Wages for Chinese workers will continue to increase over the next five years, according to the CEO of consumer goods exporter Li & Fung Ltd., and the increases have already contributed to a drive to locate cheaper labor markets.
Reuters reported that the exporter's CEO Bruce Rockowitz said at a Tuesday luncheon, "If you look at the next five years China wages will continue to go up. If you look at China's internal five-year plan, they are programming the minimum wages to go up at least 13-14% [a year] for the next five years."
He added that factory owners have already considered moving their production, not only to China's inner cities, but also to labor markets outside the country, such as Indonesia, Vietnam and Bangladesh. He added, "It is also going very quickly and rapidly to western China to where the labor is."
Rockowitz said that overall costs had risen approximately 15% in 2011 thus far, compared with the same period in 2010, but if prices continue to increase, cost rises will moderate to a range of 5-6% per year over the next 5 years because demand for goods will decrease.
Li & Fung manages supply chains for such retailers as Walmart and Target, and does approximately 50% of its export business with China. While the company had expected in December that China-sourced product prices would gain at least 10% in the first half of 2011, it also expected sourcing to move to emerging markets and interior Chinese cities where costs were lower. Earlier this month the company said it would be looking for acquisition opportunities in Japan to increase its trading business and that it would be focusing on internal growth.
Of the current situation, Rockowitz said, "We are not going to find another China. China in five years will probably still be about 50% of goods for Li & Fung and is definitely not going away. There is no viable alternative on the scale of China."
He added, "We think that China will be a growth vehicle and a real catalyst of growth for the years ahead for us, both from a consumption point of view and the supply point of view."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.