factories to even lower cost countries in Indonesia or Vietnam.

The bad news (again for China) is that research shows that only about one-fifth of cost hikes are passed through to American consumers because Chinese manufacturers have little bargaining and pricing power against Wal-Marts, etc. Higher labor costs are thus only eating into Chinese’s profit margin. At some point, they will have to realize that they cannot put up with this anymore, and have to develop their own global brands, move to higher end markets, instead of manufacturing undifferentiated commodity-type  products and making merely fifty cents for every pair of Nike trainers and even less for plastics Christmas trees.

The bad news for Americans is that we are going to see our grocery bills rising!