01 October 2006

Populous China is facing labour shortages

Dr. Abdulla Al-Madani*

It may be surprising to know that China, the world’s most populous country, whose economic boom has largely depended on the advantage of having a huge supply of low-cost workers, faces labour shortages. Studies conducted recently show that China’s problem of worker shortage, which first appeared sporadically in 2004, has now become a more persistent one. The problem has pushed up wages at a time when costs of manufacturing goods are already rising due to increases in energy prices. This is likely to weaken Chinese-made products’ competitiveness on world markets, and force investors to move to lower-cost countries such as India, Vietnam, and Bangladesh.

Chinese factories had to raise the minimum wage this year by as much as 30 percent to between $70 and $85 a month. With this increase, the largest in a decade, a worker in China today is paid 30 percent more than his counterpart in Vietnam for example.

The shortage of workers is most acute in the country’s export regions, namely the Pearl River Delta, which feeds into Hong Kong, and the Yangtze River Delta, which funnels into Shanghai. For example, it was officially reported that the city of Shenzhen, on the Hong Kong border, alone faced a labour shortage of about 300,000 workers this year. Commenting on the issue, a Chinese human resources expert said that a few years ago, millions of young people were still flooding into Shenzhen to search for any job at any wage, and factories did not need to put up advertisements to recruit workers or tempt them with incentives and benefits. He added: “Now we put up a sign looking for five people, and maybe one person shows up”.

Factors contributing to making a country with a population of 1.3 billion have a labour shortage of nearly two million people according to an estimate are numerous.

First, demand on workers has enormously increased in recent years, owning to the vast expansion of industrial, construction, and services sectors.

Second, low wages, tax cuts, and long-working hours have all pushed a large number of migrant workers to quit their jobs in the booming coastal provinces and move back to their farms in western provinces. The government’s decision last year to eliminate the agricultural tax has fuelled the trend.

Third, Beijing’s recent policy of closing the income gap between the urban rich and the rural poor through developing the economies of poor inland provinces and launching housing and infrastructure projects has created many jobs. As a result, young workers from the countryside are less willing to leave home for booming areas in search of a better life.

Fourth, unlike China’s old generation, whose members sought employment without proper education or skills, members of the new generation are more ambitious and would rather first develop their skills or have university degrees in order to avoid jobs that are harsh and pay little. This can be supported by the increasing number of university students. Last year, for example, over 14 million Chinese students joined local colleges and universities, up from 4.3 million in 1999.

Fifth, China’s one-child policy, which was implemented in 1979, has turned it into a country of more old and less young people. This is most acute in Shanghai, China’s model of economic prosperity, where the age group of 60 and above is expected to account for 30% of the population by 2020. Because of this policy, the number of Chinese aged 15-19 will decline by 17 percent in five years, to about 103 million from 124 million today, according to a report.

China’s dilemma, however, is not confined to the shortages of unskilled or semi-skilled workers. In addition, both public and private companies are having trouble finding enough talented employees and highly skilled labour to fill junior and senior managerial and other posts. The evidence can be derived from a decision last month by the Shanghai municipal government to hold job fairs in North America in an effort to attract expatriates and overseas Chinese professionals to work in the city.

According to a recent study conducted by McKinsey Global Institute, Chinese firms seeking to expand abroad and continue growing in the years to come will need up to 75,000 internationally experienced leaders. Currently, only 5,000 such leaders are available in the country. Local universities must be held responsible for this, given its failure in producing more graduates capable of working successfully in world-class-companies and brilliantly serving the fast-growing domestic economy. Among the 1.7 million students who graduated in 2003 from over 1,500 local colleges and universities, only a few hundreds had good English and practical experience- a requirement of most multinational firms.

Academic researcher and lecturer on Asian affairs

elmadani@batelco.com.bh

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