To China's migrants: Stay west, young man

Rising wages on China's more prosperous eastern coast are pushing some factories inland where labor is cheap.

When Song Shouwei left school seven years ago, he followed almost everyone else in his graduating class from the grinding poverty of his farming village in China's heartland to a boomtown on the east coast for a job making computer parts.

Three years later, when he returned home to get married, he found he had changed. He no longer wanted to live so far from his family. More important, his birthplace had changed, too. Factories had opened. There were jobs to be had on his doorstep. He stayed.

Mr. Song is part of a gathering trend that is making it ever harder for coastal enterprises – the engines of China's economic growth – to attract the migrant workers they need. The shift follows nearly a decade of government incentives to develop its impoverished inland.

Pushed by unsatisfactory wages and poor conditions on the coast and pulled by new job opportunities inland, millions of Chinese workers are turning their backs on the sweatshops that have symbolized China's manufacturing miracle for the past decade.

"There is now an opportunity cost attached to leaving the countryside," says David Kelly, a senior research fellow at the National University of Singapore. At the same time, he says, strict residency rules that deny migrant workers the social benefits that city dwellers enjoy also deter many from leaving home.

The result: More than half of employers in Guangzhou and surrounding cities in the Pearl River Delta reported that they were 25 percent short of their full employment goal last year, according to a recent study by the Ministry of Labor and Social Security. A study earlier this year by the State Council, China's cabinet, found that 74 percent of the villages surveyed no longer had any surplus laborers available to work in distant cities.

"We cannot say that the pool of labor is drying up, but it is dramatically reduced," says Cai Fang, head of the Institute of Population and Labor Economics at the China Academy of Social Sciences. "The problem is that many Chinese companies got used to using low-cost labor. With incremental labor shortages and increasing wages some of them can no longer compete. There will be a large and serious adjustment for these enterprises."

Meanwhile, government incentives have encouraged the creation of more than 11 million industrial jobs in central China over the past five years, according to the National Statistics Bureau.

Those incentives are part of a grand strategy to develop China's interior, narrowing the wealth gap between prosperous coastal provinces and backward inland regions. Since the turn of the century, the Chinese government has poured hundreds of millions of dollars into roads, schools, hospitals, and other infrastructure projects inland to encourage foreign and domestic investment.

Song's employer, the Puyang Willing Chemicals Co., was tempted by the local government's offer to prepare land for construction; lay roads and water and electricity supplies for free; and to provide tax breaks and employee training.

"They are trying hard to attract investment, and the government policy helped a lot when we started up," says Puyang Willing's president, Guo Tongxin, who now employs 300 workers at his rubber additive factory.

Many companies are moving inland in search of cheaper labor: Migrant worker wages are about 1,100 RMB ($146) a month inland, compared with 1,300 RMB ($173) a month in the Pearl River Delta, according to the Ministry of Labor study.

Next door, the Zhongtai Christmas lights factory exemplifies another aspect of the trend. Founder Qu Lianming moved his manufacturing base here from the coastal province of Zhejiang last November, primarily in search of cheaper raw materials.

Now, Mr. Guo says he has had no trouble hiring laborers glad for the chance to work close to their homes.

Song, for example, works in the storeroom at Puyang Willing a few miles from his home.

"Now I can go home after work and take care of my farm" in the summer, he says, where he and his parents grow corn, hot peppers, eggplant, and peanuts.

"I have a 9-month-old daughter, my parents are getting older, and the salary here is good enough," he explains. "I don't want to go far away to work." He is not unhappy to have taken a cut in wages, either, since his expenses are far lower now that he lives with his parents.

Song's employer, Guo, knows his factory's appeal to local workers, and he plays upon it, giving employees time off to gather their harvests. "That way they can earn a wage by working at the factory and do their farm work as well," he says.

That kind of opportunity has become even more attractive with a rise in grain prices and a reduction in agricultural taxes in 2005, "making life easier back on the farm," says Robin Munro, research director at the Hong Kong-based China Labour Bulletin, which monitors migrant workers' conditions.

All this is posing problems for coastal manufacturers who have built their export-oriented business model on the foundations of abundant cheap labor.

Low-tech industries, which are internationally competitive only because their labor costs are so low, have little wiggle room to raise wages in order to attract migrant workers from the interior.

Bad news for the companies, however, is good news for migrant workers.

"Increasingly, migrant workers are finding they don't have to leave home to make a living," says Mr. Munro. "This is a trend that is clearly emerging. They've got more options now."

Wages rise, but smart money still on China

Long the poster child for low wages and sweatshop manufacturing,China is currently experiencing a rise in wages that some fear willunseat the country as one of the world's hottest spots for investment.

Butas wages have seen sustained growth over the past five years with noapparent effect on foreign investment, it's becoming clear that wagesare only one piece of the puzzle for firms operating here. Rather,China's rapid development of infrastructure has allowed its coastlineto remain a magnet for foreign investment.

"Low wages arenot the primary driver of foreign capital, which is why most investmentflows between rich countries," notes Dan Griswold, an internationaltrade expert for the libertarian-leaning Cato Institute in Washington.

Accordingto data recently released by China's National Bureau of Statistics,between 2002 and 2006 wages increased at an annual average of 13.5%.The average monthly wage in 2002 was RMB 1,035 ($136), which has risento RMB 1,750 ($232). Statistics released by the Ministry of Agriculturereport that the aggregate incomes of migrant workers nearly doubledbetween 2001 and 2005.

A portion of wage increases can betraced to a shortage of laborers, which has forced some companies toraise wages or find other ways to attract talent. But there is no signthat companies are willing to flee China's prosperous coastline forpoorer countries like Vietnam and Cambodia to find relief from thehigher wage level.

"Other developing countries havemuch worse infrastructure [ports, roads, power plants, and access tointernational markets] than China. So any gains from wage savings willbe lost due to poor infrastructure," said Minxin Pei, the director ofthe China Program at the Carnegie Endowment for International Peace inWashington.

Investment in the country's infrastructurehas remained a government priority. During its 11th five-year plan(2006-2010), the government will invest more than $20 billion in itsrailway system and construct 49 new airports. Over the next 30 years,more than $250 billion is expected to be invested in the nationalhighway system.

According to Shang-Jin Wei, a professorat the Columbia University School of Business, "the betterinfrastructure and higher productivity [of Chinese workers] have offsetthe wage advantages in other countries," he says. "However, if theChinese exchange rate were to revalue substantially, that could tip thebalance."

While it's unclear exactly how much furtherChina's currency will further revalue, many expect to see little changeover the next few years.

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