China's factories hit an unlikely shortage: labor

One of the defining myths of modern China - that it has a bottomless well of unskilled, low-wage laborers - is coming apart at the seams. And hardest hit are the southern coastal cities that produce much of America's consumer bounty.

What began two years ago as a temporary blip in the steady supply of migrants to China's export hub, where low wages and long hours are the norm, has become a constant problem for factory bosses.

Some are responding with perks to attract job applicants as "Help Wanted" ads go unanswered. Others are subcontracting work to inland cities, chasing the young, single workers that once came knocking on their factory gates but are now in shorter supply.

"There's a fixation that China has an abundant, unlimited supply of labor ... so people initially said this was a temporary phenomenon. But now [they] realize it's a general trend," says Hong Liang, an economist at Goldman Sachs in Hong Kong, who studies China's labor market. "In the central provinces, we're seeing more manufacturers moving there to absorb the local labor."

Those workers that remain in coastal cities like Dongguan, whose sprawl of tile-roof factories belch into a jaundiced sky, are demanding higher wages - and getting their voices heard. Minimum wages are on the rise, as authorities respond to the labor shortage, setting a new floor for private employers. This pressure on factory payrolls, coupled with rising cost of materials and energy, is starting to bite. Retail buyers warn that textile factories in Bangladesh and India are undercutting China and blame double-digit wage hikes here for inflating costs.

None of this means that China's export engine is running out of gas. Even as some factories struggle to stay competitive, other industries are ramping up production. If anything, the economy could be in danger of overheating at its current clip, which officials say is more than 10 percent - a risk that prompted China's central bank to raise interest rates last week for the first time in 18 months.

But while China's labor shortage may not have dampened the economy, it has factories here in the Pearl River Delta - its export powerhouse - scrambling to adjust.

Around 1.7 million migrant workers in the region who took annual leave in January during the Chinese New Year holiday didn't return afterward, preferring to look for jobs closer to home or in other coastal cities says Liu Kaiming, who runs a labor-rights group in Shenzhen.

In an effort to retain workers at her small shoe factory, Maria Ma raised salaries last year by 10 percent and added more vacation time, but she still worries about losing out to rivals elsewhere in China offering better wages.

She's not alone. A survey of members by the Asia Footwear Association in Hong Kong found earlier this year that many Chinese shoemakers were understaffed, some by as much as 60 percent. Newly built plants in Dongguan are idle for lack of workers, says Percy Lan, an entrepreneur who publishes a footwear industry magazine. He says the industry employs around 1 million laborers in Dongguan, but needs 100,000 more.

While workers once flocked to cities like Dongguan, rising rural incomes and rapid growth in inland cities have diminished the appeal of migration to coastal boomtowns - particularly among young, single women, whom factory bosses prefer to men as easier to manage. Staying close to home means access to healthcare and other benefits that migrants don't always receive. So job seekers are playing harder to get.

"Girls are asking, 'Do we get overtime? What are the benefits?'" says Kathy Deng, who owns a recruitment company in Guangzhou. "Guangdong needs workers. Zhejiang and Shanghai need workers. They have more choices. So it's difficult to find workers."

Growing affluence in Pearl River cities also means new job alternatives. Away from Dongguan's grimy factory belt, SUVs stream along highways to upscale neighborhoods that are hungry for manpower. "No matter how much you pay [in factories where wages average $100 per month], the service industry pays more. People want to work in stores, or be waiters in five-star hotels," says Mr.Lan, the shoe industry publisher. Some footwear plants are responding by upgrading worker dormitories, cafeterias, and bathrooms.

But the improvements aren't enough to keep migrant worker Xiong Kejing around. He's spent the last nine years working factory and construction jobs, trying to save money, and is ready to head home with his wife and baby daughter to Chongqing, a 36-hour journey by bus.

He's heard stories of higher wages in Shanghai, but is skeptical about another stint as a migrant, either in Dongguan or another coastal city. "You can't stay out here forever. There's probably more opportunities back home now; we can open our own business," he says.

It's not only factories that are feeling pinched by the departure of migrants like Xiong.Affluent cities in the Pearl River Delta have come to rely on migrant workers to wash dishes, cut hair, and take care of the young and elderly.

Down a narrow side street in Guangzhou, the provincial capital, dozens of women sit inside a yellow-walled job agency for domestic servants swapping stories and waiting for offers. Liu Bin, who runs the place, says the tight labor market is forcing employers to pay more and be less picky about whom they hire.

As she finishes speaking, a trio of middle-aged women enquire about finding a replacement nurse for their octogenarian parents. Braced for a pay raise, they're ready to pay nearly double the monthly 450 yuan ($55) a caregiver cost three years ago. "It's really hard to hire someone from Guangzhou," sighs Cai Rongqiu, one of the three women. "They don't want to be nurses; they want a job with good pay, fixed hours, and an easy life."