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Labor Shortage Becomes a New Problem for Factories in Southern China


Hundreds of factories in China's fastest-growing areas are struggling to find workers. The labor shortage is pushing up wages and has prompted industries to move toward producing higher-priced goods.

For more than two decades, the Pearl River Delta in southern China's Guangdong province has been a crucial driver of the country's economic growth. With its thousands of factories pumping mostly low-end products such as cheap electronics, toys and textiles, it is often called the world's workshop.

But the workshop is increasingly running out of workers. When reports of labor shortages in the region first emerged two years ago, some economists believed it was a temporary problem.

But Robin Chiu, director general of the Federation of Hong Kong Industries, says the situation has not improved for the members' factories in the Pearl River Delta. He says a survey of factory owners last year revealed that on average, 10 percent of positions go unfilled - on average 1,000 empty jobs for each factory.

"The Guangdong provincial government also came up with some assessment. According to their figure, in the whole province there were about one million jobs that they could not find workers for," said Chiu.

The situation is caused in part by the government's efforts to improve life for farmers. As rural incomes increase, fewer farmers migrate to find work. Also, as the Chinese economy continues to boom, an increasing number of factories, construction sites and service industries all over the country now compete for workers. Most prefer to find jobs closer to home instead of heading to Guangdong.

Chloe Froissart of the Center for Research on Contemporary China in Hong Kong studied China's western Sichuan province, one of the main suppliers of migrant laborers. She noticed that many who went to the Pearl River Delta came back to find jobs in the Sichuan capital Chengdu. They complained about low salaries and bad working and living conditions in factories in the far-away south.

"They just go back to Chengdu because they feel they can earn more there. Even if the salary is sometimes not really higher than the one in the Pearl River Delta - at least the cost of living is less and the conditions are better over there," said Froissart.

Some analysts think China's era of an infinite supply of cheap, uneducated laborers has come to an end. But many economists, such as Qu Hongbin, a China economist at HSBC bank in Hong Kong, say the shortage is not a nationwide problem. He says it is restricted to a few export-intensive regions - Guangdong province and other coastal areas such as around Shanghai.

"Simply because as a matter of fact China still has plenty of rural surplus laborers and people are talking about a magnitude of more than 200 million - so you know from national-wide point of view, there is plenty of labor supply there," noted Qu.

Many economists say what China is really short of, however, are skilled people, especially managers.

Regions suffering from labor shortages have taken steps to address the problem.

Robin Chiu at the industrial federation says many factories in the Pearl River Delta improved working and living arrangements for workers, which have often been criticized as inhumane and hazardous.

In many areas, wages have significantly increased.

This month, for example, the Guangdong province government ordered the manufacturing center Shenzhen to raise the minimum wage for the second time in two years, to $112 dollars a month from $86.

Li Hui, China research head of the Hong Kong investment bank CLSA, says rising labor costs are a natural evolution for an emerging economy and do not make China less competitive. Li thinks rising wages will boost consumption and therefore be good for the Chinese economy.

"This can be case of half full and could be a case of half empty. I am actually more on the side of the case half full - because with the better treatment and minimum salary increase, on the other hand the workers are getting paid more and then they have more money to spend," she said.

Some factories also are moving farther west, into interior provinces, where land is cheaper and wages lower. Others shift work to other Asian countries where labor is even cheaper, such as Vietnam.

There also is a growing trend, at least in the Pearl River Delta, to move away from the low-end manufacturing that has dominated the region for nearly 30 years. Robin Chiu says more and more factories in the area produce high-end electronics, pharmaceuticals, petrochemicals and automobile parts, which are more profitable than cheap goods.

"It's really quite a necessary and natural direction," said Chiu. "And I think in time to come you will see industries relying more on technology, relying more on innovative products and methods of production."

Economists say what is happening in China is nothing new - it happened earlier in Japan, South Korea and Taiwan as they developed. As the economy grows and incomes rise, industries adjust by moving up the value chain.

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