China's migrant workers, known as “factories without smoke”, are at last showing some fire. Japan's Honda appears to have put an end to a two-week strike at its Guangdong parts plant by raising basic pay by almost a quarter. Then there is Foxconn of Taiwan, the world's largest contract electronics manufacturer, where an apparent suicide cult at its Shenzhen compound has led management to offer a 30 per cent rise in wages. Since overtime is typically calculated as a percentage of basic pay, effective pay will have been lifted higher still.
Manufacturers in the Pearl River Delta, China's export hub, have long lived with wage inflation: minimum monthly wages have more than doubled since 2001. But this bout of activism looks different. The slow-burn effects of China's one-child policy, now 31 years old, have caused the population of 20 to 39-year-olds – the deepest pool of manufacturing labour – to shrink by more than a fifth over the past decade. Meanwhile, vast stimulus spending has shielded the economy from the worst effects of the export slump: aggregate figures show net job creation between September and March of just over 2 per cent. Together, those effects have pushed the ratio of labour supply to demand below equilibrium for the first time, according to researcher CEIC. Factory wages were already showing double-digit increases over 2009 levels before a new batch of minimum wages – Guangdong is one of seven provinces to raise its mandatory rate in recent weeks – provided a new floor.
Moreover, this is happening with the tacit encouragement of economic planners. If China is remotely serious about rebalancing the economy towards consumption and away from exports, then raising real wages in the export heartland is the right way to go about it. If that stokes broader inflation, then policymakers have remedial actions – removing the dollar peg, for instance – in reserve. Manufacturers had better brace for higher settlements and slimmer margins.