Friday, June 4, 2010

China iPhone plant workers to get 30% raise

TAIPEI: Production line workers at iPhone maker Foxconn's southern China manufacturing hub will get a 30% pay rise, after a string of deaths at the site focused attention on working conditions in a region experiencing growing labour unrest.

Taiwan's Hon Hai Precision Industry, owner of Foxconn, said on Wednesday, June 2 that the cash component of wages would rise by 30% effective immediately, more than the 20% rise the company had talked about late last month.

It said the higher increase reflected rising prices in China, and it hoped to earn workers' respect and raise efficiency.

The rise came as Japan's Honda Motor offered a 24% wage hike to end a sometimes violent strike at a car parts plant in a region dubbed the world's workshop.

"(Foxconn) has to do this as a more aggressive measure to prevent the company's reputation from being hurt more. But it's unlikely the whole thing will calm down because of the raise," said Sean Chen, who manages T$16 billion (US$500 million) for Cathay Securities Investment Trust in Taipei.

"The move will sure put increasing pressure on other manufacturers in southern China. Keep in mind, though, it's been China's policy to improve wages for its workers. It's just the Foxconn incident that might have accelerated that."

Hon Hai's shares fell as much as 2% in a broader market down 0.5%, while Foxconn shares shed 1.4% in Hong Kong.

A total of 10 workers have died at the company's base in southern China this year, all apparently suicides. The deaths have triggered investigations by Apple and other big clients, including Dell Inc.

Apple CEO Steve Jobs, in his first public comment on the events, said on Tuesday that the deaths were "troubling", but the factory "is not sweatshop".

"It's a difficult situation," Jobs said at the D8 annual gathering of top TECHNOLOGY [] executives. "We're trying to understand right now, before we go in and say we know the solution."

Reasons for the apparent suicides are not totally clear, and analysts said wages may not be a major factor, if a factor at all.

However, demands for higher pay among workers in south China are likely to increase as a labour shortage in the region increases and gives workers more leverage.

"In Shenzhen, where the Foxconn factory is located, I think a basic wage of 2,000 yuan a month is absolutely necessary. That's double what it is at the moment," Geoffrey Crothall of the China Labour Bulletin told Reuters Insider in an interview.

But many companies would be able to absorb the costs given their materials and shipping costs are dropping.

"Companies are largely going to absorb these costs and try to recoup them with higher export volume," said Glenn Maguire, Asia chief economist at Societe Generale.

Analysts also noted that business models may change as the era of cheap south China labour comes to an end.

In a research note, JP Morgan said a 30% wage rise could cut Hon Hai's 2010 net profit by 10%, but there would be less impact in 2011. It believes the company will step up efforts to convince customers to move to less costly inland areas of China and may seek price rises. ' Reuters

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