The monster “Made in China” is discovering that the seemingly endless upside to the modern market place it's been riding has at least one corresponding downside. The Pearl River and Yangtze River Deltas, centers of China’s immense manufacturing machine, are confronting increasing labor pressures. Scads of enterprises in these areas are facing reduced numbers of workers and are in the meantime having to raise wages and increase welfare benefits to attract more and more skilled workers.
Matters have been made even worse at the start of this year by disastrous winter weather that centered itself on the Chinese New Year, a time when much of China is traditionally on the road to faraway homes. Blizzards and ice paralyzed the transportation system in southern and central China, stranding many thousands of would-be travelers. The government of Guangdong Province persuaded 3.2 million workers to stay in Guangdong during the holidays and a total of over 13 million workers spent new year’s holidays there. But millions more who made it out may not be returning to the Pearl River Delta until March or April. The delayed return of the migrant workers will inevitably affect the output of the area’s manufacturing in the spring.
In some areas this is not such a problem. Influenced by a global economic slowdown, RMB appreciation, rising raw material prices and adjustments in foreign trade policy, the export environment for companies in south China is not the boom times it has been. The labor demand in Hong Kong, Taiwan and Macao invested private enterprises is down. During the forth quarter of last year, labor demand dropped by 199,600 persons in total, including a decrease of 34.93%, i.e. 173,200 persons, working in foreign invested companies.
With others it is. In the textile and shoemaking industries, formerly big earners in Guangdong Province, the labor situation is at its most serious. An average wage of only 960 yuan is no longer as attractive as it was and higher wages are precluded because of low margins. According to the Asia Footwear Association (AFA), last year thousands of factories in the Delta went bankrupt or got out, and of the survivors about 25% have moved to Southeast Asia, about 50% have transferred to hinterland provinces and some 25% of them are still waiting and watching.
New Labor Contract Law better protects laborers and helps to attract migrants with a desire for work. Enterprises under the new law, however, are more cautious in hiring workers and are requiring higher skills or training. A Guangzhou HR service center survey found that the demand for non-educated workers slumped by 12 percentage points to only 17%, while 12% of the posts require college certificate or above.
Still, the annual migration of workers during the lunar new year is a great chance for workers to bargain with employers. According to Shenzhen labor department statistics, wages for low-end posts in service industries have increased by 10% to 15%. A Guangzhou study found that the average wage for a new employee in industries such as textile, shoemaking, machinery manufacturing and catering in Guangzhou was 1160 yuan per month, an increase of 13%, 136 yuan, over last year’s 1024 yuan. The study also showed that by March nearly 70% of the enterprises investigated needed more workers. This percentage has increased by 20% over the previous years.
Generally these days migrant workers employed in the Yangtze River Delta find more satisfaction in their jobs than those in the Pearl River Delta, mostly because wages are better and they are better protected. But labor-intensive, low-end industries such as textiles, shoemaking and toy-making are all finding workers increasingly difficult to find. Enterprises in Xiaoshan District of Hangzhou, center of Zhejiang Province’s textile industry, are having to raise wages and lower the threshold for employee skills. The basic monthly salary for a sewing worker, about 1200 yuan during the first half of 2007, has risen 25% to 1500 yuan and companies in Hangzhou, Ningbo and Wenzhou, the three cities with the heaviest labor demand in Zhejiang Province, still can’t get enough workers. Now sewing workers and restaurant attendants are most urgently needed in Hangzhou. The ratios of vacancies to applicants are 18.28 and 8.58, respectively.
Finding higher skilled labor is also tough. With the annual job boom after the new year’s holidays, the also-annual “mechanic crunch” has occurred. As the labor supply fails to meet demand, many companies offer wages that are 20% higher than last year’s, but even at that the tight labor supply won’t be relieved any time soon.
An increasingly modern manufacturing base needs an increasing number of skilled technicians. In Ningbo, Shaoxing and Yiwu of Zhejiang province, technical workers are highly prized but many enterprises are unable to recruit enough of them. At the first job fair in Jinhua after the new year’s holidays, companies were offering special contracts with skilled workers, providing such amenities as accommodation, three meals a day, all the social security premiums required and even housing funds. The lowest monthly salary offered was 1200 yuan, the highest 4000yuan.
Rising labor costs are lifting China from the lowest position in the international value chain. Finding the personnel to upgrade its industrial base in order to exploit both domestic and international markets is the big challenge in the days to come. “Made in China” is finding it has to pay the piper.
