A Chinese Labor Shortage

[HenryTo]

Hot off the press from the China's People Daily Online. This is certainly not new - as a John Mauldin "Investor Insight" piece (the original document is from GaveKal) has focused on this before - with the first reports of shortages starting two years ago.

Bottom line: Now that everyone and his neighbor has accepted that deflation is the danger and that China's and India's labor forces have contributed greatly to this deflation, it is now time to start looking the other way! There is no infinite amount of labor supply (and these workers are not interchangable) - even from China and India - especially with the demographic trends that we are currently experiencing.

The continuing decline of the long bond IS NOT A GIVEN - no matter what Bill Gross or Stephen Roach would have you believe (please note they did not turned bullish on the long bond until a mere two months ago):

----------------------------------------------------------------------------------
China's rural workers "vote by foot" for better payment

China's rural laborers no longer flock to economically booming cities, waiting in lines blindly before factories just for a weary job with poor payment. They have sensed the necessity to bargain with bosses for higher salaries.

"Vote by feet" is a vivid metaphor used by Chinese media to describe that migrant workers now have their say on the incomes by choosing to "walk" into factories they could gain more benefits.

Human resources experts even attributed the severe shortage of laborers in some parts of China in recent two years to the "feet votes" of the migrant workers.

Mo Rong, deputy director of the labor science research institute under the Ministry of Labor and Social Security, said recently at the China Labor Forum that the shortage of rural laborers, which began to surface in 2003, has become a more serious issue in the Pearl River Delta and the coastal areas in Fujian and Zhejiang provinces.

With its 19 million rural laborers mostly working in the Pearl River Delta, south China's Guangdong Province faces a shortage of nearly two million workers. This accounts for about 10 percent of local market demand.

In Fujian, the shortage by the end of 2004 was as much as 200, 000, according to a survey released by China's central bank this May.

Skillful workers with some expertise as well as manual laborers, especially young women in low-end processing factories, are the most wanted, the survey showed.

Rapid economic growth generated a larger demand for workers. Poor working conditions in cities and the lack of guarantee for rural laborers' benefits deteriorated the shortage.

Mo pointed out that most companies that reported laborer shortage are usually involved in labor-intensive industries with a monthly salary below 700 yuan (about 85 US dollars).

Under the pressure of demanding overseas customers, these companies, usually small or medium-sized businesses engaged in toy manufacturing, electronic assembly, attire making and plastic processing, have to lower labor costs to retain their thin profits, Mo analyzed.

"Thus, many migrant workers have flowed from the Peal River Delta to the Yangtze River Delta, where the demand for workers keeps climbing and local companies can offer better payment and work conditions," Mo said.

"With an increasing awareness of their due rights and interests, more and more rural workers have waken up to ask for better protection of their benefits from hard work," he said.

Shanghai, economic hub of the Yangtze River Delta, has seen its migrant workers up by 900,000 people in the past three years, which has ensured the city away from the shortage of laborers in its rapid economic growth.

New enterprises mushrooming in China's middle and western areas also provide more work opportunities for rural laborers.

"I know that a Shenzhen-based underwear factory has just set up a new manufacturing branch in the landlocked Jiangxi Province. Despite a lower payment level than those offered by companies in Guangdong, many migrant laborers have shown no hesitation to work in the new plant as it is much closer to their homes," Mo said.

It also reflects an immediate result of the shortage. Some labor-intensive companies have started to move from the eastern coast to middle and western regions of China, where they can pay workers less, he said.

"Voting by foot" have won rural laborers opportunities to raise salaries and improve work conditions. Some enterprises have loosened employment restrictions on the age, height and gender. Some are considering to raise bonus and improve working and living environment for their workers.

Source: Xinhua

[HenryTo]

Labor shortage in manufacturing; but definitely not for recent Chinese university graduates.
---------------------------------------------------------------------------------
Amid China boom, job search for many grads goes bust

(Reuters) - Yan Minglong, one of millions of recent Chinese college graduates, is not impressed with the doors opened by higher education.

