Cheap labor in China

China's unemployed is forecast to grow by 14 million in 2006, and that this trend will continue until at least 2010.
A nation-wide government survey of the country's 120 million or so migrant workers, published by the state-owned media (which certainly have not tendency to overstate China's problems) in April, now provides even more bleak details: 72 per cent of the responding workers made less than RMB 800.- (approx. USD 100.-) per month, with 33 per cent taking home less than RMB 500.- (approx USD 63.-). Their wages are thus just about 3 per cent of those in the United States or Italy, and only 25 per cent of what workers in Mexico and Brazil receive.
Some 60 per cent of those surveyed were paid monthly, while 28 per cent received their wages only once a year. Barely 48 per cent said they were consistently paid on time.
Only 53.7 per cent had signed labor contracts, whereas 30.6 per cent had not. The remaining 15.7 per cent were not even aware that such a thing existed.
Whereas almost all these migrant workers come from the country's poor rural regions and most are barely literate, China's new college graduates face an even grimmer future: As a result of China's one-child-policy and a growing urban middle class, more and more "little princes" are given college education: 22 per cent more will graduate in 2006 than last year; whereas demand for them in the labor market has shrunk by almost the same 22 per cent to just 1.66 million vacancies. In a nutshell: 60 per cent of those now finishing college will either be jobless or have to go down-market; and this dilemma, for the foreseeable future, seems here to stay: Zhang Xiaojian, vice-minister of the Ministry of Labour and Social Security, basically threw the towel, when he recently went on record saying: "It is hard to create new jobs in large numbers due to surplus production capacity, more trade frictions and the revaluation of the yuan. As a result, it will be less easy to tackle employment pressure.ˇ±
Despite these hard facts Chinese employers still grumble in unison that workers are hard to come by and wages go through the roof.
The reason is basically simple and to some extent homemade: Privately owned factories in particular, where they have full order books, boost capacity through ad hoc hiring if and when needed. Those legions seeking work, however, often do not possess the required skills, and there is no will to provide training. On the other hand, those with sufficient experience to do the job usually have one and wisely do not change employers lightly. Money is the only lure, and in the end either the prospective or the old employer must pay more. The output of this practice is easy to anticipate. Qualified workers will get less, so their salary will rise. At the same time minor qualified employees will be employed, to fulfill the demand. As a result the produced work will be of minor quality.
The reputed South China Morning Post in Hong Kong, hit the nail on the head when recently commenting: ˇ°Several shortages pose serious threats to China's competitiveness; a lack of cheap labour is not one of them.ˇ±

4 Comment

  • 1. Steven  |  August 2, 2006, 2:41 pm

    The main problem of unemployment is the less or ineffective training of rural labor or graduates.Most of rural labor are with junior school certificate and without occupational taining.Graduates spend 3 or 4 years in campus and lttle skills gained.There are less opportunities for them to excerice their knows and when they hunt for a job, they are told:lack of skills.

  • 2.Marisa  |  August 2, 2006, 4:57 pm

    I would just like to share with you some information that I found on today's spanish newspaper and that it is somehow related to the present Labour Article.


    During the first semester of the year, the unemployment remained stable in a 4,2 per cent.

    The Department of Labour and National Health Service (MTSS) announced that in China there were 8.330.000 of unemployed urbans at the end of June, which means a decrease of 60.000 with regard to 6 previous months.

    The urban unemployment registered reached to 8.390.000 at the end of last year, including 1.530.000 of dismissed workers, in agreement with statistics of the MTSS. From policies and specific programs for unemployed and dismissed workers the local governments managed to lower the index of unemployment.

    In the first semester of this year the urban workforce increased in 6.080.000; also 2.360.000 of dismissed and unemployed workers found employment.

    The Prime minister of China, Wen Jiabao, said that the country had to maintain its index of urban unemployment in 5 per cent during the next 5 years. That will require the creation of employments for 45.000.000 of urban inhabitants and for 45.000.000 of migratory workers.

    Likewise, the National Federation of Unions of China (FNSCh) promised to help 1.000.000 of dismissed and unemployed workers to find employment before the end of next year.

    The unions will offer training or small bank credits to help the workers to begin their own business, which might stimulate the opportunities of employment of others.

    This year the Government assigned 185.980.000 of yuanes (23.000.000 of dollars) to help the unemployed ones and for the social security, an increase of 23.600.000 of yuanes (2.950.000 of dollars) with regard to last year.

  • 3. jennifer  |  August 3, 2006, 11:15 am

    China's cheap, high-quality labor resources make it the best choice for foreign investment, as advocated by Chinese officials many times. But do they really know what cheap labor means? Cheap labor means poor people. Put yourself in the place of the cheap labor and see how you like it. As a rising power in the world, China must stop relying on and exploiting its cheap labor! What sharpen its world competitiveness would not be cheap labor resources, ironically referred to by some people as "resource curses", but an advanced level of society, economy and technology based on highly skilled workers that are highly paid.

    It's not a matter of "lack of skills" but "lack of equality"; the labor in itself is not "cheap" but that they are being "considered cheap". To be a rich and powerful country, China must increase equal educational opportunities for every Chinese to get them rich in mind, rich in knowledge first.

  • 4.robert  |  August 9, 2006, 10:44 am

    What is needed for manufacturing?
    Capital, Land, material inputs and labor. On top of that there are a number of external factors that play a role. The regulatory environment, public infrastructure, stable political climate, macro financial management etc.

    If cheap labor alone would be the main determinant or tax breaks would be the main reason then most companies would not be producing in China. Some businesses do regard low labor cost as the main factor such as owners of sweatshops and although still many can be found in China there is plenty of choice outside. Vietnam, Bangladesh, Pakistan, Indonesia, middle and South America all offer development zones that suck up workers, use them up against less than liveable wages and spit them out again.

    Companies that want to manufacture quality goods that are more complicated face higher wages in China but are being rewarded with access to the internal growing market, subsidized energy inputs, faster setup time etc.

    I agree with the comments above. Fostering industries that do not offer any progress to their workers level of education nor offering decent wages is not the way for China to become a middle income country in the foreseeable future. Yes there will be unemployment and it is much higher than the official numbers tell us that is something that calls for the implementation of a social system that can offer these workers relief in a time of transition from farm worker to skilled industrial worker.

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