1 Editor’s Note 2 Talking Point 6 The Week in 60 Seconds 7 China Consumer Week in China 9 Agriculture 11 Telecoms 12 China Tourist 13 Auto Industry 15 Cross-Strait 1 April 2011 16 Property Issue 101 17 Society and Culture 21 And Finally www.weekinchina.com 22 The Back Page Li & Fung: the only way is up m o c . n i e t s p e a t i n e b . w w w y b g u in Supply chain powerhouse warns prices for Chinese manufactured goods must rise o k y n o a t B s t l t h a e g b k u o r o l a r G M B C d B n S a H Week in China Editor’s Note 1 April 2011 Special April Fools’ Day issue ast week was something of a milestone for WiC as it was the publication of our L100th issue. Since our launch in February 2009, we have published well over 2,000 articles, which we hope have enhanced your understanding of China. That’s because this week we intend to put that understanding to the test. As most readers will be aware, there is a longstanding tradition in Western me - dia of running a fake story on 1 April i.e. April Fools’ Day. Given that this week’s WiC falls on that date, we’ve decided to include an April Fools’ story (i.e. one we’ve made up and that isn’t true). However, to make it more interesting we’ve also included a series of articles that, while true, will strike many readers as highly implausible. Regular readers of WiC will have become aware that China generates a number of such stories! So are you smart enough to spot the fake? We’ll give away an iPad2 to a reader who can spot which was the real April Fools’ story. Entries must be received by Thursday April 7 and must state the headline of the article which you think is our fabrication. Send your entries to: [email protected] Those that get it right will be entered into a lucky draw, and the winner will receive an iPad2. We’ll let you know which was the actual April Fools’ story in the next issue. Good luck, Steven Irvine, Editor Competition rules: One winner will be drawn at random from the list of those answering correctly. He/she will receive an iPad 16GB. All entries must be received by midnight Hong Kong time, Thursday April 7th. The winner will be notified within 3 working days. The competition is open to signed-up subscribers of WiC only. WiC's decision is final. No correspondence will be entered into. 1 Week in China Talking Point 1 April 2011 Stuff’s about to get pricier Li & Fung says era of cheap Chinese manufacturing is over. Is it bad news? The boss of this factory will need to pay more to get more workers like her... “ he biggest topic on the minds Hence Rockowitz’s analogy: Face- impact of higher salaries for Chi- Tof everyone in this business is book connects people but Li & Fung nese workers. Li & Fung executives that higher prices are really here connects factories and retailers, with did something similar, in talking to stay,” Li & Fung president Bruce a business model based on placing about the price pressures in their Rockowitz warned attendees at client orders among its 15,000 sup- own business. last week’s company results pres- pliers, and then shipping them the The current news cycle kicked off entation. finished items. in mid-summer last year, following Li & Fung started out trading So, when its top executives warn a series of strikes and subsequent porcelain and silk in 1906. But in of new era of higher prices, it is wage hikes. Two companies – Fox- more recent times it has proven one worth paying attention. conn and Honda – bore the brunt of of the biggest winners in the gar- press attention, and both appeared gantuan growth of China sourcing. Blame wage increases? to buckle to worker demands, offer- With ‘the China price’ sweeping all Clearly, there are other factors too, ing salary increases exceeding 20%. Photo Source: Reuters Source: Photo before it, so Li & Fung has become like higher commodity prices. But It wasn’t just a case of high-pro- one of the biggest suppliers of most of the headlines recently (in- file employers forced into greater clothes, toys and furniture to retail- cluding a few of our own, admit- generosity. China’s 31 provinces ers worldwide. tedly) have concentrated on the boosted their minimum wage levels 2 Week in China Talking Point 1 April 2011 by 24% last year, according to Yin Weimin, the country’s minister for human resources and social secu- rity. Six provinces have already topped up the threshold again this year, and the central government is targeting an increase in minimum pay of 13% a year through to the end of 2015, Yin says. The sense is that this is not a cyclical thing. Li & Fung talks about changes in the wage environment meaning an end to 30 years of low prices for manufactured goods. Still, only a year or so before re- ports of the wage spiral began, the narrative was somewhat different, with news of 23 million migrant workers laid off as a result of the global economic crisis. Most then trudged back to their home provinces and many of those who stayed in work had their pay frozen. This has led to suggestions that the flurry of recent rises is more a case of wages playing catch-up. Recent research from HSBC is also more circumspect in reviewing whether wage inflation is really breaking new ground. Announcing minimum wage in- creases is not the same as delivering them, suggests Qu Hongbin, HSBC’s chief economist for Greater China, particularly when close to 70% of the workforce is employed in small or medium-sized private firms (where mandatory minimums are not always going to be rigorously applied). Local governments have so many targets to meet that enforcing the wage rules may not top their priorities, either. Further, Qu believes that much of the talk of wage inflation torpe- doing Chinese cost competitive- ness is overplayed. Yes, wages have increased, especially in the manu- facturing sector (there’s less sign of similar increases in service in- dustries, HSBC notes). But fixating on factory wages in absolute terms misses the bigger picture on the 3 Week in China Talking Point 1 April 2011 price of Chinese goods. Industrial output in the last 18 months has Planet China grown faster than wages, meaning Strange but true stories from the new China that the unit of labour cost re- quired to produce each unit of out- put has actually fallen. NEW MENU. Clever gimmick or another indicator that the days of cheap labour are becoming a thing of the past? Beijing’s Yaoqin restaurant has got In laymen terms: productivity is local media attention with a high tech solution that has seen a downsizing of improving faster than wages are its waiting staff. And as the Oriental Morning Post excitedly reports, it rising. involves the iPad. Diners are now presented with Apple’s tablet instead of a paper menu. The iPad menu has pictures (delicacies include pickled shrimp But bigger picture: what about and foie gras eggs) and helpful information, such as the number of calories labour shortages? in the dish. The restaurant says it has used the new system for six months One of the key themes to the wage and seen diner numbers increase 20% as a result. The newspaper reports inflation story is that China is run- that other restaurants around the country are following suit, with cost ning out of workers. Where once reduction the main goal. A catering industry insider reckoned that it costs there were millions seeking factory Rmb10,000 per year to use paper menus, which need to be frequently jobs, now recruitment is said to be updated, reprinted and replaced. Although an iPad costs Rmb3,000, it has more of a challenge. Towns and fac- the advantage that it can be updated as and when required at no cost. tories are waging PR campaigns to attract newcomers (see WiC96) but even so, more migrants than ever ing about Arthur Lewis, who won a It depends where you look… are opting not to return to the as- Nobel Prize for a 1954 paper that Certainly, it seems to be a more sembly line after holiday (see suggested developing countries can mixed picture than the bolder head- WiC50) festivities. grow their industrial sectors for lines allow. Mixed enough, in fact, One response for the bigger em- years without wages going up much, for human resources minister Yin ployers is to move inland in search as long as they have plenty of sur- to offer two rather different sound- of lower-cost workers. Again it’s plus agricultural labour to add to bites on the labour market in the Foxconn in the news, with two mega the workforce. space of a few days. plants under construction in Henan But when rural supply peters out, At last month’s NPC Yin told the and Sichuan. Another is to leave industrial wages soon begin to rise media throng that China’s shortage China altogether and last month sharply. Academics first started of workers had become a “structural Bloomberg presented figures from talking in earnest about China’s problem” and was spreading from the Japan External Trade Organisa- pending Lewisian moment about the manufacturing zones in the tion to argue that China’s wages five years ago.