China’s rising wage problem prompts different responses from Shenzhen-based manufacturers

When Pauline Ngan Po-ling went to Bangladesh in 2013 she was not in the mood for sightseeing. As the deputy chairman and managing director of Mainland Headwear Holding, a Hong Kong-listed specialist milliner, Ngan was there with a much bigger mission: to coordinate the relocation of the company’s main manufacturing base from China to Bangladesh.

At the time, a number of Hong Kong enterprises had closed shop in the Pearl River Delta amid rapid wage inflation, in many instances ending a manufacturing presence which had dated back to the early days of China’s reform and opening.

In the intervening years, the manufacturing exodus has accelerated amid stagnant business growth.

“Since 2008, 70 per cent of Hong Kong firms [in the delta region] have gone out of business,” Ngan, a deputy to the National People’s Congress, said during an interview with the South China Morning Post in Beijing. “Four of the five major Hong Kong milliners in Guangdong province have all shut down their businesses.”

For many low-end apparel firms, the costs of relocating to Bangladesh were more than compensated by the low wage rate, even as the shift means longer travel time for senior managers, in addition to higher raw material and logistics costs.

Workers in Bangladesh are paid some of the lowest wage rates in the world. The Hong Kong firm pays roughly US$120 to each employee in its Bangladesh plant every month. These rates are generally higher than the national average, thanks to overtime allowances and other benefits.