Why the 2013 Minimum Wage Hike in Shenzhen, China's First Tech Hub, is Not That Scary

The hi-tech manufacturing hub around the city of Shenzhen, in southern China, is set to be hit with a rise in the minimum wage of 13.3 percent in 2013. According to Wired, that could cause something of a shockwave through gadget manufacturers in that area - Taiwanese OEMs like Foxconn [1], for example, which does the final assembly of so many Apple products - that might result in inflated costs for the phones, tablets, and other gadgets we love to buy.

But after weighing up the figures and considering the changing manufacturing landscape in China, we don’t think this’ll make too hard an impact on consumers. For one, Shenzhen saw its minimum wage go up in February this year already, by 13.6 percent, to stand at 1,500 RMB (US$236) per month. The anticipated hike for 2013 shouldn’t be a surprise, as the China Daily points out that, “Local governments are required to raise their minimum wage levels at least once every two years.” If it does rise 13.3 percent next year, probably again in February during Chinese New Year, then it’ll stand at 1,700 RMB ($268).

Other factors come into play, too. Shenzhen is not quite the manufacturing hub that it once was, and it seems that the international media haven’t yet followed the trail of gadget guts to newer tech hubs in, say, Jiangsu province in eastern China - where a great deal of Samsung, Apple, and Nokia components are made - or to much poorer inland areas where land and labor costs are significantly lower. And so minimum wages in other regions of the country are more of a factor than ever before.

Taiwan’s Foxconn (LSE:HHPD; HKEX:2038; TPE:2354) has blazed this trail, and it has already had a profound - and positive - impact on one town in central China’s Henan province where Foxconn’s two-year old plant now accounts for 48 percent of the province’s total exports. And others have moved too. Acer was making about 30 to 40 percent of its notebooks in the municipality of Chongqing by the end of last year; Philips opted for Chengdu in neighboring Sichuan province; others, such as Dell, are shifting to central China too, and are even looking towards ‘shipping’ by train directly to Europe from China’s amply hilly bosom.

So, the Shenzhen minimum wage hike is good for its factory workers - so long as greedy local landlords don’t screw them for extra rent once again - in an area that’s definitely not cheap to live in. But labor costs in other areas of China need to be taken into account as well, and so gadgets shouldn’t see noticeable or alarming price hikes in the coming year.

  1. The rumor that Foxconn might double its own wage levels by 2013 is indeed just a rumor. That would take its base salary way beyond the 1,700 RMB per month mandated by local authorities.  ↩

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