Chinese Labor Market Feels Growing Pains

For Immediate Release: March 24, 2008 - Shanghai China

Chinese labor is starting to see signs trouble as the government assigns more rights to shift workers and labor laws grow.

Athough the average factory worker still makes around 1000 RMB (about $140 USD) each month, new rules on firing employees, workweek hours, and overtime constraints are causing some manufacturing companies to look elsewhere.

Americans in the same positions make at least 20 times the Chinese wage rate, but with global competition, this is not enough of a savings. Most manufacturers are producing commodities and the margins are tight. As competitors head to areas like Vietnam to further reduce costs and increase flexibility, others are likely to follow.

Looking globally at this challenge, it is clear that although markets are maturing slowly in places like Taiwan and China, they are in fact maturing. Human rights issues and employee protections are improving the quality of life of impoverished communities around China in the short term. New concerns about neighboring competition may drive jobs out of the country and hurt the Chinese labor market in the longterm.

So, China is viewing Vietnam and others similarly to how America views China - a low cost provider that can hurt jobs.

What happens when we run out of places to go next? The slow evolution of our global economy and the technologies that drive it will and do change the way we do business.

Americans have always said that the world needs ditch diggers, too. That may not be true in 20 years as technologies from companies like Vermeer (in Iowa) replace those jobs.

The fact that Chinese labor is maturing is a good sign for civil rights, but also highlights that civil evolution may be a bad thing for capital markets.