A Financial Revolution 


April 10, 2006
China's Labor Shortages
For much of the past decade, China has been the world's manufacturer due in part to a large supply of very cheap labor. As the demand for Chinese labor has grown, however, the supply has not. In many of China's major manufacturing centers there are persistent labor shortages. According to the New York Times, "shortages at hundreds of Chinese factors have led experts to conclude that the economy is undergoing a profound change that will ripple through the global market for manufactured goods."

The shortages are attributed to government policies that encourage people to continue farming instead of moving to the cities, rapid expansion at many factories, a demographic shift due to the one child policy, and more young people receiving advanced educations (an engineering graduate doesn't want to assemble hair brushes on a factory floor.) Experts estimate that major export industries are looking for over 1 million additional workers.

As demand grows and supply remains flat or declines, the obvious happens - wages and benefits increase. Having visited many Chinese manufacturing sites, trust me when I say this is a very good thing. There are two outcomes of the growing wages. First, companies seeking to minimize costs will shift to other low-wage countries such as Vietnam. For those that stay, they are creating a larger middle class in China; a middle class that will buy goods produced domestically and internationally. Workers and their families can then pursue opportunities beyond simply providing unskilled labor to assemble your next pen, computer, or bunny-head slippers.

The labor shortages are causing companies to move inland, away from the major manufacturing centers in Guangdong and Chongqing. Some are even moving out of China completely. This challenge, should it continue, could help China transition from a low-cost labor supplier to a country with a professional, educated workforce and a consumer-driven economy. Keep your eyes open.


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