Labor shift reshapes export sector

The landscape of China's manufacturing sector is rapidly evolving as suppliers adapt to the changing nature of the job market.

A steady and seemingly irreversible transition is taking place in China's manufacturing labor market - one that may have wide-ranging consequences for suppliers and buyers alike.

Workers are heading back home.

An estimated 30 to 40 percent fewer employees returned to their jobs in the southeast following the Chinese New Year holiday. A large portion of them found new work in their hometowns – a situation which is strengthening.

As a result of the government's multibillion-dollar stimulus package, public works projects have generated a significant number of jobs in the countryside. An estimated 20 million farmer-turned-migrant workers who were laid off at the height of the global financial downturn found improved economic conditions at home and employment to be had. Some were able to start small businesses.

This, in turn, is exacerbating the current labor shortage, which has intensified in the past two months as the country's exports started to pick up. While overseas shipments remain down year-on-year in most sectors, the rate of decline has decelerated.

Rather than lose orders, some understaffed factories have extended lead times by a few days to more than a month. Others are offering improved salaries and benefits to attract workers, resulting in as much as 5 percent increase in export prices. Even then, many such plants remain short of hands.

Desperate companies are sending recruitment agents to staffing centers in the interior, hiring anybody from 18 to 50 years old. But few are signing up. Manufacturers that need hundreds of new workers are lucky to get more than a few dozen after weeks of trying.

The Shenzhen Labor Bureau said the Guangdong province city, one of the top exporting centers in the country, had 120,000 job vacancies in August 2009, a sixfold increase in just four months. Zhejiang province, likewise, lacked about 250,000 workers, with Wenzhou posting more than 26,000 openings, up 11 percent from the previous month. In Chengdu, Sichuan province, many businesses claim to be lacking by 20 to 50 percent.

Those who do leave their hometowns and villages have been spurning the southeast in favor of relatively new opportunities for the agriculture, construction and service industries in the northern and western areas. These include the provinces of Heilongjiang, Jilin, Liaoning, Hebei and Shanxi, and the autonomous regions of Xinjiang and Inner Mongolia.

Manufacturing continues to lure its share of migrant workers, however, provided such jobs are closer to home. In fact, newly established and expanding factories in the inland provinces seem to have less recruitment problems than those in the coastal hubs.

This means industrial production will no longer be concentrated solely in the traditional bases in the southeastern provinces.

Evolving labor situation

With an 800-million-strong workforce, it is difficult to imagine China experiencing a deficit in manpower. The production hubs in the coastal regions have traditionally been fed by cheap labor from the central, western and other inland provinces, including Jiangxi, Anhui, Sichuan, Hubei and Hunan. The country has about 200 million migrant workers, with a further 100 million farmers likely to join them in the years ahead because of urbanization.

Factories normally run short of manpower after the New Year holiday, when many migrant workers do not return. The economic crunch, however, exacerbated this situation when most employers implemented massive layoffs in the latter months of 2008 because of slow orders.

Now, with overseas demand starting to pick up, wariness over job security and the rising cost of living in the coastal areas is dissuading many from returning.

Even if the current shortage is short-lived, the situation will continue to evolve, due mainly to the narrowing rural-urban development gap that has for so long ensured a steady stream of inexpensive labor.

Despite the boom in the interior, traditional sourcing centers still attract a percentage of the labor force. But employees have become more discriminating, transferring to factories offering better overall working conditions and job security such as in Zhejiang and Jiangsu provinces.

Plants that opted to grant extended long vacations instead of cutting jobs, for instance, have seen no shortage of hands as most of their employees returned after the holiday. Other businesses that have not been affected by the labor shortage are those that pay on a per-piece basis. Most such operations are based in Zhejiang.

Filling positions for skilled workers is another challenge. This, in fact, has been a persistent problem for some provinces. In many areas, there was a serious mismatch between the demand for labor and the number of job seekers much before the recession.

Tianming Hu, secretary-general of the Ningbo Leather Industry Association, said the Zhejiang city has had a shortage of experienced seamstresses for the past three years. Some companies currently lack up to 40 percent of their requirement for seasoned staff.

The high demand for trained workers has spurred suppliers to take steps to prevent their experienced manpower from leaving. For instance, the F-Bartl Group, an office furniture maker in Hangzhou, Zhejiang, raised its skilled personnel's salary by 10 percent at the beginning of 2009 to retain them.

Automation

The dramatic swings in demand for manpower instigated by the fluctuation in orders are already prompting suppliers to look for ways to work around the production peaks and valleys. Some companies are increasing investment in automated equipment to reduce their reliance on manual labor. This is also an opportunity for suppliers to increase their efficiency and boost overall competitiveness.

Bathroom scale maker Zhongshan Camry Electronic Co. Ltd, for example, acquired Samsung SMT machines and raised its board insertion capability from 10,000 to 50,000 pieces per day. It also managed to reduce the number of staff at its PCB insertion workshop from 50 to 15.

In fact, data from the National Bureau of Statistics indicate some 15 million manufacturing jobs have been made redundant by automation in 26 industries in the past few years. This trend has now picked up speed and will continue in the coming months and years.

Companies remain cautious amid positive outlook

All of these developments pose a challenge for the remaining factories in current export manufacturing hubs. To be able to compete against the new production bases in the interior and plants in the east, they need to raise monthly wages, and provide skills training and a better work environment.

Unlike the first generation of migrant workers, the current crop is more selective. Many prefer to hold positions in large enterprises instead of small ones, and expect higher salaries, regular holidays and social insurance.

So in addition to increased wages, several suppliers are now offering better incentives, including fare reimbursement, free meals, air-conditioned accommodation and liberal holidays. In some cases, novel measures such as extra benefits for couples are implemented.

For several companies, the shortage started right after the Chinese New Year. For others, it began as recently as last month. But for most, the starting point was Q2 2009, the traditional buying season for goods to be sold during the Christmas, New Year, Valentine's Day and Easter holidays. It was also at this time that buyers had depleted excess inventories carried over from 2008 and were restocking.

But some of those who admit they are short of manpower are prudent and not rushing to rehire. The additional employees may solve their immediate problem, but they are unsure if the current export levels will be sustained or increase in coming months. If orders take a dive after the holiday shipments, suppliers will be back where they started.

In September, the country's total exports dropped 15 percent to $115.9 billion, the slowest pace of decrease since the beginning of the year. Export revenue was up by a significant 11 percent compared with August, which improved only 1 percent from July. Total August shipments reached $103.7 billion, a fall of 23 percent over the same month in 2008.

Likewise, news from overseas markets confirms the improving business climate. Purchasing indexes in the US, for instance, began posting consecutive monthly increases from mid-2009.

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