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China Manufacturing Relocation Accelerates

Business, China, Company Strategy, Economics
By John Richardson on 26-Mar-2013


Source of graph: Standard Chartered


By John Richardson

WORKING conditions matter as much as higher salaries for China’s emboldened manufacturing workforce, according to this article in the Financial Times.

“As the number of available workers falls, factories struggle not only to find new hires, but also retain existing staff. A young and educated workforce demands more from employers,” writes the newspaper.

Thus, family dormitories, and perhaps even workplace creches, will become essential investments for companies.

This is all very well if you are the Chinese equivalent of an Apple or Google (no such companies exist in China. Will they ever exist?), but if you are making cheap plastic garbage bags in a coastal province in China, you are pretty much finished.

Higher wage costs are in themselves also, obviously, a big problem.

Headline percentage wage rises underestimate the scale of the crisis, the FT article also points out.

“Workers don’t care what the minimum wage is. They expect to be compensated at the market rate,” one employer told the newspaper.

“Given the massive shortages [of labour] we are facing, I am not sure any method will work any more.”

The post-Lunar New Year period has made the problem worse.

Before the New Year break, we flagged up that workers would be more likely to stay at home after the holidays because of rising living standards in the countryside. We were right.

The FT said that there was another factor at play here: Because of tight labour markets (see the above slide from the Standard Chartered 2013 China annual employment survey), workers are more likely to take protracted two-month Lunar New Year holidays while they assess their employment options.

Labour shortages help to explain very disappointing petrochemicals demand post-New Year.

The Standard Chartered survey found that a growing number of companies in the Pearl River Delta region could no longer absorb higher wages and so planned to relocate.

Wage increases are now running ahead of improvements in productivity, the survey suggests. Such is human nature.

Thirty per cent of companies surveyed said they would move to other parts of China, and 9% said they would go elsewhere, mostly to Cambodia, Bangladesh, and Vietnam.

Last year, 13% said they would relocate to other regions in China, and only 4% planned to move abroad.

Does your chemicals company have a strategy to deal with all, or even any, of this?