By  on October 2, 2007

BEIJING ­— After nearly two decades of stagnant wages and poor labor conditions, China's manufacturing workers have started demanding higher salaries, pushing up the price of production nationwide.

According to labor researchers, wages for Chinese manufacturing jobs have risen on average 10 to 15 percent annually over the past few years. The increases have come in response to growing employee shortages across the country, as the migrant workers who primarily staff factory lines opt to stay on the farm rather than leave the countryside for negligible rises in income. In addition, a large portion of the massive migrant workforce, now estimated at between 150 million and 200 million people, has been working on the road for a decade and has pricier experience and skills.

"Compared to their previous positions, they can now ask for higher wages and packages, and better working conditions," said Cai Fang, director of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences.

Cai, who recently completed a study on rising wages and labor shortages, said that from 2003 to 2006, the average salary of manufacturing laborers, including those in textiles and apparel, rose by 21 percent. In 2003, the average industrial worker earned $103 per month, compared with $124 per month in 2006. Leading up to 2002, wage increases in the manufacturing sector were miniscule for nearly two decades as industries relied on a seemingly endless stream of workers arriving in the eastern industrial areas from rural areas.

Yet China's seemingly inexhaustible labor supply is showing signs of strain. Across the nation, including the interior and western provinces where so many migrant laborers came from, pockets of worker shortages have started to appear.

The first came in the Pearl River Delta manufacturing hub in 2002. Researchers argue over the exact number of workers needed to operate factories and how much the shortage might grow. But China's stature as the world's manufacturing giant and its growth means demand for workers will keep rising.

"It's not like in the past, when all a factory had to do was put up a sign and there would be people in line for jobs," said Cai.The wage increases are overdue, analysts contend. During the first two decades of economic reform and expansion, as China's laborers poured into factory towns, there was virtually no overall salary increase in industrial work.

Even though starting salaries were low and working conditions less than ideal, factory work was lucrative enough to lure millions of farmers and others who couldn't make much at home, explained Li Chang'an, a researcher with the China Labor Studies Center at Beijing Normal University. Not so now, numbers indicate. Help wanted posters are common sights in most major cities and employers have been forced through old-fashioned rules of supply and demand to increase wages in response.

"China's advantage for a long time has been low-cost labor. Now it's losing that edge a little bit," said Li. "But it has not totally disappeared."

In a recent report, the World Bank stated there are several indicators China is not facing a labor shortage that would threaten its manufacturing capabilities. Instead, there are pockets of low labor supply and regional shortages, while other areas have an oversupply of labor.

"[The] eventual end to surplus labor will be an occasion to celebrate, since — if well managed — it will lead to widespread sustainable improvements in living standards, the ultimate goal of development," the bank said in its September quarterly economic forecast for China.

As yet, labor shortages and the increase in industrial wages haven't led the thousands of multinational companies that have invested here to leave the country. Smaller firms may choose to go to nations with lower wages, researchers said, but China retains huge competitive advantages because it has a valuable manufacturing and shipping infrastructure that smaller nations can't afford. In addition, the researchers said, the Chinese government has positioned itself as a hub of labor efficiency.

And while China's reputation has taken a beating with controversies over unsafe products and pollution, officials have stated in the past that they don't want the country to simply be the world's lowest-cost manufacturer. China's decision in August to curb exports of labor-intensive, low-cost products including garments, plastics and certain types of yarn by requiring export deposits is aimed at moving the country's manufacturing base toward higher-priced products. "The policy is not just an attempt to regularize the management of the process trade, but a step to promote the sector's healthy and sustainable development in the long run," He Li, an official with the China General Administration of Customs, said in the state-run Xinhua news service.The pressure on wages is expected to heat up further, especially this year, as China struggles to cope with some of its highest consumer inflation in more than a decade. Central government economic planners have said a 3 percent rise annually in the consumer price index — the main measure of inflation — is the maximum Chinese can accept.

Fueled by soaring food prices largely due to meat shortages from a disease that attacked pork supplies, China's CPI increased by 6.8 percent in August, an 11-year record, according to the National Bureau of Statistics. The CPI may increase 4.5 to 5 percent this year, based on government and international estimates, and price hikes are even higher in rural areas. With rising pressure on prices, there will be more calls for higher salaries.

And with wages increasing, manufacturing companies might start to look outside of China for production bases. Analysts say, however, that losing the low-end producers who pay the least and choose China only for cheap labor will not be a bad result. The government has already started moving forward with plans for an "innovation-based" economy by 2020 to replace straight manufacturing. A loss of corporate tax breaks to attract foreign investment is also expected to drive out the bottom-end producers.

"Some companies just want to absorb the blood of Chinese workers," said Cai. "China doesn't want those companies, so it's fine, they can go."

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