China's Rising Rural Incomes Create Labor Shortage
2004-08-19 / Bloomberg /
China's rising rural incomes are creating a labor shortage at factories in
Guangdong province, the country's manufacturing hub, as migrant workers stay
home, according to executives at companies including Techtronic Industries Co.
and Yue Yuen Industrial Holdings Ltd.
"Fewer workers are coming down from rural areas than in the old days," said Roy
Chung, managing director of Hong Kong-based Techtronic, a power-tool maker that
supplies Sears Roebuck & Co. and Home Depot Inc. and employs about 12,000 people
in Guangdong. Tighter enforcement of labor rules by buyers and the government
means workers can't work as much overtime to supplement their 450 yuan (US$54)
minimum monthly wage, he said.
Manufacturers in Guangdong - a province bordering Hong Kong where factories
churn out goods for companies including Wal-Mart Stores Inc. and Nike Inc. -
have relied on a steady flow of laborers from China's interior to produce cheap
exports. They're now under pressure to raise wages to lure workers, threatening
to curb cost savings, lift export prices and stoke inflation that's already at a
Incomes in rural China - home to about 60 percent of the country's 1.3 billion
people - rose 16 percent in the first half from a year earlier, according to the
National Bureau of Statistics. The increase in labor costs is fueling price
increases in China and beyond, said Hong Liang, a Hong Kong-based economist at
Goldman Sachs Group Inc., in a report.
"We believe delays in containing inflation pressure by the Chinese central bank
could push global inflation into a higher trajectory" as manufacturing wages
track growth in rural incomes, boosting the price of exports, Liang said.
'Big labor shortages'
China's consumer price index rose 5.3 percent in July from a year earlier, the
fastest pace in seven years.
So far, minimum factory wages haven't tracked the increase in rural incomes,
according to Techtronic's Chung. That's deterring workers from traveling from
remote provinces to take factory jobs in Guangdong - and raising concerns among
"Since the beginning of the year, some manufacturers in coastal provinces have
had big labor shortages," said Zhang Xiaojian, a deputy labor minister, in a
July 6 speech posted on the ministry's Web site. "We need to take action."
Guangzhou, Guangdong's provincial capital, may raise the city's official minimum
wage by 34 percent to 684 yuan a month, the official Guangzhou Daily newspaper
reported, citing a proposal from Zhang Jieming, director of the city's labor
In the Baoan district of Shenzhen, an industrial city between Guangzhou and Hong
Kong, employers paying less than 1,000 yuan a month have difficulty attracting
workers, the Guangdong provincial labor department said on its Web site. In a
survey of 306 companies, 166 reported shortages of production workers, the
department's Web site said last month.
Techtronic's Chung said Western customers including Wal-Mart and Sears Roebuck
hold the company to labor standards that limit overtime to 36 hours a month,
among other requirements. That curbs workers' ability to supplement their pay,