Chinaís Labor Shortage ñ Good, Bad and Ugly

By Frank Mulligan ñ Accetis International, Talent Software & Recruit China

On a recent trip overseas I struggled to explain skills shortages for both professionals and workers in a land of 1.3 billion people, with the added contradiction of a shortage of jobs for Chinese graduates.

Iím still not convinced that anyone really and truly believed me, even if the problem is 3-4 years old now.

The difficulty was partly to be found in the cultural distance, partly in the complexity of the issues. The rapid changes in the world economy since then have more than likely muddied the waters even further. China itself has been a little less than stable in the first few months of this year.

So letís break it down into the good and the bad. I donít think itís going to get ugly but I reserve the right to add this later. The idea is that this could be used, bullet-point style, in a standard Powerpoint presentation called ìLabor Shortages Amongst Plenty - Chinaís Perfect Stormî. It might save you some work at your next Asia Pacific HR conference.

Factory Workers
The Good - The underlying narrative is of opportunities in peopleís home towns in the West of China combined with less than stellar treatment in factories on the East Coast. Largely because of the governmentís focus on the west, workers and peasants are staying at home because life there is better now. To my knowledge no one has done a survey to establish which factor is strongest but itís hard to see one factor working by itself. You need something to go back to if you are going to leave a paid job in Shenzhen.

The Bad - The problem of Chinaís worker shortages is serious. The Shenzhen Labor Bureau cites a shortage of 750,000 workers in Q3 for 2007. Thatís the best part of a million people in a city that has a total population of a bit more than 6 million people. Statistically significant, as they say.

Education
The Good - Educational opportunities in China are at an all time high. Teenagers about to leave school have never had it so good, and somewhere in the region of 30% of high-school leavers in the cities will have the option for further study.

The Bad - At the same time, this year will see 20 million new job seekers in China, among both high school and university graduates. They enter the market at a time when the overall worldís economy is drifting downward and they have gone through a rote learning education system that does not equip them for the workplace. Employers regard professionals with 1-2 years as their starting point, not graduates. Graduate unemployment is as common as multiple job offers for experienced hires.

Economic Growth
The Good - The Chinese economy has grown by about 10% a year for 20 years, and tipped above this figure last year. Continued high growth is certain but just not at previous rates.

The Bad - The Chinese government has painstakingly put together a huge raft of measure to slow down its runaway economy. This includes everything from the abolition of export tax rebates, to additional taxes, to tighter monetary control. It hasnít worked so far but the arrival of the sub-prime debacle in the US has created slowdowns around the world. This event, plus the measures in China, might all kick in together.

Unemployment
The Good - Paradoxically, continued strong growth, of the kind that many countries would sacrifice small children for, is the more likely scenario in China. This would be in excess of ëonlyí 8%.

The Bad - It might not be enough. A slightly slower growth might look like a small price to pay for economic stability. But it might be not be enough to sop up the additional new workers, and those laid-off in the event of an export downturn (which appears to be happening). The stock exchange ëcorrectioní we have seen lately, plus the slowdown of housing prices around the country will only exacerbate the problem.

FDI & Services
The Good - If we are lucky the expansion of services, especially banking, will contribute to solving the problem of declining industrial production. This is often cited as the way out. The idea is that the economy will continue growing, and FDI will continue coming in, because industrial investment and growth will simply be replaced by investment and growth in services.

The Bad - We cannot expect services to come in to save the day at exactly the point that manufacturing slows down. Services will develop, to be sure, but at their own rate. Itís also hard to see factory workers changing their industrial style boiler suits for suits ën ties. Not in the short term anyway.

Factory Losses
The Good - The loss of factories around China, but especially in the south, is focused on low-level production that the Chinese government says it wants to move away from anyway.

The Bad - The factory workers who are currently losing their jobs are in very low-technology sectors. Some of these jobs are on the margins of indentured servitude. It will not be so easy for these people to transfer across to semi-conductor plants.

The Labor Law
The Good - The new labor law.

The Bad - If we are not lucky the effect of Chinaís Labor law will be to dampen enthusiasm for China, and cause Foreign Direct Investment to shift to cheaper countries for the long term. Currently we are witnessing the wholesale exit of very low-tech factories from China, and these are moving to lower-cost countries like Vietnam. Letís hope itís a blip, and not a trend.

Whether good or bad, the new environment in China is much more complicated and unstable than before. It needs workforce planning, not hiring, retaining-for-a-bit, losing. Maybe is it time for HR to take a lead from the governmentís quality drive, and move up a notch.

Email frank.mulligan@recruit-china.com
Frank Mulliganís blog - english.talent-software.com