While Taiwan’s technology sector is vulnerable to recent wage hikes in China because it relies heavily on Chinese labor, non-tech companies in cement, steel, consumer and real estate are unlikely to be affected, analysts said.
“For most non-tech Taiwanese companies, we believe the impact from the wage increase will be minimal from a consolidated profit and loss perspective,” Credit Suisse analyst Sidney Yeh (葉昌明) said in a client note on Friday.
Yuanta Securities Co (元大證券) also said the wage hikes could be a boon to local tourism.
“The industry will benefit over the long-term as rising salaries will lead to a better standard of living for Chinese workers and increase the number of Chinese tourists able to afford to visit Taiwan,” Yuanta said in a report last week.
Over the past two weeks, investors and analysts were on the lookout for signs of whether China’s wage increases would lead to profit pressures on Taiwanese companies, which have high exposure to the Chinese market.
For the non-tech sector, Yeh said in the note, the impact should be relatively minimal because many of the non-tech companies view labor costs as a small portion of their cost structure, with raw material costs accounting for a larger portion, and some companies already pay higher wages to their Chinese employees than the base wages required by local governments in China.
Based on Credit Suisse’s study, wage increases in China will have a limited impact on both Taiwan Cement Corp (台泥) and Asia Cement Corp (亞泥), because the two leading Taiwanese cement makers’ labor costs account for less than 5 percent of their cost structure in China.
Moreover, earnings from the two companies’ Chinese operations make up less than 15 percent of Taiwan Cement’s consolidated profits, and 25 percent for Asia Cement, the report said.
For the nation’s largest food manufacturer, Uni-President Enterprises Corp (統一企業), labor costs make up about 15 percent to 20 percent of its China cost structure and a 30 percent wage hike there would result in a 3 percent increase in labor costs for the company, Credit Suisse said. The Swiss brokerage, however, said higher wages would also translate into more sales in China to offset the impact of increased labor costs.
However, China Steel Corp (中鋼), which produces steel in Taiwan and ships nearly 8 percent of its products to China, is likely to benefit from rising labor costs in China, given its cost-efficiency advantage compared with its Chinese peers, Credit Suisse said.
ADDITIONAL REPORTING BY JASON TAN
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