The excerpt below is from a much LONGER article written by an investment research company headquartered in Hong Kong called GaveKal Research Limited ...
www.GaveKal.com.
Interesting commentary because it's written by those in a position to give a different perspective from those you see in the US papers and on TV. Excerpt is from October 21, 2004 article called "China Misconceptions" by Luis Vincent Gave.
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Misconception: China Will Remain A Deflationary Force For the World Because of its Excess Labor Pool
One of the more commonly believed assertions about China is that the country has an excess labor pool of between 150m to 300m people, and that labor costs can therefore not rise. From there, most people assume that China will remain a deflationary force for the world.
The interesting thing is that this belief remains prevalent despite the fact that in recent months, labor costs in China have been rising! In other words, why let the facts get in the way of a good prejudice? Indeed, all over the Pearl River Delta, and in the Yangtze River Delta, a number of factories have had to deal with striking workers, asking for increases in pay from the usual RMB600-700/month to a slightly less inhumane RMB 1000/month. That's a hefty 40% increase in some cases!
Now, why were workers able to get away with strikes, and wage augmentations? The answer there is simple: most of China's booming coastal provinces are suffering from an acute shortage of labor. A recent study published by the Chinese Ministry of Labour and Social Security showed that Guangdong (the province behind HK) suffered from a lack of 2m migrant workers (10% of the total labor force). Shenzhen alone (the special economic zone directly on the other side of HK) is short of 400,000 workers. But how can this be, when China supposedly has an army of 200 million people sitting in the countryside, waiting to come work in the cities?
The first explanation is that the "army of unemployed" people is willing to come work in the cities...but at a price. And this price apparently no longer is RMB 600 (or US$75)/month. It might have been that price when the harvests in China's countryside were really weak and the farms could not support a large staff. But as we have been highlighting in numerous Daily reports over the past month, the harvest this year is proving to be very satisfactory. So farm hands need not come to the city to look for gainful employment. They can find that at home.
The second reason behind the misconception could be linked to cultural prejudice from Westerners confronting China for the first time. Indeed, most Westerners on their first visit to a Beijing train station will most likely be overwhelmed by the size of the crowd, and frightened by the number of "farm hands" sitting around, waiting for potential employers to swing by and pick them up. By the same token, most Westerners on their first Chinese factory visit will most likely be struck by the extent to which most workers look alike, and inter-changeable. And here, at the risk of sounding inconsiderate and unveiling some great secret, it is also true that, to most Westerners who experience China for the first time, most Chinese people do tend to look alike (same hair, same color of eyes...). And from the above experiences a belief/prejudice is born: that Chinese workers are totally interchangeable. But of course, they are not! For a start, workers often need to be trained; and this takes time. More importantly, different industries require different kinds of workers. Manufacturing, electronics, textiles, etc... usually hire 15-30 year old women. Construction hires 18-30 year old men etc...
And this is where it gets interesting. Because, as is well know to all, China embarked on a "one child policy" in the early 1970s. And more often than not, this "one-child" ended up being male. So today, industries that depend on young women workers are finding it tougher to find workers. And this problem is a structural one which argues for a drift higher in manufacturing wages.
In any event, both anecdotal evidence, and recent government reports point to the fact that large factories in coastal regions are having an increasingly hard time to find workers. Or if they do, these workers come at a higher price (i.e.: RMB 1,000/per month instead of the previous RMB700). So the myth of China's ever deflationary pool of labor is melting before our very eyes. Yet almost everyone continues to talk about it as if it was a pre-ordained, and ever-lasting certainty.
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~ masher
B.A.S.E. #0004 <(O)>
