China's cheap labor pool
running dry By Wu Zhong, China Editor
HONG KONG - China will begin to feel the
pain of labor shortages nationwide in the next
couple of years - much earlier than previously
forecast - as the country's seemingly ample supply
of rural migrant workers dries up, according to
the latest studies by state think-tanks.
This will make a significant impact,
forcing China's economy, which relies heavily on
labor-intensive export-oriented manufacturing, to
undergo a profound restructuring.
survey conducted by the Development Research
State Council, China's cabinet, has found the
supply of rural labor in the country is not as
ample as generally thought.
which covered 2,749 villages in 17 provinces,
shows that on average 74% of the villages no
longer any surplus laborers available to work in
So only about one-quarter
of the villages surveyed say they still have some
surplus labor below the age of 40. And this
percentage is smaller in central China (24%) and
the west (23.6%) than in the east (28.4%). This
suggests the supply of cheap labor from the
relatively poorer central and western regions is
declining. This also indicates that the labor
shortage is spreading from the economically
booming east-coastal regions to the inland.
The survey is cited as evidence in the
latest Chinese Academy of Social Sciences (CASS)
green paper on population and labor, published
last Thursday, to support its argument that China
is now approaching a "Lewisian turning point",
moving from an era of labor surplus into an era of
"Lewisian turning point"
is based on a theory of Nobel laureate Arthur
Lewis (1915-91), who said a developing country's
industrial wages begin to rise quickly at the
point when the supply of surplus labor from the
countryside tapers off.
The CASS report
says the Chinese economy now faces an imminent
labor shortage. According to the green paper,
labor could become in short supply by 2009 even in
the rural areas. An earlier CASS study predicted
China would begin to face a labor shortage in
The CASS report seems to affirm an
earlier estimation by the National Development and
Reform Commission (NDRC), the country's top
economic-planning body, that the supply of new
labor in the country peaked last year.
According to official statistics, the
total number of rural laborers is now about 500
million. The Ministry of Agriculture estimates
that at least 170 million laborers are needed to
sustain the country's agricultural production and
another unspecified, but considerable number is
needed for other rural labor. Another 150 million
are estimated to be working at township
enterprises run by farmers themselves.
Various estimates put the number of rural
migrants working in cities at between 80 million
and 130 million. That means available surplus
rural labor is between 20 million and 70 million.
Not many indeed, considering the current labor
shortage in economically developed regions such as
the Pearl River Delta, where the annual shortage
alone is estimated to be at least 2 million.
And things may become worse as the
countryside absorbs more surplus labor under
Beijing's policy to boost rural development and
The shortage will
eventually trigger a demand for higher wages,
possibly as soon as in three years, the CASS green
In fact, after east-coast
regions began to suffer labor shortages a few
years ago, wage increases for rural migrants began
accelerating. According to the green paper, the
average monthly wage of a rural migrant worker
grew from 781 yuan (US$102) in 2003 to 953 yuan
($125) in 2006. The year-on-year pay increment
rate was 2.8% in 2004, 6.5% in 2005 and 11.5% in
Moreover, the proportion of rural
workers making 600 yuan or more a month has also
been on the rise - from 43.2% in 2003 to 63.6% in
2006. And last year, the proportion of rural
migrant workers making 1,000 yuan or more a month
accounted for 25.9% of the total.
labor costs go right to the nation's economic
heart as foreign investors forsake the world's
factory floor for cheaper workers elsewhere. This
will force the Chinese economy to undertake a
In fact, as Asia
Times Online reported on June 6 (HK SMEs withdraw from mainland
China), more than 2,600 of the 8,000
Hong Kong-invested small and medium-sized
enterprises involved in the processing and
assembly factory business have pulled out of the
Pearl River Delta region after suffering labor
shortages and tax increases.
Kong investors have relocated their manufacturing
factories from the Pearl River Delta to inland
China or Vietnam where labor costs are even
The one-child policy imposed by
the Chinese government over the past three decades
has been blamed for the current labor shortage.
But the National Population and Family Planning
Commission has made it clear that the government
has no intention of revising the policy in the
foreseeable future, calling it a "long-term
Even if the government
wanted to change the one-child policy now,
analysts say it would not help ease the imminent
labor shortage. As a Chinese saying states,
"Distant water cannot put out a nearby fire."
Wu Yaowu, of CASS's Institute of
Population and Labor Economics, has urged the
government to speed up its economic restructuring
before China completely loses its competitive edge
in labor-intensive manufacturing.
instance, the green paper urges the government to
speed up the reform of the rigid hukou, or
residency registration, system and to lift other
restrictions to ease the migration of people
across the country.
Du Yang, another
researcher with the Institute of Population and
Labor Economics, says migration reforms would help
prolong the survival of labor-intensive industries
and buy time for economic restructuring.