Change is afoot in the Middle Kingdom, and investors patient enough to ride out the turbulence will be handsomely rewarded. Over the past 30 years, China has undertaken the most remarkable economic journey in history, pulling hundreds of millions of peasants into the global marketplace. To get there, the country capitalized on its seemingly endless supply of cheap labor, becoming the world's factory. However, this period is coming to an end.
End of an era
In the past year, members of China's army of cheap labor have started to revolt. The change was triggered by the tragic developments at Foxconn, a major electronics manufacturer which counts Apple, Dell, and Hewlett-Packard among its clients, in which several workers committed suicide, presumably because of the harsh working conditions. Then workers at a plant owned by Honda and Toyota brought the Japanese carmakers' production to a standstill.
In response to these developments, Foxconn announced a 122% wage increase, as well as other steps to improve workplace morale. Honda agreed to a 24% pay raise in order to get its assembly lines working again. The workers are rising, and they are getting results, which will likely inspire fellow workers around the country. This set off a chain reaction that resulted in wages across the country rising by nearly 23% by the end of 2010. Early this year, government officials in Beijing announced they would be looking at further wage increases and granting workers greater wage-negotiating powers.
The rollbacks aren't over
Higher wages are great for factory workers, but what about companies like Honda and Wal-Mart that rely on cheap labor in order to supply customers with low-cost goods? I wouldn't worry too much about them. Discount retailers like Wal-Mart have proven quite capable of tracking down the cheapest labor available.
China's status as the world's low-cost producer was never a sustainable advantage, and it was only a matter of time before the factories moved on to new markets in Vietnam, Indonesia, or the African continent.
Good kind of pain
In fact, rising wages for Chinese workers are good news for multinational companies. I mean, what could be more attractive than a market of 1.3 billion people with rising living standards? So whatever temporary discomfort worker revolts may bring, companies looking to sell into the Chinese market will be in a much better situation down the road.
This is where investors can capitalize on these developments. Finding both foreign and domestic companies (from a Chinese perspective) that are focused on the Chinese consumer will provide healthy returns in the years and decades to come. A few U.S. companies that have targeted this market segment include:
When Proctor & Gamble
As incomes rise, so does the demand for status symbols, which is why leather fashion goods manufacturer Coach
A little local flavor
While these familiar names are indeed well-positioned to address the rising consumer demand in China, more adventurous investors might like to sample some local fare.
Two domestic Chinese companies that will see the benefits of rising disposable income are Ctrip.com
The Motley Fool Global Gains team will be heading to China in a few weeks to find more companies ready to cash in on the rise of the Chinese consumer. If you'd like to receive their dispatches from the road and learn about which companies they think are poised to capitalize on the next stage in China's growth, just enter your email address in the box below.
Nate Weisshaar does not own any shares of the companies mentioned above. The Motley Fool owns shares of Coca-Cola, Ctrip.com International, and Coach. Motley Fool newsletter services have recommended buying shares of Nike, Coach, Coca-Cola, Procter & Gamble, and Ctrip.com International.
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