Executive view: China labor disputes, rising yuan

(Reuters) - A increase in labor disputes between management and workers in China, mostly at foreign-owned factories in the southeast, has raised questions about the country's future as a low-cost manufacturing center.

An appreciation in the yuan, and expectations of further gains to come, is also increasing costs in the world's largest exporter.

Following are some comments from executives at leading global firms on the impact of labor disputes and a strengthening yuan on their China operations.

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TAKASHI KAWAMURA, CHAIRMAN, HITACHI LTD

On the recent waves of strikes and rising wages in China, Kawamura said it may be a sign of longer-term trends and suggested Hitachi may review its strategy to use China as a global export base.

"We make such things as power tools in China and export hefty amounts of them globally. I think we will eventually reach the stage where we have to consider various options on the production of these items, including whether we will move production more inland or to Southeast Asia."

KWON OH-CHUL, CEO, HYNIX SEMICONDUCTOR INC

"Our company looks for the best available labor in China and to do so, we are currently offering premium packages, compared to other foreign companies."

"Wage payments for China labor only take up a small portion of our budget, so I can say it doesn't affect our business there."

TAKANOBU ITO, CEO, HONDA MOTOR CO

"What we've discussed internally is that it's possible that the dialogue between workers and our local management in China was lacking.

"In the United States, we were the first (Japanese automaker) to set up a car factory and we did well to cooperate with the local staff. I regret that maybe recently we've been slipping in that kind of communication (in China)."

KEITH SHERIN, CFO, GENERAL ELECTRIC

"(The yuan move) hasn't really changed any of our plans. We do a lot of our sourcing in China in dollars and we have a lot of it contracted out for some period of time into the future.

"But if you had a real appreciation of the yuan, the suppliers are going to want to pass that along a little bit to us. And we'll have to just deal with that in future negotiations. In terms of our local operations in China for China you're pretty well hedged, you've got your local Chinese revenue and your local Chinese costs, but it hasn't strategically changed our view of whether to put stuff there."

NOBUYUKI SUGANO, HEAD OF CHINESE OPERATIONS, SHARP CORP

"This is a difficult problem, but it's an area Japanese staff cannot deal with. We employ very responsible Chinese staff in management and personnel positions. They hold meetings and communicate with staff and find out their demands as soon as possible. We deal with those demands that are feasible and if there are things we can't do, we explain the reasons carefully."

"Our labor costs are a small proportion of our total costs -- raw materials are a more important factor for us. But since labor costs are rising, we plan to use more automated and semi-automated production to improve efficiency."

"All our factories are in the Shanghai area or nearby Jiangsu province. That sets us apart from a lot of other companies. One reason is efficiency -- China is a very big country. Also, there is a good supply of talented workers. The local governments are enthusiastic about providing incentives and it is close to Japan."

JUNZO NAKAJIMA, HEAD OF IT OPERATIONS, HITACHI

On China production costs: "It is a factor we have to consider in the long term. But right now, I don't think it would rise something like 10 percent a year, so it is a matter we need to address in a mid- to long-term. China is a big country and pay levels differ in each region."

"The recent strikes mean that living standards are improving. In Japan, there were many strikes 20 or 30 years ago. We can say the movement is creating the middle class in China. China has had an important role in lowering production costs and it has also been a big market, but (the recent movement) can be seen as a part of the process of it becoming a more attractive market."

On steps taken to address labor unrest and a firmer yuan:

"We are not doing anything in rush. I think we can cope with the issues if we are timely."

RICHARD CARLUCCI, CFO, YUM BRANDS INC

On labor costs: "We now expect very high labor inflation for the second half of the year." Labor costs rose by $12 million in the first half of 2010 compared with a year earlier and are expected to rise by $32 million in the second half.

On the yuan: "We ... now expect that there will be some favorability from currency in the balance of 2010 as a result of the Chinese government's decision to loosen the peg of the yuan to the U.S. dollar." For the balance of the year, Yum expects a forex "upside" in China of about $10 million, he said. Yum, the parent of the KFC, Taco Bell and Pizza Hut brands, reaps 35 percent of its profit from China.

HWANG EUN-YEON, SENIOR VP, POSCO

"We forecast Chinese yuan to appreciate around 5 percent this year, which is seen to be advantageous to us...A firmer yuan is expected to make a positive impact in terms of raising demand for our high-grade steel, and boosting our profits."