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Economy

Southeast Asia tames wage hikes to keep manufacturing thriving

Economic slowdown and competition with China limit pay raises

A laborer works at a garment factory in Bangkok, where the minimum wage will rise by 1.8% next year.   © Reuters

BANGKOK -- Southeast Asian countries plan to raise minimum wages more slowly in 2020 as they seek to maintain competitive labor markets against China and weather the fallout from the trade war.

Thailand aims to blunt the impact of pay hikes on industry as the economy slows in light of the U.S.-China trade war while Vietnam wants to ensure its labor costs remain below those of China. Even as workers in those countries clamor for higher pay, the governments are taking pains to keep their manufacturing healthy.

Bangkok's daily minimum wage is slated to go up 1.8% to 331 baht ($11) in January. The increase is less than half the 4.8% of April 2018.

The military-aligned ruling Palang Pracharath Party had promised the nation a 400 baht minimum wage in the March parliamentary election but decided to slow the pace of increase. Declining exports to China are dragging on the economy as the Sino-American trade war and a stronger baht take their toll.

Business has opposed any sharp increases. "If the minimum wage rises in line with the campaign promise, small and midsize enterprises will be dealt a blow," said Supant Mongkolsuthree, chairman of the Federation of Thai Industries.

The Thai government will instead phase in minimum-wage hikes over four years.

In Vietnam, such major cities as Hanoi and Ho Chi Minh will raise the minimum monthly wage by 5.7% to 4.42 million dong ($190). This exceeds the 5% hike of January 2019 but fails to track this year's real economic growth of roughly 7%.

Labor unions initially lobbied for increases averaging about 8% across the nation, while employers sought less than 3%. The compromise falls within raises in the 5% to 7% ranges of recent years, a trend the central government endorses.

Vietnam raised minimum wages by at least 10% each year until 2016. But this chipped away at its competitive advantage in labor costs, especially in the garment industry.

For Malaysia, 57 major cities including Kuala Lumpur will lift monthly minimum wages by 9% to 1,200 ringgit ($290) in January. This represents a step down from the 10-20% increases of a year earlier. And rural areas, which have lower costs of living, will not get raises.

Before winning last year's general election, Prime Minister Mahathir Mohamad's coalition had promised to raise the minimum wage to 1,500 ringgit within five years. 

The Indonesian capital of Jakarta appears to be an exception. Its monthly minimum wage will go up 8.5% to about 4.28 million rupiah ($304) in January -- more than the year-earlier raise of 8%.

Because the pay level is determined by inflation and growth in gross domestic product, minimum-wage hikes have stayed in the 8% range for the past few years.

Southeast Asian countries have benefited from production that has fled China's climbing labor costs. Jakarta's minimum wage was approximately 80% of the level set in Beijing in dollar terms in 2015, according to the Japan External Trade Organization.

But Jakarta's minimum wage has since risen to 90% of that of Beijing this year. The spread between Cambodia's Phnom Penh and Beijing shrank to 40 points from 50 points.

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