The great news behind rising labour costs: Shan Dalin, pictured with his family, is a crane operator from Southwest China's Guizhou province who has worked in eastern Zhejiang province for 10 years. In 2012, Shan's monthly income rose to 2,800 yuan ($449) from lower than 2,000 yuan in 2008. [Photo/Xinhua]
By John Richardson
The shortage of workers in one of the manufacturing heartlands of China - Guangdong province - is expected to increase from 400,000 before the Chinese New Year (CNY) to 1 million-1.2 million once the holidays are over, according to the Guangdong Human Resources and Social Security Department, quoted in this China Daily article.
This is as we suspected and flagged up a couple of weeks ago.
Post-CNY labour shortages seem likely to affect other coastal export-focused manufacturing provinces.
Part of the reason is simply delays in workers returning from their homes in the hinterland to eastern and southern China due to the huge logistics challenge of moving so many people in such a short period of time. For instance, more than 10 million migrant workers, or 61% of the total in Guangdong, have left the province, says the China Daily.
Longer-term reasons for the expected squeeze in labour supply include the high cost of living in the coastal provinces and the success of government efforts to raise living standards in inland China.
Thus, increasing numbers of migrant workers, as has been the case over the last few years, are likely to decide to remain at home when the New Year is over.
Labour shortages, which are also the result of the beginning of the end of China's demographic dividend, place the workers who do return to their jobs in a very strong position.
If they don't get what they want, there will be more industrial disputes after the New Year, which would, obviously, also restrict the ability of manufacturers to fulfil orders.
And so the manufacturer who are, of course, the buyers of chemicals and polymers, will need to further raise wages and improve working conditions in an attempt to secure enough workers.
This is likely to further squeeze the margins of the small and medium-sized enterprises (SMEs), which, as we discussed earlier this week, have reportedly fallen to 1-3% compared with 8-12% before the Global Financial Crisis. Since December, rising fuel and chemicals and polymer costs have exerted a great deal of pressure on China's SMEs.
There might well be a post-New Year bounce in chemicals and polymer markets on the inevitable uptick in industrial production.
Placing this bounce in the right context is going to be difficult.
Will underlying demand be stronger than before the New Year or weaker, and how will the SMEs cope with increasing cost pressures and, quite possibly, reduced access to credit as the Chinese government deals with renewed inflationary pressures?
Our concerns for the second quarter are growing.