TCS Daily

China's Labor Shortage?

By Rowan Callick - August 31, 2004 12:00 AM

It had to happen some time, but anecdotal evidence is emerging far sooner that most had anticipated: China is running out of cheap labor. More workers are certainly available -- agricultural economist Wen Tiejun says there are 350 million surplus laborers in rural areas -- but they are less prepared today to sell themselves cheap, especially in the centers of maximum manufacturing demand. Thus the move to slow down the overheating economy through capital measures is being accompanied, mainly by coincidence, by parallel labor challenges.

The problem for manufacturers has first surfaced in the southern Pearl River Delta -- encompassing Guangdong province and Hong Kong -- which is China's biggest industrial powerhouse, producing almost a third of the country's exports. The region is crammed with factories owned and managed by Taiwanese and Hong Kong family firms that contract production for most of the world's biggest brands.

About 30 million of Guangdong's population of 95 million are migrant workers, young women and -- to a lesser extent -- men who have left the poor rural provinces of central China to seek their fortunes. The region, like the other great powerhouse centered on Shanghai, the Yangtze River Delta, has this year been suffering severe power blackouts, as well as some water shortages.

But now these challenges to the flexibility and wit of the industrialists of Greater China are being compounded by a labor shortage. Stanley Lau, of the Federation of Hong Kong Industries' Pearl River Delta Council, based in the frenetic factory city of Dongguan, estimates the present shortage at about 300,000 workers, particularly sought in plants making electronics, toys, shoes and furniture. Guangdong media have claimed that as many as 2 million jobs are vacant in the region. Zhejian province just south of Shanghai is reporting 10-20 percent falls in migrant workers this year.

The gaps in the labor lines started appearing after the big annual lunar new year holiday, which began on January 21 with the start of the Year of the Monkey. Some workers, it appears, discovered on their first trip home for some time, that wealth and opportunities had now spread to a degree into their rural or mountainous home areas, and opted to stay there with their families and friends, instead of returning to make high fashion shoes for women in Turin, or toys for children in Toorak.

In the years ahead, the one child policy, following immediately after Mao Zedong's "populate or perish," will present a structural labor challenge, just as India starts to exceed China's 1.3 billion population. But not yet.

The situation is driven in part by the central government's hike in agriculture subsidies and in grain prices, in part to compensate the 60 percent of Chinese people who live in rural areas, for the new competition resulting from accession to the World Trade Organization. Rural incomes rose 16 percent in the first half of 2004 against the same period in 2003, while inflation is now running at 5.3 percent, well above factory wage rises.

Some of China's 120 million migrant workers are being cheated by their employers, including government businesses, with wage arrears widespread, says Vice Premier Zing Peyan. The official China Daily newspaper says that at 124,000 construction sites, workers are being paid late or not at all. Overall, employers owe their employees in China $42 billion, it says.

One answer is for the central government to press, as the new leadership pledges it will, for better working conditions, including health insurance and pensions, and even union membership. Another is to raise the minimum wage, as Guangzhou, the capital of Guangdong, has done, pushing it up by a third to $83 per month, the highest level in the country. The State Council's Development Research Centre says that despite the long boom, migrant workers in the Pearl River Delta have only gained an average raise of $8.50 per month over the last 12 years. A third is to establish a job information network, since most migrants only find work through word of mouth or turning up at the factory gate to ask about employment. And a fourth response is to shift from low cost contract production to higher value own brand manufacturing, where the price of the labor component is less crucial. The more extreme answer, only attracting a dribble of investors so far, is to shift to an even cheaper venue, like Vietnam.

Beijing is already modifying the system of hukous, or resident permits, which is a major hurdle. Farmers cannot usually obtain a hukou entitling them to live in major seaboard cities, although they are now being allowed to shift to smaller towns. When they work without hukous, and many millions do, they are not entitled to any of the remaining vestiges of social security, including access to schools or health care. World Bank China director Yukon Huang is urging the government to allow more farmers to move formally to major cities.

Xinhua news agency says: "A new generation of migrant workers is more educated and influenced by the media. They do not want to work for jobs with low salaries or in poor working conditions." A few factory owners determined to keep their workers loyal, are even starting to visit them during their holidays back home, urging them to return after their break.

Such determination is encouraging, because these days we all need China Inc to keep prospering.

The author is Asian Pacific Editor for the Australian Financial Review.


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