Transcript Socio-Economis Development of China

SOCIO-ECONOMIC
DEVELOPMENT OF CHINA
AGENDA
I. Introduction
II. Facts
III. Labor cost development
I.
II.
Average income
Main drivers
IV. Examples
I.
II.
Apparel industry
Automotive industry
V. Reasons to produce/invest in China
VI. Pros and Cons
VII. Outlook
INTRODUCTION
LOW LABOUR COST
BIGGEST WORK FORCE IN THE
WORLD
HUGE DEVELOPMENT IN THE
LAST DECADES
INCREASE OF THE LABOUR
COST IN THE LAST YEAR
SOME INDUSTRIES HAVE LEFT
CHINA
Does China lose his labour costs advantages?
INTRODUCTION
- Increase of the labor cost caused by political strategies
Labor law - 1994 (107 articles)
Article 1: This Law is hereby formulated in
accordance with the Constitution in order to protect the
legitimate rights and interests of laborers, readjust labor relationship,
establish and safeguard the labor system
suiting the socialist market economy, and promote
economic development and social progress.
Article 3: Laborers have the right to be employed on an equal
basis, choose occupations, obtain remunerations for labor, take rests,
have holidays and leaves, receive labor safety and sanitation protection,
get training in professional skills, enjoy social insurance and welfare
treatment, and submit applications for settlement of labor disputes, and
other labor rights stipulated by law. [...]
Article 10: The State shall create employment conditions and
expand employment opportunities through promotion of economic and
social development.
INTRODUCTION
Article 13: Women shall enjoy equal rights
as men in employment. Sex shall 35 not be used as
a pretext for excluding women from employment
during recruitment of workers unless the types of
work or posts for which workers are being recruited
are not suitable for women according to State
regulations. […]
Article 19: Labor contracts shall be concluded in written form
and contain the following clauses:
(1) Time limit of the labor contract;
(2) Content of work;
(3) Labor protection and labor conditions;
(4) Labor remunerations;
(5) Labor disciplines;
(6) Conditions for the termination of the labor contract;
(7) Liabilities for violations of the labor contract.
INTRODUCTION
Labor contract law – 2007 (98 articles)
Article 4: Employers shall establish and perfect
labor bylaws so as to ensure that workers can enjoy
labor rights and perform labor obligations. […]
determine such bylaws or significant matters in direct
relation to the real benefits of workers as the remuneration, working time, rest and vacation, work safety
and health care, social insurance and welfare, job training, job discipline
or quota management, the draft thereof shall be discussed at workers
congress or by workers, which shall bring forward schemes and opinions.
[…] equal consultation by employers and labor union or representatives of
workers. […]
- Growing leading role of Vietnam (lower labor costs) in different sectors
(electronics, toys, automotive, clothes and accessories).
- China is still competitive in the market (increase of the labor productivity
more money, better work) and its economy become stronger even if the
increase of labor cost.
INTRODUCTION
- Change from a foreign demand to a domestic demand
- American and European companies leave China
- No sufficient technical knowledge (improvements step by step).
- In a foreign enterprise in Beijing or in Shanghai:
Medium level manager 27.000-32.000 $ (+extra) in a year
Senior manager 46.000-54.000 $ in a year
High level manager 80.000-90.000 $ in a year
-More services offered by the enterprises to the workers --> higher
expenditures
FACTS
Does China lose his labor costs advantages?
-since 2000 the labor costs have risen by 10 % each year
- total work force of 784 Mio.*
- thereof with an university degree 8,9 %*
- unemployment rate of 4.1 %*
- average income in China 3.045 RMB in 2010**
* Statistical Yearbook of China 2011
** National Bureau of Statistics, urban workers
LABOUR COSTS DEVELOPMENT
Average monthly income (2010)*
900
800
US-Dollar
700
362 $
600
500
400
300
200
100
0
China
*Urban employees, Source: Germany Trade and Invest
Shanghai
Beijing
Guangzhou
LABOUR COST DEVELOPMENT
Average monthly income (2006-2010)*
500
China
450
+ 103%
400
US-Dollar
350
276 $
300
250
+ 55%
200
150
110 $
Vietnam
100
50
0
2006
2007
*Urban employees, Source: Germany Trade and Invest
2008
2009
2010
LABOR COSTS DEVELOPMENT
What are the main drivers?
•high annual growth*
• GDP
• Exports
• retail
+ 9%
+20%
+17%
•changes within the society (strikes, new generations ...)
