Wage genie out of China bottle

Just ask Honda Motor,the subject of a recent walkout that shut down all of its production in China. The carmaker had to offer workers a 24% pay raise to get things back online. Consider this the vanguard of a Chinese we-wont-work-for-peanuts movement and another reason to fret about inflation. Higher wages wont just become the norm because workers feel exploited. China will have no choice but to advocate big increases in compensation to keep the peace among its 1.3 billion people. Labour unrest is bubbling up as rarely before.

Events in Shenzhen leave few doubts about it. There,the suicides of at least 10 employees at Foxconn Technology Group so far this year are captivating the nation. Its the worlds largest contract electronics manufacturer with clients from Apple to Hewlett-Packard. And like many others,the Taipei-based company is getting rich from cheap mainland labour. Foxconn,last week,boosted pay by 30% to 1,200 yuan ($175) a month. Before you conclude they are rolling in dough,consider this: At this point,it would take one newly cashed-up Foxconn worker 2.8 million years to amass the $5.9 billion that Forbes estimates Foxconn Chairman Terry Gou is worth. Recently,Foxconn said it will raise monthly pay to 2,000 yuan effective October 1.

The suicides have exposed the human costs of Chinas 11.9% growth and opened the plight of the average factory worker to outside scrutiny as rarely before. Workers have a long,long way to go to benefit more fully from Chinas boom. Signs they are growing impatient show that China is entering a messy stage of development. For years,foreign companies raced to the mainland because lax regulations let them pollute in ways they couldnt at home. China is now home to a critical mass of the worlds most polluted cities and rivers,and the government is demanding greater accountability. While its the right thing to do for China,foreign executives cant be happy about the fastest-growth major economy going green.

The wage issue will be even more difficult. Chinese workers demanding higher wages,as they should,must have the folks at Wal-Mart Stores quaking. Its hard to exaggerate the effect a big increase in Chinese pay would have on international profit margins and on inflation.

Chinas balancing act is daunting. On the one hand,the government must acquiesce to labour tensions. Rising prosperity is the tool China uses to keep people from heading to Tiananmen Square with protest banners. Its getting harder to hide the news that millions of Chinese are underpaid by world standards. On the other hand,skyrocketing wages would kill Chinas all-important export industry. Yes,China wants to move its economy away from exports toward increased consumption. Big increases in household income would accelerate things. Yet,the phenomenon probably concerns officials in Beijing,especially if it unfolds too quickly. That could cost China growth,as factories relocate to Indonesia,Vietnam and Central Asia.

Expect,at the very least,for all this to make China even more reluctant to let the yuan strengthen. A bubble in wages is the last thing Chinese policymakers want. It was inevitable at some point and pay increases will be the norm in the years ahead. As these unpredictable tensions flare,the government will be even more reluctant to undermine trade competitiveness.

Greeces debt crisis spooked officials enough. Now,both international and domestic trends are giving China reasons for pause. This higher-wage dynamic is quite ill-timed for China. This is also a dicey topic for companies. Apple,Dell and Hewlett-Packard have all announced intentions to look into Foxconns working conditions. Workers rights or iPads? My money is on Silicon Valley increasing its public-relations efforts and sticking to business as usual.

This is a Nike moment for manufacturers. During the 1990s,Beaverton,Oregon-based Nike faced a global outcry over conditions at its shoe factories in Asia. Executives today will want to handle this issue better to avoid similar damage to their companies image. Few risks unnerve Communist Party bigwigs like social instability,a phenomenon that isnt always easily understood. A spate of recent deadly attacks on schoolchildren is a case in point. Press reports suggest the attacks are related to grievances with local governments. Its clear China has more than its fair share of social problems.

The wage genie is edging out of the bottle at this very moment. Putting it back in wont be possible as Chinas workers demand a bigger piece of the nations prosperity pie.