Southern China hikes wages to entice factory workers back

23 March 2010 07:01  [Source: ICIS news]

By Dolly Wu and Fanny Zhang

SHANGHAI (ICIS news)--Provincial and municipal governments in southern China hope that higher wages will lure back labourers in droves, which is crucial in ensuring their manufacturing plants can operate at full capacity, industry sources said on Tuesday.

Migrant workers in the region would get to earn around yuan (CNY) 1,500 ($219.62) a month - representing a 5.9% increase from the average monthly wage in 2009 - once the proposed increase in salaries was implemented a few months from now, they said.

The manpower shortage in areas such as Guangzhou, Shenzhen and Zhuhai was pegged at more than 2m, forcing toys and garments factories to run at lower operating rates, industry sources said.

“More and more orders arrive but [we do] not [have] enough people to cover the work. We have to reduce orders [and incur a] loss,” said a manager from one toy factory in south China.

In Jinjiang city, Fujian province, a shoe manufacturer was running its factory at 70-80% of capacity.

“We have responded to the labour shortage problem by constantly recruiting workers and raising wages by 20-30% compared to last year but even then it is not enough to ensure the supply of labour,” the source said in Mandarin.

Thanks to the massive fiscal stimulus measures of the national government, China’s inland regions were able to offer better salaries for workers, but this has resulted in an acute shortage of labourers in coastal industrial regions, industry sources and analysts said.

Based on official statistics, migrant workers in the Pearl River Delta region, comprising nine cities - Guangzhou, Shenzhen  Zhuhai, Foshan, Jiangmen, Zhongshan, Dongguan, Huizhou, Zhaoqing - have fallen in number in 2009 by 22.5% to 32.82m.

This year, a number of workers did not show up for work at factories after the week-long Lunar New Year holiday in China in mid February.

“Why should they come back? They can live a better life in their hometowns,” said a cloth trader based in eastern Zhejiang province.

The Guangdong provincial government stepped in to alleviate the situation, announcing an average 21.1% increase in minimum wage effective 1 May.

This would raise the minimal wage to CNY1,030/month from CNY860/month for Guangdong’s capital city of Guangzhou, and to CNY920/month from CNY770/month for the cities of Dongguan, Zhongshan, Zhuhai and Foshan.

In Dongguan alone, factory labourers were short by 30%, based on estimates of local government officials.

A source from Nike, an international sports shoe maker that has operations in Guangzhou, noted that labour shortage afflicts all the company’s contract manufacturers in Dongguan.

“One hardest-hit factory now lacks 300-400 workers to meet its total 2,000 workforce demand,” the source said.

In Shenzhen, the municipal government was mulling raising the basic wage of a migrant labourer by 10% from the current level of CNY1,000, with implementation likely to be in June.

“We plan to increase the minimum wage at least by 10% based on current level,” said an official at the Shenzhen government, admitting that the income earned by workers inland was also rising.

The wage increase to be implemented this year represents a sharp increase from the moderate growth in workers’ income last year, based on data from China’s NBS.

Better wages should ease the labour shortage in southern China in the next few months but the companies may be beset with problems of passing on the cost to customers, said an analyst at Shenzhen-based Guosen Securities.

Demand for petrochemical raw materials like styrene and acrylonitrile-butadiene-styrene (ABS) resins was being affected by the slowdown in China’s overall production at factories, but petrochemical plants were not wanting in labourers, industry sources said.

“Companies like us could still recruit enough workers as we provide competitive compensations and jobs here are relatively stable”, said a source from Maoming Petrochemical, a subsidiary of Sinopec.

Proposing a long-term solution to the chronic problem of labour shortage post-Lunar New Year, China Plastics Processing Industry Association (CPPIA) vice president Liu Jingfen advocated a shift of focus to improving technology.

China should focus on transforming its economic development structure - from labour-intensive industries to technology high value-added sectors, which will make economic structure more rational and reasonable,” Liu Jingfen, vice president of China Plastics Processing Industry Association (CPPIA) said.

With additional reporting by Judith Wang, Helen Lee and Chow Bee Lin

Read John Richardson and Malini Hariharan's Asian Chemical Connections blog
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By: Dolly Wu
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