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Kai Ryssdal: When you’ve got more than a billion people, you’ve got what economists call a surplus. In this case, of labor. More people than there’s work for. In the industrial sense, that’s been the case in China for most of the past 30 years. Western companies have come in, set up factories, and capitalized on the cheap labor.
Today, as Marketplace’s Scott Tong continues his series on China’s one-child policy, he explains how the era of cheap and plentiful Chinese labor is coming to a close.
Sewing machines buzzing
Scott Tong: A nondescript factory in Shaoxing, eastern China. Here, the $30 tank top from the designer brand BCBG is born. About 100 Chinese workers sit row by row, stitching.
But several chairs are empty. Factory owner Shao Xinmei can’t find enough workers.
Shao Xinmei: Every year it’s worse. We have more and more workers who leave.
She’ll have to raise wages, again. Shao says workers these days are picky and soft. And the one-child policy means there are fewer available than, say, a decade ago.
Back then, says economist Baizhu Chen at the University of Southern California, bosses had the upper hand. They figured:
Baizhu Chen: I am the only place here. Even though I pay you sh**y money, dirt cheap, you still have to come if you want to look for a job.
But these days…
Chen: We are going to see less workers. That is troublesome.
Top Chinese economists think the country’s hit a turning point. In econo-speak, the earlier labor surplus is now turning to labor shortage. Here’s how it plays out at the tank top factory.
Female worker speaks
This female worker stitched and got hitched to this male worker.
Male worker speaks
But these two workers have produced just one to replace them in the next generation: Their daughter, four-year-old Qi Xinji.
Qi Xinji sings “Frere Jacques”
…Who currently belts out a Chinese version of “Are You Sleeping” in their factory dorm. Many rural Chinese are actually allowed to have two children — the one-child policy has exceptions. But often they don’t want two. This low fertility rate means the number of workers in their early twenties is expected to shrink by half over the next decade. So, attention Wal-Mart shoppers — the days of low-cost China may be numbered.
Arthur Kroeber is with consultancy GaveKal-Dragonomics.
Arthur Kroeber: Prices just won’t go down. People were kind of used to those prices for those kinds of things going down year after year. And I think the reality is, it’s just going to be harder to do that.
Across Shaoxing, this labor shortage has factory owners fretting.
Zhao Shuigen: Water, labor, energy costs are all going up. At this rate, we can last three to five years at most, and then we’ll have to shut down.
He’s lost business to countries like Pakistan and Vietnam that have cheaper labor. But don’t draft China’s obituary just yet. Wage costs are just one piece of the pie. China beats the competition in other areas, like the efficiency of its ports, its customer service.
Jerry Dicarmo of the clothing brand Luca Ferretto says Chinese factories treat him well.
Jerry DiCarmo: They take you to the factory, they find hotels for you. They cater you. You know, the wine and dine that a lot of American businessmen are looking for.
One businessman likens Chinese factory tours to Vegas — great food, nice hotels, beautiful women, who have been known to entertain after hours.
DiCarmo knows that’s part of the deal in China.
DiCarmo: But since I’m married, I’m afraid of what kind of entertainment they might be wanting to introduce me to. So I try to find my own ways, you know, go see a kung-fu show or something family oriented, so…
The tank-top factory’s answer to rising labor costs is to try something new: It created its own brand.
Xinmei: BCBG in America only pays us a wholesale price of $5 per item. But we have our own stores in China, and charge much more than that.
But store business is slow. Sewing clothes is one things, retailing them is another. The manufacturing sector’s main challenge, says economist Baizhu Chen, is squeezing more out of fewer workers.
Chen: I just visited this toilet company, and they are talking about putting in an automated production line instead of relying on workers.
You heard it here: toilets will no longer say “Made By Hand.” In the end, China’s labor squeeze could actually help the world.
Let’s go back to the tank-top factory, and the singing four-year-old.
Qi Xinji singing
When she grows up, her labor will be in demand — unless China expands the labor pool by, for instance, relaxing the one-child policy. Barring that, her generation will make good money, to buy things like American goods. And that could reduce China’s nasty trade imbalance with the United States.
In Shaoxing, eastern China, I’m Scott Tong for Marketplace.
Scott wraps up his series tomorrow. He and I will talk about the future of China’s one-child policy.
In the meanwhile, see how closely you’ve been paying attention. There’s a quiz on our website. I’ve heard it’s not all that tough. Click here.