"Jobs? What jobs?" the 23-year-old said, whiling away his Saturday afternoon in a billiards hall in Shigezhuang, a gritty neighborhood on Beijing's northern outskirts where cheap rent is the main draw for some of China's white-collar hopefuls.

Students from the country's largest-ever college graduating class, 6.6 million, have gone from hitting the books to hitting the streets in search of work this summer.

But pouring that many graduates into an economy long known as the world's workshop has fueled worries about the market's capacity to absorb them and the potential for political unrest.

In a country where 80 percent of the population has not finished secondary school, according to the Economist Intelligence Unit, Yan is arguably among China's highly educated.

A graduate from a three-year automotive program at Hebei province's Jiaotong Vocational and Technical College, Yan has been working as a car repairman. He lives in a dormitory on the west side of Beijing with six others and pulls in about 2,500 yuan ($390) a month.

"How can I say I'm satisfied? Even after five years, I know my income will be basically the same as my friends who didn't study after high school," said Yan.

A 2011 study by the state-run Chinese Academy of Social Sciences paints a rosy picture of graduate employment, saying only 6.7 percent of 2010 graduates with four-year or vocational degrees were still looking for work six months after leaving campus.

The vast majority had found jobs or were pursuing further studies. Unemployment was down almost three percent from 2009.

Wang Meiyan, an associate professor at the Institute of Population and Labour Economics at CASS, said that, on the whole, China's job market for recent graduates was healthy.

"Their employment challenges aren't as serious as society thinks. Any difficulties that graduates are facing in China's job market doesn't mean that the problem is unique to China," she said.

By comparison, a study by the Washington, D.C.-based Economic Policy Institute put the unemployment rate for recent U.S. graduates between April 2010 and March 2011 at 9.7 percent.

But Ren Xinghui, a researcher at the Transition Institute, an independent Beijing think tank, was skeptical of the government-approved graduate employment statistics.

"Job rates are measured by schools' administration departments and are an important index of university performance that will determine their treatment, giving them an incentive to over-report employment rates of their graduates," he said.

Whether the market can absorb another six million-plus college graduates this year depended largely upon how job opportunity was defined, he said.

"If it just means having work, that is certainly available. But if we are talking about the opportunity in the sense of it matching training and room for professional development, then there is a problem," Ren said.

CAN'T GET NO SATISFACTION

Even if graduate employment rates are as high as the government says, the jobs on offer are often far from what ambitious twenty-somethings want.

That's a universal predicament. But in China, where heady growth has nourished equally heady hopes, the gap between aspirations and grinding reality hurts all the more.

"Finding a job is not a problem, at least not in a city like Beijing," said film animation major Feng Biao, sitting on the bed in his cramped Shigezhuang apartment. "The problem for most people is finding a job that suits you, that you actually like."

He has stacked apples and bananas on a table under a small hanging shaving mirror. Aside from that, the walls are bare.

It is a one-and-a-half hour one-way subway commute to his office in central Beijing, where he earns about 3,000 yuan ($470) a month designing pop-up Internet advertisements.

Once accessible only to the social elite, China's higher education system has absorbed millions of students since 1977 when universities enrolled only 220,000 students following the turmoil of the Cultural Revolution.

Many of the parents of today's graduates came of age during the Cultural Revolution (1966-76), when Mao Zedong launched a tumultuous campaign to attack bastions of privilege -- including education -- and the number of students allowed into university was drastically curtailed. Throughout that era, the state allocated jobs to urban workers.

Today's education expansion has spawned a new crisis of confidence in the value of higher learning, with starting salaries for graduates often not much higher than those of migrant workers in factories.

Even if they are in a position to receive a full-time wage, they often do not get health insurance or other social benefits.

For the government, the prospect of widespread under-employment is a political worry, as well as an economic one.

