China's Factories Hit an Unlikely Shortage: Labor

Article excerpt

One of the defining myths of modern China - that it has a bottomless well of unskilled, low-wage laborers - is coming apart at the seams. And hardest hit are the southern coastal cities that produce much of America's consumer bounty.

What began two years ago as a temporary blip in the steady supply of migrants to China's export hub, where low wages and long hours are the norm, has become a constant problem for factory bosses.

Some are responding with perks to attract job applicants as "Help Wanted" ads go unanswered. Others are subcontracting work to inland cities, chasing the young, single workers that once came knocking on their factory gates but are now in shorter supply.

"There's a fixation that China has an abundant, unlimited supply of labor ... so people initially said this was a temporary phenomenon. But now [they] realize it's a general trend," says Hong Liang, an economist at Goldman Sachs in Hong Kong, who studies China's labor market. "In the central provinces, we're seeing more manufacturers moving there to absorb the local labor."

Those workers that remain in coastal cities like Dongguan, whose sprawl of tile-roof factories belch into a jaundiced sky, are demanding higher wages - and getting their voices heard. Minimum wages are on the rise, as authorities respond to the labor shortage, setting a new floor for private employers. This pressure on factory payrolls, coupled with rising cost of materials and energy, is starting to bite. Retail buyers warn that textile factories in Bangladesh and India are undercutting China and blame double-digit wage hikes here for inflating costs.

None of this means that China's export engine is running out of gas. Even as some factories struggle to stay competitive, other industries are ramping up production. If anything, the economy could be in danger of overheating at its current clip, which officials say is more than 10 percent - a risk that prompted China's central bank to raise interest rates last week for the first time in 18 months.

Why 1.7 million workers went home

But while China's labor shortage may not have dampened the economy, it has factories here in the Pearl River Delta - its export powerhouse - scrambling to adjust.

Around 1.7 million migrant workers in the region who took annual leave in January during the Chinese New Year holiday didn't return afterward, preferring to look for jobs closer to home or in other coastal cities says Liu Kaiming, who runs a labor-rights group in Shenzhen.

In an effort to retain workers at her small shoe factory, Maria Ma raised salaries last year by 10 percent and added more vacation time, but she still worries about losing out to rivals elsewhere in China offering better wages.

She's not alone. A survey of members by the Asia Footwear Association in Hong Kong found earlier this year that many Chinese shoemakers were understaffed, some by as much as 60 percent. Newly built plants in Dongguan are idle for lack of workers, says Percy Lan, an entrepreneur who publishes a footwear industry magazine. …