Since Chinese New Year, several cities–located in the most productive areas of China–have significantly increased minimum wages. Does it mean your purchasing prices will go up? I don’t think so. Don’t let your suppliers invoke this reason for raising prices.

Global Sources just published an article entitled Higher base pay not a salve for labor shortage. They rightly conclude that “Raising minimum wage levels is not likely to curb worker deficit, nor is it a big concern in China’s export manufacturing industry”:

For instance, the [average] wage at several furniture makers in Dongguan, Guangdong province, ranges between 1,000 and 1,300 yuan ($146 to $190). The anticipated increase in base pay for the city is [up to] 920 yuan ($135).

Even so, many plants continue to remain short of hands. This comes despite offers of free board and lodging on top of a 1,500 yuan basic salary. The high cost of living in the coastal cities has made migrant workers reluctant to accept jobs there.

I actually think this increase in minimum wages is good for importers, and I see two reasons for this.

First, some potential migrant workers who have never worked in factories might be tempted to go to the coastal regions. They have a better chance of getting a decent pay as soon as the first year (even though all factories will not respect the law when paying unskilled workers).

Second, low-skill jobs will be performed better, simply because workers will tend to be paid more and to stick at it for longer. An example is the packaging activity in 95%+ of local factories: it is performed by unskilled workers who get little money and don’t give all the attention their job deserves. It is also done by part-time workers, hired by the day. In many cases, the assembly job is done adequately but the packing job is terrible, and this can lead to serious quality problems.

Some other factors will have a stronger influence on prices:

• The threat of a revaluation of the RMB (more and more “experts” predict that it is coming soon on public TV…),
• The material costs, which might become more pricey as global economy rebounds,
• The salaries of factory workers, driven by market prices rather than local regulations,
• The VAT rebates for exporters, which might be reduced.