Hon Hai Group (鴻海集團) has announced two salary raises in a week for its Foxconn plant in Shenzhen, resulting in a total raise of 122 percent. The event has shaken the Taiwanese stock market, shocked Taiwanese businesspeople along the southern China coast and changed the environment for China’s export-oriented processing industry. Many Taiwanese investors and other foreign businesspeople now worry that the era when China was a low-cost paradise has come to an end with Hon Hai’s massive salary increases.
Contract manufacturers rely on low labor costs to make relatively small profits. However, when a society has developed to a certain level, labor costs increase. This means that businesses cannot continue to rely on low costs alone to make a profit. The fact is that industries in coastal areas of China have experienced a series of collective demands for salary increases. Workers at Honda’s Chinese plants are striking for higher salaries and those at a Taiwanese-invested mechanical plant in Kunshan in Jiangsu Province went on strike last Saturday, demanding pay raises and an improved work environment. The number of workers on strike soon reached 1,000 and they have refused to leave despite efforts by the police to disperse them. Not until the company’s chairman promised to raise salaries and improve the quality of food and the work environment did the strike end.
Some people are guessing that Hon Hai’s highly unusual double pay raise may be the result of Chinese government pressure and others think China wants to get rid of Hon Hai and let a local Chinese company take over as the king of contract manufacturers. However, there is currently nothing to back up either viewpoint.
Hon Hai is the first company to react to the calls of Chinese workers for higher pay. In this context the raises are both a passive, defensive measure and an aggressive strategic attempt to deal with a new situation.
On the one hand, the raise counteracts the negative impact of the 12 suicides at Foxconn’s Shenzhen plant, as it may improve morale among workers and alleviate concerns that Foxconn is a sweatshop. Labor stability will probably be higher than before the problems began and production will also become more predictable, which will result in higher productivity.
On the other hand, Hon Hai sold its worker dormitories to the local government and then raised salaries to subsidize workers renting their accommodation from the government. This also means that the company has passed the hot issue of the workers’ leisure time on to the government and it no longer has to take responsibility for its workers’ lives. The initiative to raise salaries will increase public income and raise workers’ buying power, and that will help the company enter the 3C — computer, communication and consumer electronics — market. When a market leader such as Hon Hai offers such massive salary increases, it puts great pressure on other electronics companies and might even force competitors out of the market. In addition, the increased expenditure can be passed on to US, EU and Japanese companies so that it does not affect Hon Hai’s profits. The move could even turn out to be a crucial first step toward the transformation of China’s labor-intensive industries.
Another side effect of the big raise could be that some Taiwanese companies see more clearly the uncertainties of the Chinese market and decide to return to Taiwan to invest in automated plants. If that is the case, then Taiwan should thank Terry Gou (郭台銘) for such an unexpected gift.
The Chinese Communist Party (CCP) has long been expansionist and contemptuous of international law. Under Chinese President Xi Jinping (習近平), the CCP regime has become more despotic, coercive and punitive. As part of its strategy to annex Taiwan, Beijing has sought to erase the island democracy’s international identity by bribing countries to sever diplomatic ties with Taipei. One by one, China has peeled away Taiwan’s remaining diplomatic partners, leaving just 12 countries (mostly small developing states) and the Vatican recognizing Taiwan as a sovereign nation. Taiwan’s formal international space has shrunk dramatically. Yet even as Beijing has scored diplomatic successes, its overreach
In her article in Foreign Affairs, “A Perfect Storm for Taiwan in 2026?,” Yun Sun (孫韻), director of the China program at the Stimson Center in Washington, said that the US has grown indifferent to Taiwan, contending that, since it has long been the fear of US intervention — and the Chinese People’s Liberation Army’s (PLA) inability to prevail against US forces — that has deterred China from using force against Taiwan, this perceived indifference from the US could lead China to conclude that a window of opportunity for a Taiwan invasion has opened this year. Most notably, she observes that
For Taiwan, the ongoing US and Israeli strikes on Iranian targets are a warning signal: When a major power stretches the boundaries of self-defense, smaller states feel the tremors first. Taiwan’s security rests on two pillars: US deterrence and the credibility of international law. The first deters coercion from China. The second legitimizes Taiwan’s place in the international community. One is material. The other is moral. Both are indispensable. Under the UN Charter, force is lawful only in response to an armed attack or with UN Security Council authorization. Even pre-emptive self-defense — long debated — requires a demonstrably imminent
Since being re-elected, US President Donald Trump has consistently taken concrete action to counter China and to safeguard the interests of the US and other democratic nations. The attacks on Iran, the earlier capture of deposed of Venezuelan president Nicolas Maduro and efforts to remove Chinese influence from the Panama Canal all demonstrate that, as tensions with Beijing intensify, Washington has adopted a hardline stance aimed at weakening its power. Iran and Venezuela are important allies and major oil suppliers of China, and the US has effectively decapitated both. The US has continuously strengthened its military presence in the Philippines. Japanese Prime
RSS