Chinese factories struggle to hire
Paul Wiseman
USA Today
11 April 2005
The unthinkable is happening in China: This country of 1.3 billion can no longer find enough people willing to work long hours for low wages churning out cheap consumer goods for the export market.
Last year, the Chinese Labor Ministry put the factory shortfall at 2.8 million workers nationwide. Here in southern China's Guangdong Province, factories are short 1 million to 2 million workers this year, and 73% say they're having trouble filling job openings, the provincial government says.
"Factories must learn a lesson," says Cheng Jiansan, an economist at the Guangdong Academy of Social Sciences. "There is no longer a limitless supply of workers."
The labor shortage, along with rising materials and shipping costs, has big implications for China's surging export machine and its customers in the United States and other rich countries. Factories in Guangdong and other booming east coast provinces must find cheap labor elsewhere, make do with a reduced workforce or raise wages and benefits — and hope they can pass along at least some of the higher costs to foreign customers used to rock-bottom prices.
Wal-Mart, which bought $18 billion worth of goods directly from China last year, has so far managed to keep "cost increases to a minimum through negotiation and leveraging our volume," says Andrew Tsuei, the giant retailer's vice president for global procurement. "However, we're seeing signs of more increases around the corner."
Yue Yuen, a shoemaker that employs 160,000 workers in southern China and supplies Nike, Adidas, Timberland and other shoe companies, says its prices are rising, too. But spokesman Terry Ip says that increasing materials costs are having a bigger impact than rising wages and that the retail mark-up on shoes is so high, consumers might not notice the difference anyway.
Darren McKinney, spokesman for the National Association of Manufacturers in Washington, says the labor shortage is a sign of China's economic maturity. "Every industrializing economy has to cross this labor bridge at some point," McKinney says. "It's happening in China, and it's good."
Rising clout for workers
The labor shortage is giving Chinese migrant workers clout they never had. Entrepreneur Johnny Jiang, who owns a plastics factory in Dongguan, says workers used to be too frightened to make demands. Now, they'll walk out if he doesn't boost pay. He raised wages 30% last year and more than 10% this year and now pays a respectable 900 Chinese yuan (about $109) a month. But when his busy season starts in May, Jiang expects to have only half the 400 workers he needs.
At another Dongguan factory, skilled painter Tang Wen gave up his $190-a-month job when his employer refused to give him time off to see his ailing mother in Hunan Province. He's confident he can get another job when he returns.
Tang is one of many migrants waiting at the railway station in this smog-shrouded city — base for hundreds of low-wage factories — to return to the countryside. "We've done our share," says migrant worker Yau Dewen, 20. "We've had enough."
Yau is heading home himself. Sitting beneath a palm tree outside the train station, smoking a cigarette and eating dried fish smothered in the sulfurous chilies popular back home in Hunan, he says he just quit his factory job. After two years, he is tired of earning less than $75 a month from an employer who withholds pay when workers don't meet production quotas. Yau plans to get some technical training and join the army.
The labor shortage, which first appeared two years ago at sweat-shop factories in nearby Fujian Province, is less intense and less well-documented in China's other top manufacturing centers: the Yangtze River Delta around Shanghai and the Beijing-Tianjin area in northern China. But it's causing problems there, too.
In January, entrepreneur Jiang visited Hunan University in his hometown, the provincial capital Changsha, to recruit engineering graduates. He borrowed an office and waited at a desk for applicants for two hours. No one showed up. They all had jobs already.
The labor shortage threatens a successful system that turned China into an economic power, showered cheap products onto U.S. consumers and demanded huge sacrifices from the unskilled workers who made it all possible.
After China opened its economy and encouraged foreign investment more than two decades ago, armies of young peasants, unable to eke out a living on farms, swept into coastal cities by the tens of millions in search of factory jobs. They are permanent outsiders in the places they work.
"Why do these people want to go back home?" asks Pansy Yau, an economist with the Hong Kong Trade Development Council. "Because they don't have a sense of belonging."
