China's Losing Labor Force Advantage

By Lin Ping, Sound of Hope
May 20, 2008 12:00 am Last Updated: May 20, 2008 12:00 am

A report released by the Asian Development Bank (ADB) reveals that China is losing labor force advantage, while the country is facing challenges of an aging population and a shortage of skilled labor.

The ADB's “Asian Development Outlook 2008” annual report says China is facing three challenges in its labor market: growing to an aging society leads to the minimization of a population bonus[1]; the current shortage of skilled and semi-skilled labor results in quality degradation of industrial manufacturing process; and the side effects caused by the economic structural changes.

According to the Beijing-based China Youth Daily , a study report conducted by the Chinese Academy of Social Sciences in 2007, shows that not only coastal cities but mainland areas are facing a fall in the number of young and middle-aged people entering the labor market. The supply of young and middle-aged rural laborers is unable to meet the increasing demand. The year 2004 witnessed the first decrease in the population growth rate within working ages of 15 to 59. The working-age population is estimated to stop growing around 2011. Further, China's demographic dividend would turn into demographic debt in 2013; from 2021 on, China's population would be on an absolute decline, said the report.

The Pearl River Delta, a hub of labor-intensive industries, first faced shortage of rural labor force in 2004, and then so did the Yangtze River Delta. The phenomenon is spreading gradually from coastal areas to mainland provinces including Jiangxi, Anhui, Hunan and Hubei. According to a survey by the Labor and Social Security Department of Hubei Province, the province runs short of 400,000 laborers annually. The rate of labor shortages in the provincial economic development zone has risen to 38 percent.

The China Youth Daily said, many laborers in export processing zones, particularly rural migrant laborers in coastal provinces, were forced to accept extremely low pay and to labor under extremely poor circumstances because of surplus rural laborers. In manufacturing industry, the labor force cost is about one tenth of that in Hong Kong, and one twentieth of that in the United States. The current rural labor shortages might increase income for laborers in China. Governmental agencies at all levels should make more efforts to reform China's household registration system, to achieve equality for laborers, to improve working conditions and to eliminate wage arrears. Then it would be possible to slow down the increasing labor scarcity.

Deng Xiaogang, a social science professor at the University of Massachusetts Boston, made the following comment on the above report:

“China's economic growth and foreign trade rely heavily on its labor-intensive products with the cheap labor. When the demographic structure changes entirely, the whole economic structure will encounter dramatic changes and the country will be running short of a labor force. China will be unlikely to properly adjust its economic structure in a short period of ten years. China is not optimistic in the future.”

However, Cai Chongguo, the representative in France for the Hong Kong-based journal China Labour Bulletin , believe that rural labor shortages in the country do not mean the country really have the trend of labor shortage.

“Labor shortage in China is, in fact, a false impression. Manufacturers in southern and central China are in need of labor, but they only want laborers aged between 16 and 25. A vast number of people aged between 35 and 50 in China's rural and urban areas are unemployed. Foreign enterprises in eastern and central China only want to employ youths aged between 16 and 25. On the other hand, the number of these youths is smaller than in the past due to the one-child policy. And most of the youths, unlike their elders, are unwilling to accept tough labor conditions,” said Cai.

Moreover, Cai Chongguo did not regard the supply and demand for labor as the decisive factor for rural laborers' income and rights. He pointed out that surplus labor also exists in many developed countries. But unlike the laborers in China, those in developed countries are not arbitrarily exploited by their employers because they have the right to unionize which helps them negotiate with employers. Cai believes that China's rural migrant laborers can only safeguard their rights effectively by forming or joining labor organizations to bargain collectively through representatives of their own choosing.

[1] Population bonus, also known as demographic dividend, occurs when a falling birth rate changes the population age structure, so that fewer investments are needed to meet the consuming population's needs and labor resources are released for investment in economic development and family welfare.