Free Webcast: Four Ways To Improve Your Content Marketing Maturity – Learn More ›
Popular Today in News: All Popular Articles

China Labor Shortage? Not This Year, Say Suppliers and Experts

Trends & News

Non-returning factory workers have become as traditional in China as the lavish celebrations characterizing Chinese New Year. The year of the snake, however, is shaping up to be a little different.

China Labor Shortage? Not This Year, Say Suppliers and Experts image CHINA LABOR SHORTAGE

Image courtesy of basketman at FreeDigitalPhotos.net

In the weeks immediately after Chinese New Year, also known as the Spring Festival, many factories reported a higher return rate among workers who left for celebrations in their home province. Other makers, meanwhile, said finding employees to replace those who did not come back to their jobs has so far been easier.

The hiring freeze by Foxconn soon after the festival indicates lower attrition, according to RBC Capital Markets analyst Amit Daryanani. In a Reuters article, Daryanani estimated the worker return rate this Chinese New Year at the China factories that RBC monitors is at nearly 90 percent, compared with 70 to 80 percent in previous years.

To quote a related RBC report, “Our checks at multiple other supply chain companies suggest that the return rate of employees in China post-Chinese New Year has been much higher this year vs. historical averages. This may logically be a reason for Foxconn to implement a hiring freeze post-CNY.”

Cornelius Mueller of Shenzhen-based Sinoland Worldwide Ltd has the same observation. In an interview with Global Sources, he said, “The general worker situation in electronics plants now is much more relaxed when compared with the past five to 10 years.”

Related Resources from B2C
» Free Webcast: Build Better Products by Identifying and Validating Your Riskiest Assumptions

Mueller is referring specifically to plants in the Pearl River Delta, adding that he has not noticed any significant shortage in labor this year among Sinoland’s partner factories. “Previously, some plants had to replace between 50 and 70 percent of workers. This year, the same factories face just 20 percent of personnel not returning.” Sinoland provides sourcing, engineering and quality inspection services mainly for midsize European companies.

Manufacturers will, of course, have a clearer picture of worker requirements as operations normalize in the weeks ahead. The PRD situation, so far, is “not markedly worse,” said Renaud Anjoran of Sofeast Quality Control, which helps importers improve and secure product quality in China. Anjoran further described the current worker deficit as the same or a little better than last year.

With most of its workers returning after Chinese New Year, Oneleaf (HK) Ltd‘s Shenzhen factory has a labor pool deep enough to fulfill its current list of manufacturing commitments.

The same goes for Shenzhen Gao Su Da Technology Co. Ltd, a supplier of adapters, power banks and accessories for iDevices.

While annual labor shortages have been reported in China for the past decade, the Rural-Urban Migration in China and Indonesia project found that a large percentage of the rural labor force has not yet migrated to cities. They are deterred by the “hukou” system that restricts migrant access to social welfare and other benefits.

“Many economists believe that China has run out of cheap surplus rural laborers,” RUMiCI project leader Xin Meng said in an interview with The Wall Street Journal. “However, in our data we find that only about 25 percent of the rural hukou labor force has migrated to cities in 2010. They often stay in cities for a relatively short time, about seven to nine years.”

More perks, higher pay

Better compensation packages, and improving working and living conditions at factories could be one of the factors behind the high return rate of workers this year.

Suppliers are offering better fringe benefits while raising wages in an effort to encourage worker loyalty.

Perks, in fact, are now the norm in China’s manufacturing industries. “Post-90s workers have higher expectations than their post-80s counterparts,” said Wen Zhong Peng, export sales merchant of Shenzhen Gao Su Da. “They want a relaxed working atmosphere and more holidays. A monthly salary of 2,000 to 3,000 yuan ($320 to $480) is not enough.”

Qingdao Zehan Machinery Mfg Co. Ltd provides personnel with social security and rewards them with 300 yuan ($48) for every month of complete attendance. Workers also get free lodging and a tenure-based allowance.

These incentives, combined with a 1,000 yuan ($159) salary increment, helped the punched, forged and turned parts supplier ensure a 100 percent return rate this Chinese New Year. Thirty percent of Qingdao Zehan’s workers are migrants from outside Shandong province.

Sofeast’s partner factories in the PRD have similarly upped compensation packages, giving personnel who come back early a bonus on top of a competitive salary. Mid- to long-term employee benefits include improved and air-conditioned dormitories, and sports facilities.

Manufacturers are coupling these “add-ons” with higher salaries to ensure further factory personnel tenure.

Chinabest Home Appliance Co. Ltd pays more than 3,000 yuan for certain positions. The maker of gas stove and water heaters has over 2,500 employees.