Migrants live in (often single-sex) factory dormitories, working 12-hour days for wages as low as $50 a month. They have little time for anything but sleep. When they venture outside the factory gates, they are often hassled by police demanding to see their identification papers. When migrants are injured on the job — and thousands have lost limbs in industrial accidents — they are usually paid a pittance and turned out.
Factory owners always knew there were thousands more to replace them. They nudged monthly wages up only 68 yuan ($8.20) in the past 12 years.
Employers caught by surprise
Employers were caught by surprise when the labor crunch hit with a vengeance last year, the surprising result of simultaneous trends:
• China's farm economy is booming. Rising crop prices and the government's decision to phase out agricultural taxes has made it profitable to stay home instead of migrating to factory jobs in the cities. Farm incomes rose 16% in 2003 and were up sharply again last year. Factory owner Hayes Lou was dismayed this month when Chinese Premier Wen Jiabao announced that farm taxes would be phased out in 2006, two years ahead of schedule; another reason for rural workers to stay put. "If you don't have education or technical skills, you might as well go back home and tend the garden," migrant Tang Wen says.
• Other regions are developing fast — and soaking up workers that once went almost exclusively to factories in the Pearl River Delta, where Guangdong is situated. That means many rural workers can find jobs without having to go so far from home. And the factories of Shanghai — run by high-technology firms and multinationals such as General Motors — are known among migrants for paying far higher wages than the mom-and-pop operations in Dongguan. Computer technician Zhang Chaoqian, 20, is leaving Dongguan after two years for a job at a computer factory in Shanghai that promises to pay him $360 a month — five times his old wage.
• Workers are increasingly knowledgeable about the job market. Local governments in the Chinese hinterlands are trying to keep rural workers informed about job conditions in the booming coastal areas. And migrants themselves are trading information about which factories are good employers and which are stingy and cruel.
Shortage likely to last
For these reasons, factory owner Johnny Jiang is convinced the labor shortage is here to stay. "Factories who don't know how to improve themselves will close," he says.
Surveys in Guangdong have shown that factories that pay at least 1,000 Chinese yuan a month (about $120) have no problem attracting workers.
U.S. firms that run their own factories in China tend to pay decent wages; so they haven't had trouble getting workers. W.L. Gore & Associates, maker of Gore-Tex synthetic fabric and other products, employs skilled technicians, engineers and professionals at its manufacturing plant in Shenzhen and pays them more than 1,000 yuan a month, plus "good benefits," says Gore's Albert Peng. As a result, Gore has had no problems finding workers.
But many smaller employers, suppliers to U.S. firms, are struggling to find workers and are reluctant to raise wages, perhaps because their profit margins are so thin. A study released last month by the Guangdong Statistics Bureau found that less than 40% of factories in Pearl River Delta intend to increase pay for migrant workers this year. Of those, 78% plan increases of 5% or less.
"Factories in China have been spoiled," says economist Chi Lo, author of The Misunderstood China. "They still want to pay cheap wages."
But others are scrambling to adjust. Hayes Lou, a Taiwanese entrepreneur in Shenzhen whose factory makes packaging, is looking outside Guangdong for cheaper labor. He plans to open a factory this year in Chongqing, a huge but underdeveloped city in Sichuan Province, and to expand there if the experiment goes well.
Companies in the coastal city of Qingdao have even begun hiring husband-and-wife teams, to keep lonely migrants from going home, Worker's Daily reported last year.
Chinese officials, though they sometimes downplay reports of a labor shortage, also are trying to make migrant work more attractive. "Local governments are waking up to the fact they have a big problem," says Robin Munro at China Labour Bulletin, a Hong Kong activist group. "They had to do something to keep labor coming. ...We're beginning to see some attempt to enforce Chinese labor laws."
Eventually, U.S. consumers might have to chip in by paying a bit more for products made in China. "Consumers should pay a reasonable price. Producers should pay a reasonable wage," says researcher Cheng at the Guangdong social sciences academy. "The way migrant workers have been treated is unsustainable."