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 seven-year high.

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 government officials.

"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 bureau.

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, he said.