What worries China’s manufacturers more than tariffs? Labor shortages

Jennifer Pak Dec 4, 2018
Huade High Voltage Electric needs a dozen more workers to keep up with demand. Jennifer Pak/Marketplace

What worries China’s manufacturers more than tariffs? Labor shortages

Jennifer Pak Dec 4, 2018
Huade High Voltage Electric needs a dozen more workers to keep up with demand. Jennifer Pak/Marketplace

In the eastern Chinese province of Zhejiang, producers of electrical equipment have gravitated toward Yueqing City’s economic development zone. Dozens of factories line the wide streets.

Inside the Huade High Voltage Electric plant, workers drill, hammer and weld sheets of metal into boxes that house big circuit breakers.

The factory has 50 employees, but owner Li Lihua said he needs a dozen more to keep up with demand.

“Every year, lots of workers will leave,” Li said. “Sometimes half of them will not return to work after the Lunar New Year holiday.” 

He is not the only one struggling to find workers. Around the economic development zone, recruitment ads hang near the entrances of almost every factory. Some advertise for more than 50 workers. One listing includes “Able to eat bitter and endure hard work,” as part of the job description.

An electrical equipment factory in Yueqing City’s economic development zone advertises for 42 positions with salaries ranging from $500 to $1,000.

Chinese manufacturers have a lot to worry about, including the U.S. trade dispute and a slowing economy in China. However, in parts of the country, one of the most pressing concerns is a labor shortage.

According to Chinese government statistics, the country’s workforce peaked in 2011 at 941 million and has been on the decline since. The latest figures from China’s National Bureau of Statistics shows that the working population is 916 million.

“The working age population decreased by 25 million from 2012 to 2017. That is equivalent to the entire population of Australia disappearing from the workforce,” said Yao Meixiong, the deputy head of the Center for Population Census for neighboring Fujian Province.

That means China’s workforce shrank by about 3 percent. 

Yao said there are not enough workers to make up for the losses because for decades, China limited couples to only having one child. In 2015, the government relaxed the rule, and now each family can have two children. But the baby bump officials expected has not materialized.

Yao said married couples are stressed about the rising cost of raising children. At the same time, women in China, like those in the United States, are delaying motherhood to pursue higher education and careers.

He attributes China’s slowing economic growth to its shrinking labor force, rather than government restrictions on debt or the trade dispute with the U.S.

“Prior to 2010, China’s economy experienced double-digit growth, but now it’s down to 6 percent after the decrease in the labor supply,” Yao said.

Competition for available labor is fierce and has pushed up costs for manufacturers like Denggao Electric, or DGG, which produces parts for China’s power plants, electrical grid and railways. 

“In the last five years we’ve raised salaries by 15 percent or even up to 30 percent a year if we urgently need someone,” said DGG assistant general manager Zhang Wei.

The firm also entices workers by offering benefits to its 300 employees: subsidies for further education and professional certification; rewards for developing new technologies; incentives for long-term service; company-led vacation trips twice a year; and cash gifts for weddings and when family members die.

“When I came to Yueqing City to work 15 years ago, there were maybe a handful of benefits, but now firms have so many that I can’t list them all without looking at an employment contract,” Zhang said.

This factory recruitment ad offers candidates three meals a day and living accommodation.

But increasing wages and benefits doesn’t always work.

Other parts of China are developing and luring migrant workers away from factories in Zhejiang Province.

To alleviate the labor shortage, the Zhejiang provincial government in 2013 invested 500 billion yuan ($72 billion) in a five-year project to replace workers with machines.

DGG was among the first to take up the government’s offer.

“The government will subsidize at least 20 percent of the cost and sometimes more if we buy industrial robots,” Zhang said.

Currently, DGG uses robots to weld metal parts for its high voltage circuit breakers.

“The workload of a robot is equivalent to three to five workers,” Zhang said. “It improves our efficiency and quality.”

While Zhejiang Province has the highest industrial robot density in the country, China trails behind South Korea, Singapore, Germany, Japan and even the United States in automation.

According to the International Federation of Robotics, China has 97 robots per 10,000 employees in the manufacturing industry, which is ahead of the global average of 85 but lower than the U.S. ratio of 200.

A graph depicting robot density by country in the manufacturing industry.

At the same time, DGG is shifting from low-cost power switches to more profitable items like smart home systems.

Like Alexa, DGG’s system can play your favorite song while you brush your teeth. It can also automatically shut the windows and turn off the stove if no one is home.

The firm wants to develop more innovative products, but DGG has had trouble finding high-skilled workers.

A DGG Electric staffer shows off the smart home system that is more profitable than low-cost power equipment.

Some young Chinese workers wouldn’t consider jobs in manufacturing. Recent college graduate Ma Bin, who hails from the more affluent province of Jiangsu, is one of them.

“I am a restless person,” Ma said. “I don’t like to confirm to rules from 9 a.m. to 5 p.m.”

Those willing to work in factories, like Zhou Xiangqing, can afford to be pickier about where they want to work.

The 34-year-old has been working in Yueqing City for more than a decade and has changed jobs more than 10 times. His salary has increased tenfold, to 8,000 yuan ($1,200) a month, but Zhou said he works very hard for that money.

“The factory I work at said there will be two days off a month, but I have not been given that time off,” Zhou said at a canteen catering to factory workers. He is not sure how much longer he will stay at his current job as an injection mold machine operator.

On top of the labor challenges, manufacturers also face higher raw material costs, rising rents and stricter environmental regulations.

Huade High Voltage Electric’s boss, Li Lihua, said that makes business rough for his small firm and others like it.

“Our profit margin is getting smaller. It’s less than 3 percent now,” he said. Li said he isn’t sure his business will be around for much longer.

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