China Labour Shortage Threat To Chem Demand Grows

“Sorry, but there’s more to life – I really don’t want to do this anymore…”

xin_5805022814176852701015.jpgSource of picture: China Daily

 

By John Richardson

The labour shortage crisis in southern China – which one trader had claimed would last exactly ten days beyond the end of a recent polyolefins conference - is proving to be a great deal more long term.

A major shift in lifestyle expectations appears to be taking place as younger workers – those who entered the workforce after 1990 – seem less willing to put up with the sometimes awful working conditions in Guangdong’s sweat shops.

“In addition, job opportunities are mounting in the central and western regions, including infrastructure construction boosted by the national stimulus plan,” writes the outsourcing blog, Perspectives in Responsible Sourcing.

“As a result, would-be migrant workers now choose to stay in their hometowns or move to other rural regions.”

The willingness to remain in central and western China seems to have also been boosted by greater subsidies for farmers, and the more recent discounts off the prices of consumer goods – part of China’s huge economic stimulus package.

Living conditions the further west you go can sometimes be better than Guangdong province, with more affordable housing and better schools, according to locals quoted in media reports.

Guangdong – where the shortage of workers is estimated to be anywhere between 900,000 (the official government figure) and 3m – has also been hit by wages being lower than the Shanghai, Zhejiang and Jiangsu provinces in the Yangtze River Delta region.

The Guangdong provincial government announced last week that minimum wages would rise by an average of more than 20% from 1 May. Major manufacturers such as LG, Panasonic, Volkswagen and BMW have reportedly already raised their salaries.

But the Yangtze River provinces have also raised minimum wages this year.

“If the re-export heartland provinces get stuck in wages spiral, they are in danger of losing competitiveness,” said a Shenzhen-based director of tyre manufacturing company who I spoke to today – a US ex-pat.

“We would be hit even more if the government decides to raise the value of the Yuan, quite possible given all the international pressure.”

But this particular tyre manufacturer faces the more immediate issue of being several hundred workers short of the number needed to meet an international order -a problem being reported by other manufacturers throughout Guangdong.

The consequences for chemicals have been seen in the styrene chain and last week in polyethylene (PE), where ICIS pricing assessed that prices for the polymer had fallen by as much as $70/tonne from a week earlier. These declines were partly the result of insufficient workers to run processing plants, in addition to mounting inventories and new PE supply.

This all seems like a classic case of unintended consequences as Beijing officials have long being using policy to encourage more job retention and more growth in central and western China.

A reversal of the overall direction of this policy seems unlikely, but more temporary help for exporters in Guangdong could happen.

But the risk here that any such help raises the anger of the protectionist lobby in the US.



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