•introduction of the one-child policy during the 80´s
•increased minimum wages
•increasing living expenditures (especially coastal area) -> Inflation
Figures from 2011, Source: Germany Trade & Invest
EXAMPLES
Apparel industry
the leading apparel player form Europe and US want to shift a large
share of their sourcing value away form China. (over the next 5 years)
Reasons
•labor shortages -> workers move to more attractiv industries
•increasing labor costs
•Capacity for Western buyers is reaching its limits
Conclusion
It´s getting more and more unattractive for foreign companies to invest
into China´s apparel indusry.
-> labor force and labor costs are very important
Source: Mc Kinsey CPO Survey, Sept.- Nov. 2011
EXAMPLES
Automotive industry
every big car maker plans to invest in China and to extend their
capacites
Reasons
•the biggest car market worldwide
•registered cars by 2009 : 62 Million -> 2020: 200 Million*
•high import duties on cars –> Joint ventures with Chinese companies
Conclusion
Automotive companies have to invest into China to increase their
profits and to enhance their global market shares.
-> labor costs are not the main drivers
*estimated by Mc Kinsey
REASONS TO PRODUCE AND INVEST IN
CHINA
- The labour cost increase but the quality is better day by day.
- Increasing productivity (people know well the work that they have to
do)
- From "made in China" to "created in China".
- Morality theme: well being of the people
(yesterday exploitation, today work).
- The Chinese currency (Renmimbi - RMB – or Yuan - CNY become more
international day by day. China wants it as the international currency,
replacing the Dollar.
(Current exchange rate: 1 US$ :6,25 RMB; 1 € : 8,00 RMB
REASONS TO PRODUCE AND INVEST IN
CHINA
In 2009 the PBoC, the Popular Bank of China, announced the
“Administrative Rules on Pilot Program of Renminbi Settlement of
Cross-border Trade Transactions”: more easy commerce.
Today an foreign company can export the goods and it can
provide services in RMB if the counter-party is located in one of
the 20 provinces and cities chosen, that are in the most influent
region of the Chinese territory.
Advantages for the importer:
 decrease of the supply chain cost
 more transparency in the cost
 better relationship with the provider
 increase of the number of the providers
REASONS TO PRODUCT AND INVEST IN
CHINA
Advantages for the export agent:
 more simple currency change
 increase of the number of customers
 direct use of the RMB
Advantages for the Chinese enterprises
 more transparency in the prices and more simple system
 decrease of the risks and costs connected with the change
 more efficiency
 Social stability entail no strong change in the regulations
 Development of infrastructure - new spaces for industry in the
countryside
Negative Aspects:
- the Chinese policy favours the Chinese enterprises.
PROS
• Endless supply of low labor cost
• Annual wage of 52,607$ in US in 2011 was > eight times higher that of
china.
• Even compared with BRICS ,china‘s wages is low.
• Boston Consulting Group, forecasts manufaturing wages in china
rising only 4.41$per hour in 2015,compared with 26.6$ in US.
• Low pension, 250 million migrant pension neglected.
• Basic healthcare provision is low.
• Legal protection of worker‘s rights is insufficient.
PROS
• According to UN, china ‘s labor supply is to peak at 2015.
• China’s family planning policy to be revised after 30 years, possible
changes could lead to new cycle of labor.
• Employees ,sometimes dismissed without notice or clear reason,
receive poor compensation.
• China’s labor is tilting towards more skilled workers.
• According to Ministry of Education-2011.Total of 7.99 million
universities grads, 430.000 post grads joined the labor force.
• Labor bonus also means a massive domestic consumer’s market.
CONS
• Average wage quadrupling (annual 20,856 yuan in 2006-41,799 yuan
in 2011)
• Population aging ((1982)Population aged up to 14 fell from 33. 6% to
16.45% and aged over 65 rose from 4 .9%to 9.1%(2011).
• China approaching Lewis turning point:Means where surplus low-cost
labor depleted,and wages and benefits increase.
• Losing labor advantage to vietnam and indonesia in low-cost
manufacturing.
• Inflation soaring up.
OUTLOOK
• After summarizing the statistics and points,demographic trends are
evolving to sustain china’s advantage.
• Even though wages have risen rapidly in the past five years.its labor
cost still remain very low relative to global level, Supply of low-cost is
far from being depleted.
• Built up a large pool of skilled labor to move up the value chain.
• Shifting to consumption driven economy.
All these factors combine in line with China’s broader economic
strategy, It’s labor bonus will evolve.