The tectonic plates of the global economy are shifting as China attempts to bolster domestic demand through wage increases. Bloomberg cites a report in the South Morning China Post,
China plans to increase its minimum wage by at least 20 percent annually in the next five years, more than doubling it by 2015, to increase spending power and consumption, the South China Morning Post said, citing Huang Mengfu, a government adviser.
A risky gambit given that manufacturers will move offshore. Bloomberg also reports China has lost the Calvin Klein bra maker,
China’s rising labor costs prompted Top Form International Ltd., a bra maker for Calvin Klein, to pick Southeast Asia for a new factory, adding to signs of a reshaping of the economy away from export-tied regions.
“We’ve halted plans to open a fourth factory in China,” Eddie Wong, group managing director and co-founder of Hong Kong- based Top Form, which also supplies brands including Maidenform, said in an interview yesterday. “We can consider other cities in China but it’s only a matter of time before wages will rise again and it will get more expensive for us.”
The country may believe that its domestic market has hit critical mass and the manufacturers who leave will be replaced by those seeking to sell into China. Nevertheless, we will be watching prices at WalMart and Costco very closely. The sun is setting on Chimerica.
Though not updated to reflect today’s change, here is a great graphic of the minimum wage throughout China’s provinces.