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Help Wanted in the World's Workshop

The photo on the left was taken two days ago by the China Daily outside the train station in Liwu, Zhejiang province--the manufacturing hub of the Yangtze Delta. Thousands of recruiters hold "help wanted" signs for factory work. It's a good bet factory managers in this region were hoping more migrants would be getting off those trains now that Chinese New Year (CNY) has drawn to a close. Not so. As we reported in a story about workers prior to CNY and in a separate story about factory managers, conditions in China's interior are improving and the cost of living out here on China's Eastern seaboard is not. This formula means factories are scrambling to find workers. What will it mean for you? Treasury Secretary Tim Geithner shared some opinions about that yesterday on Capitol Hill.

Geithner told the Sentate Finance Committee that China's record inflation is helping the US on two fronts: Although China's been slowing down the appreciation of the Yuan, when you factor inflation into it, the Yuan is rising at 10% a year--not too bad for those worried about China's undervalued currency. Secondly, inflation means the cost of doing business in China is higher. When companies decide where they'll put their next plant, said Geithner, they'll realize the playing field is shifting in our (US) direction.

Most economists would say Geithner's correct on the first point--my dollar is not going very far these days thanks to the rising cost of...everything in china--but the idea that a higher cost of business in China will make companies realize they should return home to the United States to create more jobs is seen by many economists as wishful--almost delusional--thinking. If China's too expensive, why not Vietnam? Bangladesh? Cambodia? These are the next workshops of the world, companies tired of the rising cost of business in China will happily go there, and some already are, as evidenced here, here, and here.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.
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China's eastern seaboard offers even fewer opportunities today than it did two years ago, when this article was written. Cities like Chongqing and Chengdu continue to offer a more promising future to the inhabitants of China's interior than do Shanghai and Beijing, but growth is slowing everywhere. Still, whether low-end manufacturing moves from China's seaboard to inner-China or to Vietnam or to Bangladesh shouldn't figure into the conversation too much- it's clear that the future of American manufacturing is in complex, value-added products and not trinkets.

Brandon (www.smartinternchina.com)

The rising cost of living makes it difficult for factory managers to find workers is a big problem for China’s economy. I recently had the privilege of hearing Jin Pang who worked for China’s National Development and Reform Commission give a presentation on the challenges and potential of China’s economy. Pang stated the biggest problem Chinese people face in the daily basis is high and rapidly cost of living.
If the people of China are not returning to the factories because of the cost of housing is too high to afford than what is their alternative?? If this problem persists and companies chose to invest in other countries, will China be able to provide jobs to all of the people who need a job?
The government has a long way to go before they are able to meet the challenge of slowing inflation. Rising prices occur when there is rapid expansion and growth (like 8-10% in China) but once inflation begins it is very hard to slow without stunting the economy. I think one answer to this issue lies in the money supply, if the central bank was able to decrease the money supply slowly it could cool inflation and provide an environment for sustained growth.

With workers not coming to the big cities on the eastern seaboard to find work, this could cause alot of problems for the government and the economy. First the government wanted to move many more of their citizens from the rural areas in to the cities. If this does not happen we could of see a collapse in the the housing sector. Many Chinese have invested their savings in housing as a safe investment but at the same time that has lead to an overabundance of housing. Inflation is China's biggest worry at the moment. If inflation gets out of control we could see hundreds of millions of people starve. At the same time if China lets it's currency appreciate to much it will take away jobs from China. It is a delicate balancing act but I feel China is doing a good job so far. As for Timmy wanting factory jobs to come back to the US from overseas, I tell him he needs to think forward innovation, the thing that has made America great. There are too many countries out there that will always be able to low ball the US when it comes to workers wages.

China and India appear to be experiencing similar issues. Each has a growing upwardly-mobile class of skilled, well-educated, and generally urban professionals who are achieving remarkable economic success. Simultaneously there remains a larger population of predominantly rural individuals who lack marketable skills. Skilled, sought-after workers in China and India command wage negotiation clout that enables them to stay ahead of the inflationary curve. Unskilled workers who cannot command sufficient salary increases fall behind the same inflationary curve.

These trends create societal pressures, especially between urban and rural regions. Inflation, particularly increases in food prices, can be particularly disruptive to less-skilled workers. It may well be in China's own self interest to continue to tighten lending, increase interest rates, and allow the Yuan to appreciate more quickly to ease inflationary pressures. Addressing the other skilled/unskilled, urban/rural tensions may prove far more difficult than simple monetary policy adjustments.

