China’s Manufacturing Hub Faces Labor Shortage and Higher Wages

Chinese exporters in the manufacturing center of Pearl River Delta face persistent labor shortages and rising wages even if the economy continues to slow down.

Wages in the region are expected to increase 8.4 percent this year, according to a survey of manufacturing clients Standard Chartered Plc. Over 85 percent of respondents said labor shortages are at least as bad as last year.

Wages are rising, driven by improved productivity levels that manufacturers become more sophisticated and producers move up the value chain, the survey found. Policymakers in China are looking to design a transition away from dependence on investment and cheap exports to high-end production, innovation, services and the increase in household consumption.

“At the macro level, China is still creating jobs and maintaining revenue growth at the moment,” the Standard Chartered economists led by Kelvin Lau wrote in the report. “At the enterprise level, however, the persistent labor shortages mean more costs coming problems.”

Around 11 percent of companies plan to move factories overseas to reduce costs, with Vietnam and Cambodia up the favorite destination list interviewed.

“These decisions show that companies who are considering moving to China are mostly low-end producers in the textile and clothing sector,” said the report.

China’s economy grew in the first quarter at its slowest pace since 2009. The authorities responded by lowering interest rates and encourage more bank loans. Economists say further easing is likely.

Located near Hong Kong, the Pearl River Delta has nine cities in Guangdong province and represents 27 percent of all Chinese exports and took in about 20 percent of foreign direct investment, according to Standard Chartered.

Source: Bloomberg

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