End of cheap Chinese labor is near

July 9, 2010 at 12:00a.m.

Associated Press

SHANGHAI

Factory workers demanding better wages and working conditions are hastening the eventual end of an era of cheap costs that helped make southern coastal China the world’s factory floor.

A series of strikes over the past two months have been a rude wake-up call for the many foreign companies that depend on China’s low costs to compete overseas, from makers of Christmas trees to manufacturers of gadgets such as the iPad.

Where once low-tech factories and scant wages were welcomed in a China eager to escape isolation and poverty, workers now are demanding a bigger share of the profits. The government, meanwhile, is pushing foreign companies to make investments in areas it believes will create greater wealth for China, such as high technology.

Many companies are striving to stay profitable by shifting factories to cheaper areas farther inland or to other developing countries, and a few are even resuming production in the West.

“China is going to go through a very dramatic period. The big companies are starting to exit. We all see the writing on the wall,” said Rick Goodwin, a China trade veteran of 22 years, whose company links foreign buyers with Chinese suppliers.

“I have 15 major clients. My job is to give the best advice I can give. I tell it like it is. I tell them, put your helmet on, it’s going to get ugly,” said Goodwin, who says dissatisfied workers and hard-to-predict exchange rates are his top worries.

Beijing’s decision to stop tethering the Chinese currency to the U.S. dollar, allowing it to appreciate and thus boosting costs in yuan, has multiplied the uncertainty for companies already struggling with meager profit margins.

“Life sciences companies have shifted some production back to the U.S. from China. In some cases, the U.S. was becoming cheaper,” said Sean Correll, director of consulting services for Burlington, Mass.-based Emptoris.