Significant wage increases are inevitable for the laborintensive technology manufacturers in China over the short term, and the rise in labor costs will challenge cost management ability of these companies, according to a report from Fitch Ratings. Their profit margins will likely be negatively impacted by wage increases without offset by sales growth or other factors as factory relocation andautomation. "The vast majority of Fitch-rated technology issuers in the Asia Pacific are directly affected by the potential wage increase of labor-intensive production lines in China. Only Acer Inc, Global Foundries Singapore Pte Ltd and Hynix Semiconductor Inc are excluded because of their low labor intensity,” says Kevin Chang, Director with Fitch’s telecommunications, media and technology team. Fitch believes that labor-intensive manufacturers in China will try to mitigate wage increases by reducing their labor intensity or by moving their operations to places with lower wages. In addition, there is a potential that the increase in costs will be partially offset by the ongoing positive growth in domestic sales driven by higher selling prices and wider consumption of technology products in China due to such wage increases. Contract manufacturers may also obtain support from brand owners in negotiating price rises to reduce negative impacts. 
"With strong bargaining power for price increases and greater ability to relocate operations, first-tier technology manufacturers in China can better weather the impact of rising wages,” added Chang. The agency expects that labor-intensive technology manufacturers will unlikely relocate operations to other Asian nations in the short run for it takes time to re-establish component supply chains and customer certification, but relocation overseas is an option if cheap labor in China dries up in the medium term. Source: China Economic News Service | 
