The 23rd Survey of Investment Related Costs in Asia and Oceania (FY 2012 survey) May 2013 Overseas Research Department Japan External Trade Organization (JETRO) Data, statistics and the reference materials within this report have been compiled by JETRO from publicly-released media and research accounts. Although these statements are believed to be reliable, JETRO does not guarantee their accuracy, and such information should be checked independently by the reader before they used to make any business or investment decision. The 23rd Survey of Investment Related Costs in Asia and Oceania JETRO conducted a comparative survey of investment-related costs in 41 major cities and regions throughout Asia and Oceania in the period between December 2012 and January 2013. The survey revealed that Japanese companies are mainly concerned about wages. With the economy steadily growing, minimum wages have been rising greatly. This trend is expected to continue into 2013. With domestic markets maturing, Japanese companies are increasing their motivation to advance into Asian countries and regions for the purpose of market development and risk dispersion. However, there has been no change in the situation where Japanese companies are required to take some measures against rises in various costs. For this survey, Ulan Bator (Mongolia) was added. The survey was also conducted in six Japanese cities, including Yokohama and Naha, in order to make comparisons between Japanese and foreign cities. The following are summaries of what should be noted about wages, property-related costs, and Ulan Bator, the newly added city. 1. The basic wage rate showed a two-digit rise in some regions. In the questionnaire survey JETRO conducted in October and November 2012 to study the activities of Japanese companies operating in China, Thailand, Vietnam and many other countries, the largest percentage of respondents pointed out the issue of the rise in wages of employees as a problem in their conduct of business in these countries as in the previous year. In China, the manufacturing and non-manufacturing sectors saw the basic wage rate rise between 2011 and 2012 by 11.7% and 9.8% respectively. The annual total burden, including social insurance premiums, also rose in each city. In the case of workers especially, it rose by about 20% in three cities: by 20.4% to 7,328 USD in Dalian, by 20.2% to 7,867 USD in Shenyang, and by 19.8% to 7,745 USD in Guangzhou. Among the major countries in ASEAN, a rise in the basic wage rate was observed, in descending order, in Vietnam (19.7%), Indonesia (14.7%), Thailand (10.9%), the Philippines (5.9%), and Malaysia (4.7%). The rate for the manufacturing workers in Vietnam was 21.0%, exceeding the result of the 2011 survey (18.2%). However, when the average basic (monthly) wage is compared among major cities, that for workers in Hanoi is 145 USD, less than a half of that for workers in Bangkok (345 USD). The average basic wage for the workers in Jakarta is 239 USD, about 70% of that for the workers in Bangkok. Among the newly emerging countries, such as the CLM countries (Cambodia, Laos, and Myanmar), Bangladesh, Pakistan, and Sri Lanka, the rise in the basic wage rate is highest in Myanmar (13.3%) and Bangladesh (13.0%). The rate in the manufacturing industry in Myanmar shows a 18.0% rise, the second largest after Vietnam among the survey countries. In Dacca, because a sufficient number of workers cannot be employed if the minimum wage is offered, the monthly wage for workers of Japanese companies is 74 USD, far higher than the minimum wage of 39 USD. The wage for workers in both Cambodia and Phnom Penh is 74 USD, the same as in Dacca. However, Japanese companies’ burden has been increasing year by year partially because additional benefits, such as perfect attendance allowances, commutation and housing allowances, and health allowances, were made obligatory. On March 29, 2013, the Cambodian Government announced that it would increase the monthly lowest legal wage from 61 USD to 80 USD in May 2013. Although the increase is applied to Copyright (C) 2013 JETRO. All rights reserved. 1 the sewing and shoemaking industries that belong to the Garment Manufacturers Association in Cambodia (GMAC), it seems to be influencing other industries because the sewing industry is a major industry in Cambodia. In India, the basic wage rate rose by 13.0% in the manufacturing sector and by 11.8% in the non-manufacturing sector. Workers’ wages also are at a similar level to those in Thailand, one of the advanced ASEAN countries. The average monthly wage for workers in Bangalore is 398 USD, exceeding those in Guangzhou (395 USD). Workers’ monthly wages in New Delhi, Chennai, and Mumbai were 276 USD, 324 USD, and 188 USD respectively. 