Just as Toyota and Honda raised wages to appease their workforce, the Chinese government has announced that they will be allowing the currency more flexibility to grow. This signals an end to the Yuan’s two year peg to the US dollar.
“The looser currency stance comes on the back of all these moves to endorse the wage increases, it’s all part of moving to the consumer, more domestic-demand-driven economy,” said Jim O’Neill, Goldman Sachs Group chief global economist.
Even if companies are now under pressure to increase wage packets which will have an effect on profit margins, China is still an attractive option for foreign investors. This is because the Yuan has always been undervalued and its rise will help contain inflation thereby likely reducing workers wage demands.
The effect of rising wages and investments can be seen in western China where it is deterring workers from migrating to more developed regions like Guangdong in the south, allowing companies to maintain its workforce.
At the moment though, none of the workers at the Honda Lock factory, who ended the five day strike at the plant, are worried about the state of the economy affecting their salaries, stating that a deal and a contract has been signed.