China's population boom under Mao Zedong provided China with a huge pool of cheap labor, and that pool remains fundamental to manufacturers in the Mainland, as it does to "first-world consumers buying cheaper products in the mall than they could a decade ago. Indeed, the textiles spat of recent months has shown just how large a share of the world's low-end manufacturing jobs China now controls.
But since mid-2004, high spirits among some investors in Guangdong's manufacturing industry have been dampened slightly – partly the result of a number of mostly pay-related strikes in late 2004 (like the five-day strike over wages by 3,000 workers at the Haiyan Electronics factory in Shenzhen in November of that year).
In June this year Mo Rong, deputy director of the Labor Science Research Institute under the Ministry of Labor and Social Security, told the China Labor Forum that Guangdong faced a shortfall of two million laborers.
But most of this shortage is at the bottom-end of the labor market, say analysts. "Toys and textiles and specialist goods are facing problems worse than high-end electronics or heavy machinery," said Jonathan Anderson, chief economist for UBS in Asia Pacific. "Electronics are also facing problems in low-end processing."
Guangdong has been China's manufacturing hub for some years, building on its proximity to Hong Kong. But Hong Kong's growth has slowed since 1997 and Guangdong is considered by some to be less competitive than it used to be. When China's National Bureau of Statistics published its annual list of China's top 100 cities and country-level cities by GDP and comprehensive competitiveness this year, Guangdong's Shunde (manufacturing base for appliance giants such as Kelon and Galanz) had fallen from first place, a position it has held since 2000. Shunde was replaced by Jiangsu's Kunshan, while Guangdong's Nanhai, usually in second place, dropped to sixth. It's hardly a disaster, but it does suggest Guangdong's competitive advantage could be narrowing.
To some, the apparent problems of Guangdong are a microcosm of China's own emerging labor difficulties – a New York Times article in mid-April said the migrant labor returnee rate from Guangdong back to Sichuan province (a major source of Guangdong's labor force) had recently increased to 30%. Its headline referred to "China's labor shortage? Was this a fair conclusion?"
"The Guangdong experience is a unique one," said Tim Condon, chief economist for ING in Asia-Pacific. "If the rest of the country is growing at 9-10%, then Guangdong is closer to 15%, which puts short-term strains on the labor-supply."
Moreover, Guangdong's loss is probably not China's, since Guangdong is more likely coming of age as a manufacturing hub and so needs to shed bottom-end manufacturing, probably to the Yangtze River Delta and the industrial northeast. In late September, Guangdong Communist Party chief Zhang Dejiang told legislators in Hong Kong that his province was losing its competitive advantage to others, saying that now it was like ?10,000 horses galloping in a race" as other provinces also focused more exclusively on economic development, The Standard of Hong Kong reported. Others have made a similar point.
"These regions [the Yangtze River Delta and industrial northeast] are attracting an increasing amount of capital and labor force mainly in the labor intensive industries, including shoemaking, toy, garment, and plastic product[s]," said Fang Chaohui, director of Guangdong's Ministry of Labor and Security, in September.
Wages on the up
Guangdong may need to shed its traditional manufacturing focus on "Textiles and toys" but that is not the only challenge it faces as the natural choice for manufacturers worldwide. The other issue is labor wages, which have risen more sharply in the past 18 months than over the previous decade.
"A few years back the going rate [for a worker's monthly salary] was RMB500 to 600 in the wealthier areas – [it is] now creeping up to 800 or 850," said Jonathan Anderson of UBS. Anderson believes some low-end manufacturing will leave for Vietnam and India. The next two or three years will be the last hurrah for textiles in China," he said.
But even if a fair proportion of low-end manufacturing does move elsewhere – and that is by no means certain – it is unlikely change will be seismic, since labor wages are still incredibly low relative to "first-world labor and China remains an attractive investment environment in terms of stability and access. "Overall, it [the labor wage] is not at a level that constrains China's productivity and competitiveness," said Condon. "That will remain the case for many years. Parts of China will be shedding low-end jobs," he said.
Within China, however, the wage level is already proving significant. In Guangdong the average manufacturing worker now commands RMB17,007 a year as against RMB16,146 in Jiangsu and RMB14,722 in Zhejiang (the Shanghai average is 27,456), according to China's National Bureau of Statistics China Statistical Yearbook 2005.
For manufacturers, moving out of Guangdong may not be worth the small amounts saved. But for a worker, rising salaries nearer to home make migrating to Guangdong less attractive than it was five years ago, particularly if you live in Eastern China. Plus the Yangtze River Delta is the growth story of the moment in China.
In fact, there is every indication that China still has more people than jobs. Urban unemployment is officially 4.2%, according to government statistics released in September, but until you have spent three months looking for a job you are registered as "Seeking employment" and not as "unemployed." If you do not register yourself as jobless with the government – as is the case for much of the floating population" – then you are not counted either. In October Yu Xiuqin, spokeswoman for the Beijing Municipal Bureau of Statistics, told China Daily that calculation methods would change in 2006. "The unemployment index calculated through investigation will be much bigger than the current urban-registered unemployment rate," Yu told the newspaper.
ING's Tim Condon also believes China's workplace challenge lies in demand – not supply. "The need from demographic pressure and rural-urban migration," said Condon, "is something in the order of 15 million jobs a year."
Moving further up the socio-economic scale, even China's highly-educated young middle class often find themselves unemployed for months or even a couple of years before they can land the right kind of job. After graduating in China, Pan Houchun studied for a master's degree at Newcastle University in Britain – a western master's carries special weight in China's job market – and then returned to live in Shanghai.
"When I first arrived, it was very difficult for me to find anything," said 26-year old Pan. "It took me nearly five months to find a position. For many people, they need one year to find the right job. At first they'll just get a part-time job to make a living. I have a UK master's and it was hard for me, so imagine how hard it is for people [who have] graduated from China. It's true in all the big cities in China, and the second-level cities too, although Shanghai is the most difficult."
Pan added that a Chinese graduate could expect a starting salary of at least RMB2,000 a month – just US$250, although around a third began on less than RMB1,500.
If even China's university graduates are more than willing to accept wages below US$300 a month, then manufacturers are surely not likely to leave China any time soon.