EXECUTIVE VIEW-China labour disputes, rising yuan

July 16 (BestGrowthStock) – A increase in labour disputes between
management and workers in China, mostly at foreign-owned
factories in the southeast, has raised questions about the
country’s future as a low-cost manufacturing centre.

An appreciation in the yuan, and expectations of further
gains to come, is also increasing costs in the world’s largest

Following are some comments from executives at leading
global firms on the impact of labour disputes and a
strengthening yuan on their China operations.

For more stories on China labour, click [ID:nSGE65103V]


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“This is a difficult problem, but it’s an area Japanese
staff cannot deal with. We employ very responsible Chinese
staff in management and personnel positions. They hold meetings
and communicate with staff and find out their demands as soon
as possible. We deal with those demands that are feasible and
if there are things we can’t do, we explain the reasons

“Our labour costs are a small proportion of our total costs
— raw materials are a more important factor for us. But since
labour costs are rising, we plan to use more automated and
semi-automated production to improve efficiency.”

“All our factories are in the Shanghai area or nearby
Jiangsu province. That sets us apart from a lot of other
companies. One reason is efficiency — China is a very big
country. Also, there is a good supply of talented workers. The
local governments are enthusiastic about providing incentives
and it is close to Japan.”


On China production costs: “It is a factor we have to
consider in the long term. But right now, I don’t think it
would rise something like 10 percent a year, so it is a matter
we need to address in a mid- to long-term. China is a big
country and pay levels differ in each region.”

“The recent strikes mean that living standards are
improving. In Japan, there were many strikes 20 or 30 years
ago. We can say the movement is creating the middle class in
China. China has had an important role in lowering production
costs and it has also been a big market, but (the recent
movement) can be seen as a part of the process of it becoming a
more attractive market.”

On steps taken to address labour unrest and a firmer yuan:

“We are not doing anything in rush. I think we can cope
with the issues if we are timely.”


On labor costs: “We now expect very high labor inflation
for the second half of the year.” Labor costs rose by $12
million in the first half of 2010 compared with a year earlier
and are expected to rise by $32 million in the second half.

On the yuan: “We … now expect that there will be some
favorability from currency in the balance of 2010 as a result
of the Chinese government’s decision to loosen the peg of the
yuan to the U.S. dollar.” For the balance of the year, Yum
expects a forex “upside” in China of about $10 million, he
said. Yum, the parent of the KFC, Taco Bell and Pizza Hut
brands, reaps 35 percent of its profit from China.


“We forecast Chinese yuan to appreciate around 5 percent
this year, which is seen to be advantageous to us…A firmer
yuan is expected to make a positive impact in terms of raising
demand for our high-grade steel, and boosting our profits.”

EXECUTIVE VIEW-China labour disputes, rising yuan