China's modern history is punctuated with student-led protests and the government has been alert to the possibility of student unrest ever since anti-government demonstrations crushed by the military in and around Beijing's Tiananmen Square in 1989.

"China's employment market is absolutely not healthy. There is a limited demand for white-collar workers that makes it difficult for graduates to find work. One reason for that is the large-scale expansion of universities," said Ren, the researcher.

Nationwide, university graduates of four-year and vocational programs had average monthly salaries of just under 2,500 yuan a month in 2010 including benefits, according to the CASS study.

Feng pays out 20 percent of his salary for his one-bedroom apartment, the floor dotted with cigarette butts. After food, transport, and the occasional treat, he says he saves nothing.

"I guess having just graduated I should have expected to be broke," Feng said.

TOUGH CHOICES

Not all graduates' circumstances are as strained as Feng's. Those with the connections to secure jobs at big firms or in government can do relatively well.

Lei Siyu, who graduated from the Dalian University of Technology in the spring with a degree in software engineering, beat the gauntlet.

The skinny Sichuan native said he was frustrated when his first round of graduate school applications were all rejected and he wasn't hired for a job at China's Internet giant, Baidu.

But he now has a job offer on the table from a company, which he says will pay about 7,500 yuan a month. It is a golden ticket by most measures -- one that would put him squarely within the top four percent of recent graduate wage earners. Still he is not sanguine about the process.

"Getting that internship is easy, but turning it into a job is hard. It felt like most of the people I was competing with had PhDs," he said.

Even China's top students have to make tough choices given broader social dynamics in China, broad enough that foreign firms aren't the magnets they used to be.

Government agencies and state-owned enterprises accounted for nearly a third (32 percent) of jobs for Chinese graduates in 2010. Among four-year degree graduates, that number is 41 percent, the CASS study said.

Jin, an international relations graduate from the elite Tsinghua University who asked that only her surname be used, turned down higher-salary prospects at a foreign company for a spot at a state-owned enterprise in the transportation sector.

"The salary definitely won't be as high as at a foreign company. It's not my ideal job, but from a long-term perspective taking this job was a good choice," Jin said.

The highlight of that offer: promise of a Beijing resident permit, called a "hukou" in Chinese. With hukou quotas set for government agencies and state-owned companies, landing that kind of job can mean opening the door to social privileges.

"If you're living in Beijing without a hukou, it is hard to buy a house and impossible to get a car," she said. "If I plan to stay in Beijing, the next two years at this job would remove a lot of obstacles for me."

[HenryTo]

More evidence of a labor shortage. Quote: "For manufacturers here, the golden period has passed."

Chinese City's Allure Fades for Some Firms By Don Lee Times Staff Writer
Sun Jul 3, 7:55 AM ET

DONGGUAN, China — Thousands of foreign businesspeople, primarily Taiwanese, helped turn this southern Chinese city into one of the world's busiest export manufacturing centers.

Now, amid rising wage and pension costs, energy shortages, tighter government regulation, traffic bottlenecks and other concerns, some of them are starting to look elsewhere. Their restlessness reflects a dark side to China's economic boom, as growth pains and other issues prompt companies to reconsider starting up or expanding in China.

Chang Han Wen is having second thoughts. He came here from Taiwan in early 1991 when the area was still largely farmland, launching a shoe assembly line with 200 workers. He has since opened five factories, including three shoe plants that employ 3,000 people and produce 1.5 million pairs of specialty boots and high-end shoes a year for export to the United States and Europe.

But his sixth plant, a garment operation, sits empty. Chang has indefinitely postponed its opening, anxious about China's tense trade relations with the West and the threat of more quotas that would limit clothing exports. That's only part of his worries.

This year Dongguan's minimum wage jumped more than 27%. Even with the increase, employers are struggling with worker shortages. Government inspectors are making the rounds at factories, enforcing work-hour rules and pension contributions that officials paid little attention to in the past. Electricity is in short supply, as is fuel.

All in all, Chang says, things have gotten so much tougher that his next investment may be in Vietnam, where many Taiwanese have gone.