2. In China, the legal minimum wage was raised across the board In many cities in China, local governments raised the legal minimum wage. The highest minimum wage was 254 USD in Shenzhen in 2012. Because China's Communist Party leadership announced an objective to double per capita national income in 2020, compared with 2010, China is expected to continue to increase legal minimum wages. Taiwan raised its legal minimum monthly wage to 654 USD on April 1, 2013, and South Korea raised its legal minimum daily wage to 37 UDS in January 2013. Among the ASEAN countries, Thailand and Indonesia were conspicuous for substantially raising minimum wages. In Thailand, although the minimum wage had differed from region to region, it was uniformly raised to 9.85 USD (daily) on January 1, 2013. In the Ayutthaya Province, where industrial estates were submerged owing to the flood in 2011, the minimum wage rose by 12.8% from 8.73 USD (daily). In Indonesia, the minimum wage was revised in January 2013, as in the past, and sharply rose by about 40% in areas where Japanese companies were concentrated. In Jakarta, the minimum wage increased by 35% to 226 USD. Because many small and midsize companies that could not deal with a sharp rise in the minimum wage applied for the postponement of the application of the minimum wage rise, large-scale demonstrations by workers frequently occurred from the middle of 2012. In February 2013, about 10,000 workers held a demonstration to demand full application of a minimum wage, proving that the pressure to raise minimum wages is still strong. In Vietnam, minimum wages were raised in January 2013 for the first time in 15 months and increased to 113 USD in Hanoi and Ho Chi Minh City. 3. Upward trends in rents and price, ranging from industrial estate to housing In China, industrial estate rents (monthly) and office rents (monthly) rose slightly in all the cities surveyed except Shenyang, where they fell. On the other hand, housing rents for local Japanese staff (monthly) rose in all the cities. To deal with a rise in real estate prices, the State Council introduced five real-estate control measures, such as restraints in housing purchases and securing of housing sites, at the executive meeting held on February 20, 2013. Based on these measures, the government of each government-ruled municipality, economically independent (from provincial government) city, or province set a housing price restraint target at the end of March. In April, newly built house prices increase by 2.1% on the previous month in Guangzhou City and by 2.0% in Shanghai City. Of 70 major cities, 67 cities show a continuing rise. The effects of the real-estate control measures are drawing attention. Copyright (C) 2013 JETRO. All rights reserved. 2 In Hong Kong, where a rise in real estate prices has become a problem, the average purchase price of industrial estates increased by 11.5% and that of housing for local Japanese staff increased by 30%. In Singapore, the sales price of land in industrial estates shows upward trend every year, and rose to a range of between 209 USD and 717 USD (on a per-square-meter basis) from a range of between 190 USD and 651 USD in the previous year (Jurong Industrial Estate). On the other hand, monthly housing rents for local Japanese staff leveled off at a range of 2,928 USD - 6,669 USD after rising continuously for years. In Indonesia, because foreign companies - mainly Japanese companies – have been making advances into the country since 2011, it is difficult to obtain vacant lots. Sales prices (per square meter) on the GIIG industrial estate and the Jababeka industrial estate have risen to 180 USD and 298 USD respectively. In Vietnam, industrial estates have been developed into suburbs in both northern and southern regions. There are no difficulties acquiring lots, and the sales price of long-term lease properties has leveled off. In Myanmar, with the development of the democratization process, an increasing number of foreign companies have been advancing into the country, with the result that demand has sharply increased and the prices of industrial estates and houses have risen remarkably. Housing rents for local Japanese staff in Yangon are more than 4,500 USD, a sharp rise from the 2011 survey (more than 2,500 USD). 4. Wages have been increasing in Ulan Bator, Mongolia. Backed up by rich mineral resources, Mongolia has recently been experiencing rapid development. The real growth rate of GDP in 2012 is 12.3% (preliminary figure). The population is 2.81 million (1.29 million live in Ulan Bator, the capital). Although per capita GDP is only 3,067 USD (in 2011), the cooperative relationship with Japan has been strengthened because Mongolia is pro-Japanese and reached an agreement in March 2012 to begin negotiations on the Economic Partnership Agreement (EPA) with Japan.