Mar 1, 2010

And now for the good news: China has a labour shortage

China's economic development still has a long way to go, but news of labour shortages is actually positive for the rest of the world. This is just what happens as an emerging economy moves towards maturity.

Glenn Dyer — <em>Crikey</em> business and media commentator

Glenn Dyer

Crikey business and media commentator

The Financial Times had the story first in its Saturday editions. With Chinese exports back to their early 2008 levels, factory owners are worried about their ability to service a surge in orders now that a new manufacturing cycle has begun after the lunar new year holidays. The problem is particularly acute in southern Guangdong province and its Pearl river delta manufacturing heartland near Hong Kong, the region known as "the workshop of the world". "Labour availability is tight right now in Guangdong compared to other regions," said Paul Hussey, chief executive of Strix, the Isle of Man company, which dominates the global market for thermostatic controls on electric kettles, and maintains most of its manufacturing operations in the provincial capital, Guangzhou. "Quantifying labour shortages is extremely difficult given large variances by region, industry and skill level ... "In Dongguan, a manufacturing centre near Guangzhou, the local government estimates that there is now just one worker for every two jobs. At the height of the crisis, which for Chinese manufacturers came last spring, local officials calculated there were four workers competing for every three jobs. "Beijing’s successful economic stimulus program has contributed to a coastal scramble for labour, by increasing investment and employment opportunities elsewhere." Twelve hours later, the New York Times breathless reported: "Just a year after laying off millions of factory workers, China is facing an increasingly acute labor shortage. "As American workers struggle with near double-digit unemployment, unskilled factory workers here in China’s industrial heartland are being offered signing bonuses. "Factory wages have risen as much as 20 percent in recent months. "Telemarketers are turning away potential customers because recruiters have fully booked them to cold-call people and offer them jobs. "Some manufacturers, already weeks behind schedule because they can’t find enough workers, are closing down production lines and considering raising prices. Such increases would most likely drive up the prices American consumers pay for all sorts of Chinese-made goods." Amazing. But apart from that, both reports tell us more about the realities of the current state of the Chinese economy than any report from doomsters and gloomsters forecasting bubbles bursting in real estate and elsewhere. In fact, the economy will be in trouble because of these labour shortages (as will Australia). But that's a positive. Rising wages means China's huge export machine is forced to restructure, going for higher margined goods, with the trade surplus falling, opening the way for other countries to supply cheaper goods (Bangladesh, Cambodia, Vietnam). And rising incomes in China means higher consumption, which means higher imports and lower domestic savings. Industries and companies are forced to restructure; it has happened before in every economy as it transitions the emerging class towards maturity. It happens in mature economies as well. What would be frightening is that there are no labour shortages in China: that would tell us demand for Chinese goods (externally and domestically) is low, signifying weak economic conditions at home and internationally. That's not the case, as exports from Japan, Taiwan, South Korea, Thailand, Malaysia, Singapore and Australia jump to meet rapidly rising demand from China. China's economic development still has a long way to go, but news of labour shortages is actually good for the rest of the world, not somehow all bad as implied in both reports.

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