The Australian Business - An expected labour shortfall as early as 2009 is likely to boost the nation's wages, writes China correspondent Rowan Callick
July 16, 2007
THE single main reason why so many foreign investors are pouring money into China (though not so many Australians), and why global retailers are sourcing so much of their products from there, is the country's cheap, flexible labour force.
Business has long taken for granted that there is a boundless supply of such workers, and that they are so eager to find and keep their jobs that they will concede almost any terms set by management.
This is becoming the old paradigm.
In the new one, there is competition for workers in many of China's booming coastal cities, driving up wages and conditions, and the new labour law passed in late June gives workers a range of new rights - in theory at least, because implementation is another issue altogether.
This legislation includes the right to negotiate written employment contracts specifying terms, conditions and benefits, it establishes a statutory probationary period for a fixed-term contract, improves health and safety regulations, requires redundancy payments after a contract is terminated and makes it harder to terminate contracts, especially of long-serving workers.
The Development Research Centre of the State Council, China's cabinet, recently conducted a survey of migrant workers in 2749 villages in more than half China's provinces. It found that in 74 per cent of the villages, there were no more workers available to move to the cities to work in factories or build roads. The state news agency Xinhua says the Government estimates that 120 million workers have already migrated to China's cities from the countryside in recent years and that a further 80 million have shifted to smaller towns.
A forecast from the China Academy of Social Science anticipates labour shortages as early as 2009, even in rural China - likely to trigger widespread wage surges even above recent rises.
The Ministry of Labour and Social Security recently instructed local governments to raise minimum wages because food prices - led by pork, the most popular meat - have helped push inflation up to 3.4 per cent in May, compared with the budgetary forecast of 3 per cent for full-year 2007. Of China's 31 provinces, 29 increased their minimum wage levels in 2006.
Increased government moves to assist workers are in line with the Hu Jintao-Wen Jiabao government priority of building a "harmonious society". The Communist Party is staging its next five-yearly national congress in Beijing in October and will showcase the reorientation of development priorities - away from sheer size and pace of economic growth, to the quality of growth - meaning more emphasis on the environment, on health and education, and on the social fabric in general.
The increasing intervention by government in China's labour market is also being driven by the need to respond to one of the worst scandals of recent years, and one of the most widely covered in the media: the brutal treatment of thousands of workers, including up to 1000 abducted children, as slave workers in the brick kilns of dirt-poor Shanxi province southwest of Beijing.
Communist Party cadres, the police, and trade union officials all appear to have either turned a blind eye or colluded with the thugs running these grim factories.
The Hong Kong-based China Labour Bulletin says the new labour law "is a laudable attempt to protect the rights of individual workers. Management regularly (in violation of the existing labour law) withholds wages, demands excessive overtime and can dismiss workers almost with impunity".
The focus of the new law is on ensuring that workers obtain individual contracts, rather than on collective bargaining. Insofar as trade union representation gets a guernsey, it is through the All China Federation of Trade Unions (ACFTU), the party-run monopoly union which, as the Labour Bulletin says, "has been steadily losing its influence and becoming more anachronistic as the private sector expands".
Now, the ACFTU is on the comeback trail as it gains rapid recognition - thanks to central government arm-twisting - from many of the major foreign investors in China, most famously Wal-Mart, which has never before recognised unions anywhere it has operated.
Perhaps it was this celebrated breakthrough that has persuaded American unions - formerly fiercely opposed to almost all trade with China, and often castigating its exports as produced by slave labour - to change tack and to engage with the ACFTU and other Chinese bodies. The US unions recognise the opportunity to introduce, through offers of training and exchanges and funding, Western labour practices and thus perhaps eventually make the cost of products more even, globally. At least, that's the idea, but we don't see many Australian unions treading the same path yet.
The Bulletin says the ACFTU's legislated resurgence may ultimately suit the investors too, since it is not so much an energetic pursuer of workers' grievances and rights as yet another rent-seeking party body focused instead on "collecting its legally mandated 2 per cent of monthly payroll". The imposition of such taxing agencies does, however, add another layer to costs as margins keep contracting.
The Bulletin complains that "all too often in China, employers can disregard the terms and conditions of the contracts they have signed with their workers". This is indeed common with local firms, including some government-owned companies, but is usually not the case with foreign companies, especially those with Western principals - and, of course, Western principles.
It has become increasingly difficult to hire and hang on to good managers and highly skilled staff, despite the rapid expansion of places in universities and other tertiary institutions. In the big cities, qualified and experienced employees constantly bounce between businesses, frustrating training programs and succession plans.
Apart from the very worst cases of local exploitation like the Shanxi brickworks, it is the employers most readily identifiable as Western that tend to be targeted by Chinese media exposes and by union campaigns. McDonald's, KFC and Pizza Hut, for instance, have recently been subject to an investigation by New Express, also backed by the ACFTU, that accuses them of failing to meet new provincial government employment regulations.
The publication may be right, but it's hard to imagine locally owned restaurants as best-practice employers.
The bottom line is that for foreign companies, labour is becoming a crucial challenge on which management time needs to be invested, and is no longer simply the great single comparative advantage of operating in China.