After reading this post, I kept thinking of an excerpt I read in The World Is Flat by Thomas L. Friedman: “Because China can amass so many low-wage workers at the un-skilled, semiskilled, and skilled levels, because it has such a voracious appetite for factory, equipment, and knowledgejobs to keep its people employed, and because it has such a massive and burgeoning consumer market, it has become an unparalleled zone for offshoring.” Although this quote was printed in the “updated” version in 2006, it is interesting how quickly the game of offshoring and the availability of factory positions can change. It will be interesting to see if companies continue to place their factories in China or if they will move elsewhere where the exchange rate is not moving out of their favor.
Through my own experience in my current education at the University of Minnesota in Retail Merchandising, it has seemed as though China was a “land of plenty”, where there were more workers than jobs available. In contrast, through my experience in an internship that works closely with manufacturers over-seas, I have seen the reactions to the inflation of prices in China and how many U.S. Based firms are needing to reevaluate the value of their own product as they deal with a currency whose own value is also being reevaluated day after day. As a student beginning a career in a global marketplace from the U.S., I am always wondering where I myself will be doing business in my career, be it China, India or beyond.

The cost of doing anything anywhere is rising and as China develops the cost of doing day to day business is going to rise. I completely agree that the idea that the rising cost in China will make global companies come to the United States is ridiculous. As you stated there many more counties all over the world that can produce goods for a lot less than we can in the United States. Part of China’s plan all along has been the slow development of the west and now that it is actually starting to happen the economic effects to the rest of the world are being felt. The quality of life is growing and therefore people are less willing to take a job working in a factory making something that we in the States are going to buy. We all know that certain factories in China have terrible working conditions and the workers receive low wedges and no benefits. These jobs will most likely not come back to the US and if and when labor in China gets too expensive they will move, as you said to another country that can offer cheap labor. Therefore if they have any other option they are most likely going to take it. The rapid inflation along with China 8% growth a year makes for a tricky situation because if the government wants to stop or slow down inflation the economic growth of the country would be halted.

As China continues to grow it's eastern cities to their maximize capacity and CPI continues to skyrocket in these cities, there is going to be a point when migrant workers cannot find any benefits in leaving their rural farms in search of jobs in the east. China does have a growing problem with inflation, and as they curve the appreciation of their currency, we will see many manufacturing and other labor intensive jobs leave China in search of lower costs. Thinking these jobs will come back to America is pretty wishful thinking. The way I see it is that America is past this point in its life, we have moved into high tech jobs and left the labor intensive jobs to developing countries. China may be nearing this point in it's life and going forward these jobs will most likely move to other southeast Asian countries.

Hi Rob, I have been having discussions on the issue of globalization with family and friends for a while. The consensus is that jobs that left the U.S. are not returning but rather the US needs to stimulate new job growth in new technology and industries across sectors of the economy. Easier said than done when companies only pursue short term gains for shareholders rather than looking at what is needed to sustain their current markets and future consumers. I think the American style of business has become too skewed toward shareholder's and short term gains. This drives too much short term corporate thinking on a global scale. China and Chinese workers, on the other hand, need to move up the value chain to create a larger internal market for local and internationally produced goods. Beyond just the amount of consumers they need money to buy goods.Some companies will always pursue the lowest cost labor, the least regulation but they can only pursue that for a short time in each country before the cost of labor, boosted by increased demand created by these jobs, push them out of that market. Classical economic theory says balanced trade is good for all economies.

It is amazing to hear the other side of China’s economic position. With the yuan creeping up in value in respect to the US dollar I would have never imagined that there is such an inflation issue. I had always known of the housing bubble and other issues related to that, but to see the cost of something as basic as food going up is without question “off the beaten path” that I typically here of. I feel as if this issue persists that there will be monumental consequences in the realm of poverty. This raises a good question that I am looking to find out and that is what does the Chinese government consider to be poverty in terms of income per year? With the inflation rate I feel as if there could be even larger consequences than we could even think of. Could this be a contributing factor to the housing bubble popping? I feel as if inflation is causing many questions and very few answers are being provided.

I guess I have never really thought this through. Previously I had assumed that China had more workers than jobs. But it seems that there are more job openings than I expected.

It does not surprise me, however, that the companies that need workers,are the factories. In the US, we always hear that the factories have such horrible working conditions and such horrible hours. It's not unexpected then, that there is such a shortage of workers for these types of jobs.

I suppose if the direction shifts from China to the US, like you stated, it may be good for the economy. Then again, maybe they'll have the same problem here with no one wanting to work for the factories.

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