In China, rising labor costs take hold

Rising labor costs on China’s east coast, where most of the country’s seafood processing is centered, show no signs of abating, according to firms in key coastal hubs like Dalian, Qingdao and Xiamen. Stella Shao at Fengning, an exporter of squid and tilapia based in Dalian, said labor costs have jumped between 10 and 20 percent in the past 12 months.

Shao believes wages will rise by a similar figure this year. She says the fact that it’s perceived as a “hard and dirty” industry compared to local alternative manufacturing jobs makes it harder to attract workers to seafood enterprises. February’s annual mass exit of workers for Chinese New Year, which falls 3 February, is a worrying time. “Workers go back home, and we’re not sure if they’ll come back,” she said.

A cocktail of factors has been driving labor prices in China. Crucially, the country’s pool of rural labor is being tapped by government infrastructure programs in the country’s interior and western regions, keeping would-be migrant workers at home. Employers in the wealthier and more industrialized east coast have had to lift wages to compete for fewer workers.

Also key to climbing wage costs is the country’s Labour Contract Law, in force since 2008. It guaranteed workers fixed contracts and job protection. Salaries have also been made more expensive by improved social security payments guaranteed workers, explained Adam Livermore at consultancy Dezan Shira, which advises and processes payrolls for foreign companies investing in Dalian.

Livermore’s data shows workers in Dalian earn a minimum wage of RMB 900 to RMB 2,859. Yet under the new Labour Contract Law, employers must pay 38.5 percent of the salary on top in social insurance and housing funds. In a bid to hold investors, wealthier southern cities have scaled employers’ contributions back to 19.6 percent in the case of Zhongshan in Guangdong, a manufacturing heartland.

Research by Credit Suisse shows Chinese labor costs rose 70 percent since 2004. China’s working population increased from 764 million in 2006 to 780 million in 2009, but average annual disposable income saw an increase of 10.2 percent yearly from RMB 11, 760 to RMB 17,175.

Livermore said a process that wage freezes, which kicked in with the onset of the economic recession, have been undone. He said inflation, which hit a worrying 5 percent in December, and labor shortages are the main drivers of wage increases. Dezan Shira figures show white-collar pay rose by 15 percent in 2010, while blue collar wages rose by about 10 percent. Livermore expects the trend to continue through 2011.

Boris Wang, marketing manager at Fish Marketing Office in Hong Kong, said volume and labor costs are key issues driving prices in 2011. This is significant since Hong Kong, a key logistics hub for the seafood trade, depends on mainland labor.

“Rising wage expectations on the mainland will continue to [push] seafood prices higher,” he said.

Wage growth has made China more expensive than other seafood producers in the region. Research findings provided by the International Labour Organisation shows average monthly wages of USD 173 (measured according to purchasing power parity) in China, compared to USD 85 in Vietnam and USD 58 in Bangladesh.


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