Good news for Latin America: wages in China, Vietnam and other Asian countries are rising faster than expected, leading growing numbers of multinational firms to move their manufacturing plants to Mexico and other countries closer to the U.S. market.
The Feb. 19 announcement by Foxconn Technology Group, which assembles iPads and other products for Apple, Dell, Nokia, Motorola and other firms in China, that it has raised pay for its workers by 16 to 25 percent was just the latest example of how fast Chinese salaries are rising. It was Foxconn’s third wage hike since 2010.
“More and more companies are telling us that wages are rising faster than they expected,” says Harold Sirkin, managing partner of the Boston Consulting Group, which recently published a study on China’s wages.
“The quality of the workforce in China is highly competitive,” Sirkin added. “People have options to go to other factories, and they do, which is why companies are forced to raise wages.”
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According to BCG projections, China’s wages in the Yangtze river delta technology belt have risen from 72 cents an hour in 2000, to $2.79 cents in 2010, and are expected to reach $6.31 in 2015.
And the trend is likely to continue beyond 2015. A growing appreciation of the Chinese currency, higher education standards and a declining workforce will drive Chinese salaries up for decades to come, economists say.
A new joint report by the World Bank and China’s government-run Development Research Center, entitled “China 2030,” says China’s labor force “will start to shrink from around 2015, initially slowly but faster from the 2020s, and is projected to be 15 percent smaller than at its peak by 2050.”
That is because, among other reasons, the population is getting older, Chinese workers tend to work fewer years than their counterparts in other countries, and the supply of rural workers moving to the cities is drying up, the report says.
Even if China were to further relax its one-child policy, things would not change much, because Chinese women are not likely to have more babies, it says. Fertility rates in countries such as Japan, South Korea and Vietnam are not significantly higher than China’s, and suggest that China’s average rate of children per couple — now at 1.5 — will remain stable “even if the (one-child) policy were eliminated,” it says.
In Vietnam and India, wages are rising at an even faster pace. That will present a fantastic opportunity for Latin American countries to attract technology companies and service industries that help produce long-term growth, economists say.
Most multinational companies will maintain plants in China to serve the local market and neighboring countries in Asia, but will move their export-oriented plants to other parts of the world, they add.
While in 2002 China’s average wage was 237 percent lower than Mexico’s, by 2010 it was only 14 percent lower, a recent study by the J.P. Morgan investment bank said. Because of Mexico’s proximity to the U.S. market, many U.S. car companies and other manufacturing industries are moving from China to Mexico, the study said.
Augusto de la Torre, the World Bank’s chief analyst for Latin America, told me that many Latin American countries’ labor forces may already be too expensive and not skilled enough to draw manufacturing plants away from China, but added that Latin America can benefit in other ways from China’s rising wages.
As China’s population becomes wealthier, it will import more consumer goods, entertainment, health and education services. “Latin American countries need to find a niche in supplying that demand on the basis of higher productivity, rather than on the basis of cheap labor,” he said.
My opinion: Either way, Asia’s rising wages present a fabulous opportunity for Latin America.
But to lure foreign manufacturing plants and to export increasingly sophisticated goods and services to China, Mexico and Central America will have to reduce their violence rates, and all Latin American countries will have to dramatically improve their education systems, which nowadays lag far behind those of their Asian competitors.
Granted, these are major challenges. But Latin American countries that realize the golden opportunity they have thanks to Asia’s rising wages and take advantage of it will do great in coming decades.
ABOUT THE WRITER
Andres Oppenheimer is a Miami Herald syndicated columnist and a member of The Miami Herald team that won the 1987 Pulitzer Prize. He also won the 1999 Maria Moors Cabot Award, the 2001 King of Spain prize, and the 2005 Emmy Suncoast award. He is the author of Castro's Final Hour; Bordering on Chaos, on Mexico's crisis; Cronicas de heroes y bandidos, Ojos vendados, Cuentos Chinos and most recently of Saving the Americas. E-mail Andres at firstname.lastname@example.org. Live chat with Oppenheimer every Thursday at 1 p.m. at The Miami Herald.