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Decoding China’s blue-collar labour shortage

IFM_ China’s blue-collar labour shortage
Business confidence in China has already fallen to its lowest since 2013, as per a World Economics survey

As China right now is struggling with the massive surge in coronavirus cases, due to the emergence of XBB.1.5 sub-variant of Omicron, there is another crisis which is brewing inside its economy in form of a growing labour shortage.

Since 2020, China, under its ‘Zero COVID’ policy, has taken harsh lockdown measures to control the pandemic’s spread. The experts are blaming this approach, along with poor and ineffective vaccination, behind the country’s domestic population lacking herd immunity against the virus. The lockdowns harmed the economy even harder, as part of supply chain disruptions, media reports suggest that one in every five Chinese in the 16 to 24 age group was unemployed in 2022. For 2023, the World Bank has predicted the world’s second-largest economy to grow at a rate of 5.2% in 2023. This doesn’t sound good for the country which has some 11.6 million graduates waiting to enter the workforce.

Business confidence in China has already fallen to its lowest since 2013, as per a World Economics survey. In November 2022, iPhone maker Foxconn saw massive workers unrest in its Zhengzhou factory, due to harsh COVID restrictions and claims of overdue payments. You have Vietnam setting its eyes on dethroning China as a ‘Number One Tech Hub’ as industry giants look for alternative markets. Apple, Google and Samsung are all set to shift their manufacturing activities to the Southeast Asian nation, whose GDP growth has accelerated to a record 8.02%.

Amid these, the growing labour shortage is becoming another headache for the country. The question is what is driving this phenomenon?

As per the ‘Manzella Report’, the labour shortage is happening in China’s coastal manufacturing regions. The reasons are Chinese government policies, along with work and living conditions in these areas.

Since 2000, migrating rural workers have been the chief source of labour in coastal cities. The government stats show that these workers have increased to more than 250 million from just over 60 million in the last 20 years. However, NGOs think that the real tally is somewhere between 350 to 400 million.

However, labour shortages are getting worse in Guangzhou and Shanghai, where there is an estimated 30 to 70% gap between the number of workers demanded and the ones available. Chinese media reports also reiterate that an increasing number of workers previously employed on the coast are now actively seeking work in provinces near their home districts. They are doing it as they believe that they can get equal or better financial results (in terms of salaries) under this arrangement while saving costs for travelling to cities.

Also in urban areas, workers from the countryside don’t get legal protection as an antiquated Hukou (household registration) system bars them from taking part in these cities’ basic social infrastructure. Migrants cannot utilize local childcare, education, housing, medical, or unemployment benefits. To take advantage of urban benefits such as accredited schools or proper hospitals, they must pay “usage fees” often equal to more than a year’s worth of wages.

Both United Nations and Chinese studies have also shown the increasing cost of living crisis in these urban areas. The same cost comes twice below if these labourers are working in interior districts. Also, wages (excluding mandatory overtime) are, on average, nearly 50% higher in coastal cities and the amount fails to support living expenses.

While a recent International Monetary Fund (IMF) report has predicted a full-scale nationwide labour shortage by 2025, it cited the Hukou system as a key reason behind this. However, the report is too reliant on Chinese government data rather than independent assessments. Also, the report ignored the factors mentioned below.

While the popular belief suggests a near equilibrium between Chinese labour supply and demand is inaccurate, the country does not really have the official 87% employment ratio.

A large portion of Chinese society remains untracked for such employment statistics. A significant section of the domestic population works in completely unreported industries, and/or is paid off the books.

The IMF study also underestimated the impact of changes to the Chinese retirement age. Those who are forced to retire in their late forties and early fifties generally continue their working lifestyle in urban areas. They work off the books and are statistically untracked. Changing the retirement age may not fill as much of the labour demand as the report estimates.

Also, the report doesn’t speak much about the massive spike in unemployment/underemployment among Chinese university graduates. At least half of these graduates are unemployed/underemployed since 2019.

As per the ‘Manzella Report’, the labour shortage issue has its roots in the country’s bureaucracy. Reforming the Hukou system and guaranteeing the migrant workers their basic rights in urban areas should be the top priority now.

