What China labour shortage?

Published 23rd April 22:00 HKT

Revised 24th April 12:00 HKT

  
Background: In 2012 China’s labour forced reached its inflexion point, when the working population dropped from its peak the year before, to 937.27 million. Cue domestic media fretting about China losing its competitive edge in manufacturing and exports, as a shortfall in labour would cause factory wages to rise. Checking headlines recently, the story resurfaces, as the local media talks of wages in some SE Asia countries a third cheaper than China, and the foreign media reports of an exodus of international companies to SE Asia. This was one of the Chinese media predictions in the last post
But how can we explain the contradiction of an economy apparently experiencing a labour shortage, and at the same time, university graduates still finding it tough to find jobs? Fear not says one renowned Chinese academic, who believes that China will not only continue to enjoy a labour surplus in the long term, but the challenge will be in ensuring enough jobs are available as China’s economy continues to upgrade. This means China’s economy still has plenty of room for growth in the foreseeable future.
Li Tie, Director-General of the China Center for Urban Development, an expert who’s assisted the Central Government and State Council in drafting urbanisation laws, offers a different viewpoint to Netease news today. Li argues that the difficulties for Chinese graduates in finding employment are a symptom of structural oversupply in the labour market, which can be fixed by market forces, and China’s rural population still has an excess supply of labour. The key to unlocking this labour pool lies in pushing ahead with hukou and land reform.
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Li’s main arguments why there won’t be a labour shortfall:- 
1.) “It’s a mistake to read too much from this short term phenomenon. We currently have about 800 million rural residents, of which 600 million permanently reside in the countryside. Each rural resident has on average 0.1334 hectares of land. But a more appropriate land holding to be economically productive would be each resident holding around 0.677 hectares of land. If we’re not able to unleash this labour force, then we’ll never be able to solve the countryside’s problems.”
2.) “If we look at the situation in the cities, the problems are just as bad. Due to structural changes in industry, labour intensive industries will make up less of the overall economy, meaning more and more capital and technology replacing labour. We’ve already seen in the past reports of robots replacing humans in Dongguan’s factories, or in Zhejiang local policy to install more robots. These are efforts by factories to reduce labour costs, increase their technology capabilities, and at the same time be less reliant on labour.”
3.) “Another phenomenon is that of capital substituting for labour. Now there are many companies occupying large amounts of land, investing huge amounts, but their ability to take on labour is substantially less. China is a country rich in labour supply. If we consider the supply of labour from the countryside, already 250 million have migrated, but that still leaves over 200 million potential workers, then how are we going to absorb them all? This is the problem we need to address.”
4.) “China already has a migrant working population, their employment ‘golden age’ being 16-45, and after 45 years old, they return to the countryside to work the land. But this means their labour goes unused for 15 years, a period which can also be considered a prime time for employment. Its a waste of a time in ones life when one’s maturity, technical knowledge and experience all peak. But its because hukou reform is still incomplete, that this pool of labour remains untapped.”
“So with this excess supply of labour, and at the same time labour lying idle, you tell me where’s the evidence that China’s losing its ‘labour dividend’?”
So how does Li hope to solve the tough graduate job market?
Well he doesn’t, at least not by direct government intervention. Li argues that the 7.49 million graduates experiencing difficulties in finding work this year is quite normal. In any market economy it can be seen that it takes time for demand and supply to reach equilibrium, so there won’t necessarily be balanced growth. In time the education system will adjust to meet the needs of industry, and provide a supply of graduates with suitable qualifications.
And the reports of foreign firms leaving China? 
“Well of course foreign enterprise will consider the rising labour costs when deciding to relocate from China. But in discussions I’ve had with foreign firms, they mention they still want to tap China’s market, just not produce here anymore. This means China’s economy has reached the stage of development where a rise in labour costs is inevitable. Secondly, our ability to accommodate rising environmental, land and labour costs is diminishing, which means some industries need replacing with new ones. This can be seen in not just in industrial sector, but in the service sector as well.”
“So if you’re looking at the China market, there’ll be more employment opportunities in the service sector. As China’s urbanisation rate increases from 50% to 60%, then you’ll see quick growth in the service sector, so the service sector still has plenty of capacity to absorb the workforce. In developed countries the service sector employs about two to three even four times that of industry, whereas in China its about equal, so there’s still room for growth, but it requires changes in city and urbanisation policies.”
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In other words China will still face the historical challenge of finding employment for its massive population, a problem which the government must prioritise over other economic goals, in order to maintain social stability. But this article also highlights the growth potential which still resides in China, especially in the growing service sector, which the government plans on unlocking through reform. Another positive is the government’s desire that market forces should decide employment allocations, although time will tell if this proves to be the case.

(Article not to be reproduced without permission).

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