SINGAPORE (Bloomberg) -- Toyota Motor Corp. and Honda Motor Co. sacrificed earnings in China by raising wages to end strikes last week. The government’s decision to let the yuan strengthen may further erode profits.
China’s central bank will allow the nation’s currency more flexibility, it said in a statement yesterday, signaling an end to the yuan’s two-year-old peg to the dollar.
The looser currency stance comes “on the back of all these moves to endorse the wage increases,” said Jim O’Neill, Goldman Sachs Group chief global economist in a Bloomberg Television interview yesterday. “It’s all part of moving to the consumer, more domestic-demand-driven economy.”
Toyoda Gosei Co., an affiliate of the world’s biggest automaker, yesterday ended a strike that had disrupted car assembly, said Mieko Iwasaki, a spokeswoman for Toyota. Labor unrest also affected Honda’s assembly plants in the nation, and both Japanese companies agreed to raise wages at suppliers to avert further stoppages.
Foreign manufacturers in China including the Japanese carmakers and Taiwan’s Foxconn Technology Group are spending more on labor. Foxconn, which makes iPhones for Apple Inc., said it will double salaries for its lowest-paid workers after at least 10 Chinese employees killed themselves this year.
A stronger Chinese currency will add to operating costs for foreign businesses, whose margins are already under pressure from rising wages, said David Cohen, director for economic forecasting at Singapore-based Action Economics.
“This would make their costs higher,” he said in a telephone interview today, “But by most estimates, the yuan was undervalued and China still remains a very competitive place to operate.”
A rising yuan will also help contain inflation, Cohen said, which may reduce worker wage demands.
Higher investment and improved wages in western China are deterring workers from migrating, pushing up pay in more industrialized regions like Guangdong in the south, David Abrahamson, project manager at the China Center for Labor and Environment, said by phone from Shenzhen.
More than 20 Chinese provinces and cities raised minimum wages this year, the Shenzhen city government said on its website. In Shenzhen, which raised minimum wages an average of 15.8 percent, the government said higher pay will help companies recruit workers and will boost consumption.
Meanwhile, Chinese workers are not disturbed about the yuan flexibility affecting their salaries.
“We have signed a contract,” said Yin Qiu Ying, a worker at Honda Lock (Guangdong) Co., where employees ended a five-day strike last week. “The chance of this is very small.”