With the Chinese population inevitably declining due to the one-child policy, the retirement age can also be adjusted as per economic need. Also, a reformed labour-related statistics-gathering system that reflects the ground reality accurately will help policy-making immensely.

Foreign firms, on their part, can introduce higher pay and some of the missing societal infrastructure to workers, apart from working with their respective chambers of commerce to improve the Hukou system.

IMF, on its part, can concentrate on partnering with China to align the latter’s educational system with the 21st-century professional skill sets, to keep the labour force future-proof.

As per a January 2022 report from ‘China Macro Economy’, in 2020, migrant workers, who account for the largest share of China’s blue-collar labour pool, earned an average monthly income of 6,214 yuan, an increase of 6.2% over the previous year, if the report from National Bureau of Statistics is to be believed. In the first six months of 2019, the median per capita disposable income was 14,897 yuan per year.

In 2020, a report titled ‘New Blue Collar Employment and Living Conditions Research Report’, released by the Data Centre of China Internet, showed that wages can be even higher for workers in the gig economy, with nearly 40% of couriers, online taxi drivers and delivery workers earning an average monthly income above 9,000 yuan. This figure was higher than the starting salaries offered to university graduates in 2020.

Still, these generous incomes didn’t stop the workers’ shortfalls, and now government estimates that by 2025, there will be tens of millions of labour vacancies.

According to the human resources company ‘China International Intellectech’, in 2021, nearly 70% of Chinese businesses were facing labour shortages, and some 55% of these companies struggled to find blue-collar workers.

The Ministry of Human Resources and Social Security said in 2021 that of the 100 occupations with the greatest worker shortages, as many as 36 were categorised as “manufacturing and related personnel.” Of the 25 new occupations on the list, 15 were directly related to manufacturing, accounting for 60% of the total.

The report also stated that the number of “open positions for occupations on the rankings” jumped to 1.418 million in Q4, which is up by about 100,000 from 1.316 million seen in the third quarter of 2020.

This only shows that factory owners across the country are facing the same struggle, in terms of getting an adequate labour force, including the higher skilled workers, while facing increasing demand pressures. The fact is that the workers’ pool has been steadily decreasing and sectors like manufacturing are bearing the brunt.

Another 2021 report from Apparel Resources sums up the situation perfectly, “This is not only because jobs in other industries have become lucrative but it is also because of the impact of the legacy of decades of the one-child policy that was officially scrapped in 2016. Notably, as per official figures, China’s working age population has gone down by more than 5 million people in the last decade as births have slumped, and this is despite a rollback of the one-child policy.”

“To make it worse, the migrant workers on whom the entire manufacturing industry survives and thrives are still worried about getting infected by Coronavirus despite the low number of cases in the country, and this worry is forcing them to stay at home, thereby hitting the businesses in the country significantly. Chinese migrants who had returned to their hometowns for the Spring Festival are reluctant to come back to cities and according to a reported survey conducted in the country, women migrant workers are less likely than men migrant workers to return to factories,” it remarked further.

“The report also highlighted that having a preschool-age kid had a negative impact on women migrants’ employment decisions. Notably, Covid-19 has today reinforced traditional gender roles in many apparel and business establishments in the country, and intensified labour market inequalities. Also, the recent floods in many parts of China haven’t helped the cause either. In fact, as on March 2021, the Statistics Bureau said that there were still 2.46 million fewer migrant workers than during the same period back in 2019,” Apparel Resources study commented, while citing the Chinese government data.

“Several migrant workers have been battling tough working conditions, employed as labourers in garment factories or as courier employees in China’s e-commerce firms. Also, a stringent residency system — called ‘hukou’ — prevented migrants from accessing public health care and schools, or buying property in their city of work. In such a scenario that’s already plagued by high living costs, migrant workers are not keen to rush to cities – at least for the time being,” it added further.

So the trend suggests that the Chinese population is looking for office/clerical jobs more, than factory ones. As per the Education Ministry, there will be a shortage of nearly 30 million workers in the manufacturing sector in the coming days.

