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Monday, April 24, 2006

CHINA AT A DEAD END

CHINA AT A DEAD END?

Labour shortage at hundreds of factories have led experts to conclude that the Chinese economy is undergoing a profound change, says David Barboza
(Times of India/Mumbai/ 4th April 2006/pg20)
Shenzhen: Persistent labour shortages at hundreds of Chinese factories have led experts to conclude that the economy is undergoing a profound change that will ripple through the global market for manufactured goods.    The shortage of workers is pushing up wages and swelling the ranks of the country's middle class, and it could make Chinese-made products less of a bargain worldwide. International manufacturers are already talking about moving factories to lower-cost countries like Vietnam.    At the Well Brain factory here in one of China's special economic zones, the changes are clear. Over the last year, Well Brain, a midsize producer of small electric appliances like hair rollers, coffee makers and hot plates, has raised salaries, improved benefits and even dispatched a team of recruiters to find workers in the countryside.    That kind of behaviour was unheard of as recently as three years ago, when millions of young people were still flooding into booming Shenzhen searching for any type of work. (image placeholder)   A few years ago, "people would just show up," said Liang Jian, the human resources manager at Well Brain. "Now we put up an ad looking for five people, and maybe one person shows up."    For all the complaints of factory owners, though, the situation has a silver lining for the members of the world's largest labour force. Economists say the shortages are spurring companies to improve labour conditions and to more aggressively recruit workers with incentives and benefits.    The changes also suggest that China may already be moving up the economic ladder, as workers see opportunities beyond simply being unskilled assemblers of the world's goods. Rising wages may also prompt Chinese consumers to start buying more products from other countries, helping to balance the nation's huge trade surpluses.    "The next story in China is how they are going to move out of the lower-end stuff: the toys, textiles and sporting goods equipment," said Jonathan Anderson, an economist at UBS in Hong Kong.    When sporadic labour shortages first appeared in late 2004, government leaders dismissed them as short-lived anomalies. But they now say the problem is likely to be a more persistent one. Experts say the shortages are arising primarily because China's economy is sizzling hot, tax cuts have helped keep people working on farms, and factories are continuing to expand even as the number of young Chinese starts to level off. Prosperity is also moving inland, and workers who might have migrated are staying closer to home.    Though estimates are hard to come by, data from officials suggest that major export industries are looking for at least one million additional workers, and the real number could be much higher.
   "We're seeing an end to the golden period of extremely low-cost labour in China," said Hong Liang, a Goldman Sachs economist who has studied labour costs here. "There are plenty of workers, but the supply of uneducated workers is shrinking."    Because of these shortages, wage levels throughout China's manufacturing ranks are rising, threatening at some point to weaken its competitiveness on world markets.    Li & Fung, one of the world's biggest trading companies, said recently that labor shortages and rising manufacturing costs in China were already forcing it to step up its diversification efforts and look for supplies from factories in other parts of Asia.    "I look at China a lot differently than I did three years ago," said Bruce Rockowitz, president of Li & Fung in Hong Kong. "China is no longer the lowest-cost producer. There's an evolution going on. People are now going to Vietnam, and India and Bangladesh."    The higher wages come at a time when costs are already rising sharply across the country for energy and land. On top of a strengthening Chinese currency, this is likely to mean that the cost of consumer goods shipped to the US and Europe will rise.    To be sure, China is not about to lose its title as factory floor of the world. And some analysts dispute the significance of the shortages.    "Reports of a shortage of unskilled and semi-skilled factory workers are overblown," said Andy Rothman, an analyst at CLSA, an investment bank. "Compa(image placeholder) nies are, however, having trouble finding experienced people to fill mid-level and senior management jobs."    Government figures say, minimum wages — which averaged $58 to 74 a month (not including benefits) in 2004 — have climbed about 25%over the last three years in big cities like Shenzhen, Beijing and Shanghai, mostly by government mandate.    Government policy is also playing a role. Trying to close the yawning income gap between the urban rich and the rural poor, the government last year eliminated the agricultural tax, and also stepped up efforts to develop local economies in poor, inland and western provinces, which have mostly been left behind.    Now, remote areas are starting to develop creating jobs and offering alternatives to young workers who once were forced to travel thousands of miles for jobs on the coast.    According to Goldman Sachs and other experts, the beginnings of a demographic shift have already been reducing the number of young people between the ages of 15 and 24, who make up much of the migrant labour work force. Similarly, the number of women between the ages of 18 and 35 began falling this year, according to census data.    The women are critical as China's factories like to hire many women from the countryside, who have been willing to migrate for three-tofive-year stints to earn money before returning home with cash and fresh hopes of finding a marriage partner.    China's one-child policy is also aggravating the shortages. With the first generation of young people born under the one-child policy now emerging from postsecondary education, many of them see varied opportunities not available to an earlier generation. (image placeholder)   Economists may continue to debate the severity of the shortages, but there is little doubt that the waves of migrants who once came to the booming coastal provinces are diminishing. As a result, manufacturers are starting to look for other places to produce goods.

NYT News Service

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