Fitch: Wage hike affects some China companies

In a special report, Fitch Ratings said that significant wage increases are inevitable for the labor-intensive technology manufacturers in mainland China over the short-term and the rise in labor costs will challenge the cost management ability of these companies.

A negative impact on their profit margins is likely if wage increases are not offset by sales growth or other factors, such as factory relocation and automation, Fitch said.

The vast majority of technology issuers in the Asia Pacific region are directly affected by the potential wage increase of labor-intensive production lines in China. Only Acer Inc., which has BBB ratings and a negative outlook, Globalfoundries Singapore Pte. Ltd., which has BBB ratings and a positive outlook, and Hynix Semiconductor Inc., which has BB ratings and a stable outlook, are excluded because of their low labor intensity, the agency said.

Fitch said it believes that labor-intensive manufacturers in China will try to mitigate wage increases by reducing their labor intensity or by moving their operations to places where wage levels are relatively low.

There is a potential that the increase in costs will be partially offset by the ongoing positive growth in domestic sales driven by higher selling prices and wider consumption of technology products in China, the agency added.

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