Is Cheap Labour Drying Up?

Long the life-blood of China’s economy, it seems cheap labour is becoming increasingly hard to come by. Following an article written earlier last month by Duncan Innes-Ker of the Economist Intelligence Unit, Hong Kong-based Phoenix News has reported on the China Entrepreneurial survey results, which showed that for the first time in the past ten years migrant wages have been raising faster than wages for urban workers. As a result, while industries struggle to make the leap from low-cost mass production to high-end manufacturing, migrants are finding themselves increasingly in a position to “assert their influence over the marketplace”.

In Zhejiang the manager of a fast food chain restaurant is worried. Recently, the company has been searching for employees in Guizhou to no success. Even including food and accommodation as well as a 1000RMB one-off payment on top of wages hasn’t enticed people. However the key issue is that in rural areas one basically cannot find young people.

“The company’s profits are increasingly slim, the next step for us is to change our direction to offer a high-end dining service and give up on fast food,” stated Jian Bin, the company manager.

In reality all of China’s labour intensive industries are facing similar challenges.

According to the China Entrepreneurial Survey results just published for August, increases in labour expenses have already become the main difficulty facing private industries, especially in the development of small to medium industries: regarding “currently the major difficulty facing the development of your industry”, the most frequently chosen response was “increases in labour costs”, which at 73%, eleven percentage points higher than last year, made it the number one choice of the 16 possible responses. The State Council Development Research Centre Human Resources Research and Training Centre deputy director Li Lan points out that this makes it clear that since the beginning of this year, labour costs have increased substantially, while the lack of human capital is day on day becoming more prominent.

The National Reform and Development Commission research department head Yang Yi Yong believes that [trends in] Chinese labour costs could be facing a major turning point, as for the first time in the past ten years, wages of migrant workers have been increasing at a faster rate than those of urban residents. This has been especially the case over the past three quarters. As a result China’s migrant workers could be entering the stage where they are able to assert their influence over the market place, and for this reason manufacturing agencies within China must transform to middle and high-end production as quickly as possible.

“In the past a lot of our private enterprises or export processing industries have not been accustomed to competition driving prices [for labour] upwards, they have only been accustomed to competition driving prices down. I would put downward pressure on processing costs, but now this doesn’t work” he said.

For the first time, a large increase in migrant wages.

Yang Yi Yong points out 5 years ago there was already talk of the labour market having reached a turning point, however it is in the last three quarters of this year that this situation has genuinely appeared, as in certain areas the increase in wage income of migrant workers has been faster than the wage income of urban workers.

“This kind of adjustment in wages will not just lead to a change in industrial relations, urban-rural relations or citizen relations, I believe these three relationships will all begin to change” he stated.

Data from the National Statistics Bureau indicates that in the 12 years from 1998 to 2009 every year the average income of rural residents has increased at a consistently lower rate than the disposable income of urban residents. In 2003 the difference was as much as 4.7 percentage points.
However the situation during the past half a year is a little different. In the second half of 2010 the average disposable income of rural and urban residents during the same period was 3078RMB and 9757RMB, an increase of 12.6% and 10.2% respectively. Subtracting price factors this represents a real increase of 9.5% and 7.5%. Therefore, no matter whether nominal income or real income is considered, increases in income for rural residents over the same period have been greater.

To be more specific, over the past half a year, the wage income of rural residents has increased by 18%, exceeding urban household income wage income by 9 percentage points.

[…] Gu Sheng Zu (China National Democratic Construction Association vice-chairman) has also noticed an important change, which is that many enterprises are not only increasing salaries, but are also increasing the provision of other benefits. For example, in order to encourage the recruitment of workers, some enterprises are offering rewards of golden rings for anyone who is able to find 10 workers for the company. Despite this, finding workers is still extremely difficult, and this could be related to the emergence of a new generation of migrant workers. The 70’s generation, 80’s generation and 90’s generation of migrant workers now number more than one hundred million. Already, when these groups go out to work, it is not only in order to increase their incomes.

As an example, research carried out in Anhui province discovered the reason why many of the new generation of migrant workers left their original factories was because the surrounding areas did not offer anything in the way of entertainment. Thus these migrant workers when seeking work will often ask recruiters if in there are Internet cafes in the vicinity of the factory. “If there’s no Internet café, they aren’t willing to go”.