China Daily came out with a report in 2022, which had some significant observations on the country’s return to economic normalcy after two-year-long COVID-related disruptions. It also talked about how the declining factory workforce could potentially have a negative impact on the country’s growth story.

“With restrictions on social mobility being lifted, China should avoid the systemic risks that some major economies have encountered in this process,” the report commented.

“The factor that is likely to have the greatest impact on the economy is likely to be a decline in the labour force participation rate. One reason for this is that the speed of labour returning to the market is slow relative to the increase in labour demand, resulting in a shortage of manpower. The COVID-19 pandemic has seriously affected the manufacturing industries with long supply chains and assembly-line operations. The United States, for example, currently has a labour shortage of 11 million people,” it said further.

“China’s manufacturing labour is mostly migrant workers. If the pandemic continues for months, which is highly likely, the process of returning to work of some migrant workers may be slowed down to a certain extent. Or, after the recovery of the hard-hit service industry from the influences of the pandemic, there will be a change in the employment structure of the country. More labour will flow to the service industries, where the wages are higher, resulting in a shortage of manufacturing labour,” the study observed.

“Besides, the shortage of truck drivers in the logistics industry is as high as 10 million. If a certain number of drivers have to stop work due to infections every day for a period of time in the future, it will continuously cause a decline in the efficiency of the logistics industry, and affect the efficiency of the entire supply chain and the operation of the manufacturing industry. In countries such as the US and the United Kingdom, reduced logistics efficiency and a shortage of lorry drivers are among the factors driving inflation,” the report remarked.

“Therefore, it is necessary for Chinese factories to prepare for possible labour losses after the expected mass migration of workers to their hometowns for Spring Festival, which falls on Jan 21 next year. For example, incentives should be offered to workers who promise to return on time, and workers should be guaranteed paid holidays or other benefits if they become infected. Factories with heavy orders can offer bonuses to encourage employees to stay on the job during the Lunar New Year holiday to avoid labour losses and shortages as much as possible,” it suggested, while talking about the ways to deal with the problem of decreasing labour force.

“The salary may appear attractive for some outsiders, but insiders are still cautious. Given that workers are paid by the piece, higher salary would mean taking up heavy workloads,” the report said.

“The income of truck drivers and other practitioners in the logistics industry needs to be increased and their welfare improved, so as to avoid supply chain disruptions. Maintaining the normal economic cycle of consumption, production and distribution is the biggest challenge and task for restarting the economy in the post-pandemic era,” it concluded.

Yang Zhixiong, Executive General Manager of the Guangzhou International Textile Trade Zone, told Apparel Resources, “There is nothing more disheartening than seeing young men and women running away from apparel units. Youth would like to try more challenging jobs, especially in the creative design and automated industries.”

Zhang Xiaorao, director of Silk Road Vocational College, which trains mechanics and automation technicians, informed the ‘China Macro Economy’ in 2022 that due to high worker demand, students were usually hired in advance of graduation. They undergo a one-year internship programme after a two-year professional course, and companies contact faculties in advance to express what type of interns they need.

“Companies have seen an increase in export orders after the COVID pandemic, and now companies are coming to recruit even more employees than before,” she said.

However, traditional Chinese Confucian culture is an important historical reason for society’s prejudice against “skilled workers”, as per the official.

“The ancients divided jobs into ‘three teachings and nine sects’ and those at the bottom of this chain are all skilled workers, which is a deep-rooted concept among many Chinese people, who believe these workers are in undignified professions,” Zhang Xiaorao remarked.

Since 2009, the Chinese government has provided vocational school students with free tuition, accommodation, meals, and a subsidy of 2,000 yuan a year for poor pupils. For Zhang Xiaorao, this shows the administration’s serious intent on this front.

In 2021, Beijing issued new guidelines to address discrimination against students graduating from vocational schools. In October of that year, the labour ministry outlawed the practice of employers carrying on hiring based on where a job applicant studied.

In the same year, the Standing Committee of the National People’s Congress had also recommended changing the term “technically skilled personnel” to “highly qualified and technically skilled personnel”.

“Changing the name of the workers also sidesteps social discrimination against these industries,” Zhang Xiaorao concluded.

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