"For manufacturers here, the golden period has passed," he said.

To be sure, Dongguan still enjoys major advantages over other places in China and certainly most other countries, thanks to cheap labor and access to strong infrastructure and extensive supply chains.

But Chang's disenchantment reflects the city's fading allure for some Taiwanese and, more broadly, significant changes that are taking place in China's export manufacturing base as foreign investments show signs of leveling off.

After four years of booming growth, foreign direct investments into China have flattened this year. That signals the waning of massive capital inflows, particularly in the electronics sector, that followed China's ascension to the World Trade Organization in 2001.

Yuan Gangmin, a senior economist with the Chinese Academy of Social Sciences in Beijing, says an investment slowdown was bound to hit places such as Dongguan even harder. Government policies overly emphasized the development of export industries in coastal regions — and now that's coming home to roost.

"Such kinds of shortsighted policy discrimination led to the high cost of immobile resources like energy, land and environment," Yuan said. He saw a silver lining in this picture: It could spur development in the lagging western areas of China, which have more abundant resources.

Dongguan, part of Guangdong province and an area known as the Pearl River Delta, was one of the earliest to benefit from China's policy of opening the nation to foreign investment. With money flowing from Hong Kong and Taiwan, tens of thousands of factories were established in the Pearl River area, making it the world's factory floor for shoes, watches, clothes, electronics, toys and other consumer goods.

But with China's economic growth spreading to other regions, and rural incomes improving, Dongguan is facing stiffer competition for workers, who are increasingly mobile.

At the same time, China is moving up the technology ladder and encouraging the buildup of environmentally cleaner industries. Local governments are being told to stop the often mad rush to put up factories and develop for the sake of generating impressive economic statistics.

The upshot is that traditional manufacturers aren't as welcome as before. And the Taiwanese in Dongguan are feeling that as much as anyone.

Taiwanese investments in Dongguan took off in the early 1990s as restrictions were eased, despite political tensions across the Taiwan Strait. With more than 6,000 companies registered in the city, the Taiwanese are the single largest group of foreign investors in Dongguan. Many of them are in labor-intensive sectors such as footwear, furniture, handbags and toys, although the share of high-tech companies is increasing.

The Taiwanese presence in Dongguan is so large that the first Taiwan schools in mainland China were started here. Tens of thousands of Taiwanese bought homes and live in the city. Taiwanese entrepreneurs brought in machines, raw materials and manufacturing know-how from their homeland and took advantage of the land, favorable tax and other policies and abundant labor force that Dongguan offered.

But in the last couple of years, one of their biggest problems has been with labor shortages. By government estimates, about 2 million jobs went begging last year in the Pearl River Delta. Many workers who had migrated to the urban coast from farms out west didn't return to their factory jobs after going back home for the Spring Festival holiday in February. Others have been heading north to Zhejiang province and up along the Yangtze River, where wages tend to be higher.

In response, Dongguan raised the minimum monthly wage by about $15, to $70.

Lai Wenfeng, a scholar at Jinan University in nearby Guangzhou who has studied Taiwanese investment in Dongguan, says the Taiwan entrepreneurs are partly to blame for the current labor constraints. They should have offered better pay, benefits and working conditions years earlier, he suggests.

"We shouldn't feel sorry if some factories are leaving," he said.

Besides lifting wages, Taiwan-run factories in Dongguan have made other changes recently. At Chang's largest shoe operation, Four Star Shoes Co., he converted the pay system for most of his 1,100 employees from piecework to a straight monthly rate. A five-day workweek was adopted. Overall, Four Star's labor costs shot up 40% to 50% in the last year, says Wang Bi Hui, the company's vice general manager.

To improve recruitment and retention of workers, Four Star built dormitories for workers. A large dining hall was added, as well as a movie room and a library that's expected to hold 1,000 books when completed.