In Guangzhou, meanwhile, salary adjustments will range from 9 to 12 percent, according to the Guangzhou Human Resource and Social Security Department.

True enough, at a local job fair last Feb. 20, employers raised the wages of common factory staff by 9 percent YoY to 2,000 to 2,500 yuan ($320 to $398). Rates for experienced technicians were bumped up 10 percent to 3,800 to 4,500 yuan ($605 to $717). Garments factories offered skilled laborers 4,000 yuan ($637).

There are also provincial-level efforts to improve remuneration. Guangdong authorities, for example, have just increased the minimum wage by nearly 20 percent or 1,500 yuan ($240) effective May 1.

The hukou points system introduced by the Guangdong government in 2010 is also in line with worker retention targets. The system allows migrant laborers to apply for urban household registration once they accumulate 60 points. Workers earn points based on educational background, skill level, social security records and participation in charitable activities. Their spouse and minor children can also be registered. By the end of 2012, more than 330,000 migrant laborers have applied for urban household registration via the points system.

“Things are gradually improving,” Meng of RUMiCI said. “The proportion of migrant workers with unemployment insurance increased from 11 percent in 2008 to 21 percent in 2012. Similarly, those with health, pension, and work-injury insurances increased from 13 percent, 18 percent, and 17 percent in 2008 to 27 percent, 31 percent, and 23 percent in 2012, respectively.

Her study likewise shows a gradual increase in the average duration migrants stay in cities from 7.8 years in 2008 to 8.9 in 2012.

Meng is also an economics professor at Australian National University.

We are ‘family’

After the weeks-long Spring Festival break, workers returning to Qingdao Hengda Co. Ltd’s Shandong factory were greeted by 50 senior executives lined up at the gate, bowing their welcome.

The shoe supplier is not alone in this. A growing number of manufacturers in China are taking unconventional steps to not only attract new personnel, but to make their current employees feel they are valued.

PassageMaker Sourcing Solutions, which is both a sourcing agent and a contract manufacturer, has a Western approach for this. “We have fun. We hold corporate barbecues, river-rafting trips, beach parties and volunteer work,” said founder Mike Bellamy. “Workers are rewarded when they have ideas about production efficiency and cost savings. All these help build team spirit and make work more than just a pay check.”

In addition, the company has a monthly KPI-based bonus system that complements the base salary. This is fairly unique in China where staff members usually wait for the big year-end bonus then leave their posts. PassageMaker has an assembly center in Shenzhen with more than 100 employees.

The “human touch” has proven effective for Qingdao Hengda, which adopts environment-friendly materials under efforts to ensure worker safety. The company said 99.3 percent of its 5,600 personnel returned to their jobs after Chinese New Year. About one-tenth of staff members are from Jiangsu and Sichuan provinces. Sixty percent are from the county-level city of Jimo where Qingdao Hengda is based. The rest are from various locations within Shandong.

The nonreturnees were mostly women who were about to get married and have children.

For 27-year-old Hua Jingguo, such personal reasons played heavily behind his decision to not return to his job in Qingdao after the festival. Hua has worked as an equipment maintenance apprentice for a chemical factory for the past three years.

“My wife is having a baby in May and I want to be there for her,” said Hua, who opted to stay in his hometown in Ningling, Henan province. His former employer’s plan to relocate to Guizhou province only reinforced his decision.

He has already found employment at the local fertilizer plant, earning practically the same salary from his apprentice job. “Now, I can also look after my parents,” Hua said. He has five siblings, all of whom have moved out of Ningling.

As for PassageMaker, the company is not seeing a lot of maternity-related resignations this year. “2012 was the year of the dragon and people felt it was a prosperous year to start a family,” Bellamy said. “2013 is the year of the snake. People are not so eager to make babies.”

Slow orders this year

Apart from the steps suppliers are taking to boost employee retention, another possible reason for the labor abundance this year could be slow overseas orders.

Many factories report that orders have not picked up at a pace that would require them to hire additional personnel.

Oneleaf has put off recruiting extra staff until new business comes in, relying on its existing labor pool to process current orders. Most of these transactions were secured late-2012.

Battery and power banks supplier Dongguan In & Out Electronic Ltd likewise said business is slow at present.

Sina.com referenced the demand lag in the fashion industry, quoting a Zhejiang province-based apparel maker as saying that some local enterprises have been forced to close operations due to a weak economy.

Comments on this Article: 0

Add a Comment

Add a Comment:


Thank you for adding to the conversation!

Our comments are moderated. Your comment may not appear immediately.