Wages are rising in China, heralding the possible end of an era of cheap goods.
For the past 30 years, customers would ask William Fung, the managing director of one of the world’s biggest manufacturing-outsourcing companies, to make his products—whether T-shirts, jeans or dishes—cheaper. Thanks to China’s seemingly limitless labor force, he usually could.
Now, the head of Li & Fung Ltd. says the times are changing. Wages for the tens of thousands of workers his Hong Kong-based firm indirectly employs are surging: He predicts overall, China’s wages will increase 80% over the next five years. That means prices for Li & Fung’s goods will have to rise, too.
“What we will have for the next 30 years is inflation,” Mr. Fung said. “A lot of Western managers have never coped with inflation.”
The issue is likely to hover behind talks Monday, between Chinese and U.S. leaders in Washington at their annual Strategic Economic Dialogue. Currency and debt issues are expected to dominate the agenda. But there are signs that the low labor costs—and cheap currency—that led to China’s huge trade surplus with the U.S. could be reaching a tipping point. This comes amid pressure from rising wages as China’s working-age population begins to decline.