The higher wages and better living conditions have helped employers reduce but not cure their labor shortage headaches. Dongguan Yi Chen Can Factory, which set up in the city in 1992, also spiffed up its housing facilities, lowering the number of workers in a dorm room to five or six and adding a basketball playground as well as a chess and card room.

Still, the company, which makes cans for containing gifts and other uses, relies on several agencies to help recruit workers. As labor costs have risen, the factory has supplemented its employment of 400 with about 100 temporary staff, who don't receive government-required health and welfare benefits for regular employees, spokesman Zhang Min says.

Yi Chen Can Factory has to cut expenses where it can, Min says, because "our other costs are also increasing a lot these days." Metal prices, for example, have soared, driven up by China's big appetite for natural resources. And electricity bills sometimes run triple normal costs during steamy summer days, when Guangdong province and other industrial belts impose limits on use.

Power shortages aren't just in the south, of course. It's up and down the coast. China's energy supply capacity hasn't kept up with the country's booming growth. Like many companies, Zhang's can factory fires up generators to keep things running during rotating blackout and red-alert days. But it takes diesel fuel to power generators, and in recent months, Guangdong province in particular has seen a supply crunch.

It also slows down delivery of goods. "Many of my drivers are coming back and complaining that they cannot get enough diesel," said Sun Ai Hua, who runs a small trucking firm in Dongguan. "These days I have to apologize and explain a lot to my customers."

Highway traffic congestion in and out of Dongguan can be bad enough without fuel problems. The city has built more roads, but numerous construction projects and burgeoning domestic demand for consumer goods and expansions by giants such as Wal-Mart Stores Inc., which operates its distribution center in nearby Shenzhen, all add to the freight traffic on highways.

Samuel Kuo, the Taiwanese owner of Lacquer Craft, a maker of high-end furniture for exports, believes that Taiwan investment in Dongguan is still growing but definitely more slowly. Many furniture makers, he says, already have set up shop in Vietnam and Indonesia. Apart from higher labor costs in China, he says, the moves were prompted by anti-dumping duties of as much as 198% imposed by the United States.

Kuo's company pays a relatively modest 2.6% anti-dumping tax. And he hasn't followed others to Vietnam. But Kuo doesn't preclude the possibility of going there. Vietnam-based furniture makers don't face U.S. anti-dumping duties, and that country's wages are significantly lower than China's. Kuo's increased labor costs in Dongguan include contributions to government-mandated retirement plans, which have risen 24% recently — no small matter for a company with 4,000 employees. Taiwanese entrepreneurs figure it will take a few more years before Vietnam's infrastructure and production quality can catch up to China's. But it may be even sooner than that for some industries such as textiles.

"Vietnam has similar living habits of Chinese, similar cultural background, so it's easier for management," said Chen Qibin, vice general manager of Roo Hsing Garment Co., which added two more production lines in Vietnam this year.

These days it's not easy for entrepreneurs like Chen to expand in Dongguan, even if they wanted to. For starters, land in the city is much harder to come by.

"Government officials have made it clear that Dongguan should no longer sacrifice environment to achieve speedy development," said Chen Xihui, director of Dongguan's Taiwan Affairs Bureau. "Instead, we should work on scientific and sustainable development."

Chen cited the Shanhu technology industrial zone as an example of this new attitude. The 28-square-mile park stands out among a sprawl of factories and dusty roads, with its lake and flower gardens. Universities and service firms already have moved in there. Traditional manufacturers are conspicuously absent.

Said Chen, "Companies that cannot meet our environmental standard will not be able to enter the zone."

*

Researcher Cao Jun in The Times' Shanghai Bureau contributed to this report.

[HenryTo]

And I have previously posted this before:

http://edition.cnn.com/2005/BUSINESS/06/08/india.labor.outsource.ap/

Could the shortage of labor in India and China contribute to wage or consumer goods inflation just up ahead? Especially now that everyone has accepted the view of continual disinflation and the decline of the long bond? Food for thought on a bright Saturday morning.

Henry