The End of China's Cheap Labor?

As a wave of strikes at Honda and protests over worker suicides at Foxconn led the firms—two of China's major foreign manufacturers—to offer workers significant pay raises, China watchers are wondering whether the country is facing the end of cheap labor. After a string of suicides among employees at Foxconn's plant in Shenzhen, where the starting wage was a paltry $130 per month, the company effectively offered to double many workers' salaries. Simultaneously, 1,900 workers at Honda's transmission plant in nearby Foshan staged a two-week walkout to demand better pay from a firm that recently announced record sales in China. Workers at two other Honda plants followed suit, halting production again.

The Honda strike was "a watershed," says Ian Crawford, executive director of the British Chamber of Commerce in Shanghai, since it marked "the first time a big international company [in China] has had a formal mass withdrawal of labor over wages, with at least tacit union acceptance." The incidents suggest that China's migrant workers are increasingly unwilling to accept bottom-of-the-barrel wages or the -military-style discipline of factories like Foxconn's. "Workers today are more aware of their rights—they can go online, they get information about what happens abroad," says Liu Kaiming, a migrant-worker expert at Shenzhen's Institute of Contemporary Observation.

China's one-child policy—which has reduced the supply of able-bodied youth—also puts migrant workers in a stronger position, says Liu. In fact, Shenzhen now faces a labor shortage, as workers move to Shanghai and other cities where the minimum wage is higher. A new law on labor-dispute resolution, introduced two years ago, has also enhanced workers' confidence by giving them easier access to legal redress.

A more assertive migrant workforce is putting pressure on trade unions, too. Traditionally, the unions have represented government interests, which have often coincided with those of big business. But when the Foxconn crisis erupted, the All-China Federation of Trade Unions quickly appealed to private employers for higher wages and better treatment for workers across the country. Unions still see themselves as a bridge between workers and management, says Crawford, but they are now more likely to demand pay raises if they think workers are being treated unfairly. A recent Peking University survey found that unionized companies usually offer higher wages, better pensions, and slightly shorter working hours.

The risk for China is that companies, especially those on narrow margins, may consider relocating to Cambodia or Indonesia, where wages are lower and the workers potentially more pliable. Those which do remain—and Western consumers, too—may have to get used to a rise in what economists call "the China price."