Circuits Assembly Online Magazine - Large Manufacturers Benefit from China's Increasing Labor Costs

BEIJING – China's recent labor laws might actually prove a boon to larger companies such as Foxconn and Yue Yuen Industrial Holdings, analysts say.

Labor laws enacted this month could drive employers' costs 5 to 40% higher, according to industry estimates, because conditions have been set with regard to severance pay, medical, retirement and housing benefits.

However, the laws could be beneficial in the long run for large manufacturers because smaller competitors could be pushed out, an analyst for ABN Amro says.

The laws’ bearing on Hon Hai and Yue Yuen, which employ hundreds of thousands of Chinese workers, could prove to be less crucial than for smaller firms because they already pay above-regulation wages to maintain a large workforce.

However, dozens of factories in Southern China will close or move operations to lower-cost regions such as Vietnam, according to local media reports and labor organizations.

The Taiwan Merchant Association in Dongguan estimates the labor laws have raised business costs for Taiwan firms between 20% and 40%.

Also, workers fear reduction in overtime hours, and those returning to their jobs after the holidays could be fewer. Reportedly, many workers log about 80 hours a month in overtime, and overtime rules that were made before the new labor laws generally have been ignored. However, many employers are now more fearful about disregarding regulations curbing overtime hours. The result remains to be seen.