Chinese wage inflation, China economic growth, Chinese middle class, manufacturing sector

What China's changing labour market means for the West

11.08.2006

by Bill Bonner

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Whatever the Chinese may lack in quality, they more than make up for in quantity. Working stiffs in the West may be better skilled, but like Custer’s men at the Little Big Horn, they’re overwhelmed by numbers. An estimated 130 million migrant workers are on the move in China, most of them young women looking for work. Typically, they leave their rural homes and find employment at a factory assembling items for export. They sleep in dormitories, make less than a dollar a day and work overtime without compensation. Leaving the factory without permission or sleeping during work hours means a cut in pay and meals are automatically deducted from their pay.

The Chinese labour market: urbanisation

Only a couple of years ago, we were told that in the city of Dongguan, a typical firm offered workers “base pay of $60 a month, and an additional $40 a month in overtime and free room and board in adjacent dormitories, where the workers sleep six or eight to a room”. So reported The New York Times in 2004. Businessmen could rent factory space from the local government for just 10 cents a square foot per month – barely 5%-10% of equivalent space in America or Europe at the time.

As farming became more mechanised, farm hands were freed from fieldwork, and headed to the coastal cities. As many as 500 million of them were expected in the following two decades. Thus did the Chinese proletariat weigh down labour rates all over the world.

The Chinese labour market: the rise of the middle class

Now things are changing, says Dan Denning in How to profit from the Chinese consumer revolution. Incomes are rising at double-digit rates – even rural incomes. As a result, migration to coastal boomtowns is not as much of a lure as before. There is even talk of a labour shortage in some areas. Still, the overall picture stays the same. China is a vast pool of people with labour to sell and everything to buy.

“I went to China recently, as a consultant to a French firm that wanted to buy another company there,” began a companion at dinner last night. “We went to tour the factory. It was very modern, clean and even air-conditioned, which was a blessing, because it was almost unbearably hot outside. But we went into one room that was not air-conditioned. And there was a whole team of young men welding parts together. With the extra heat of the welding machines, it was an inferno. But there they were, working away.

“In my report, I mentioned this… saying something like ‘management should consider air-conditioning for all the work areas’. But the Chinese snapped back that they ‘weren’t interested in any advice from Western consultants’. They knew how to run their business. And the people in the un-cooled rooms were trainees, who ‘had to learn how to work’. Who can compete with these people?”

Don’t bother, says Dan. Profit from them instead. Not only is the raw number of employees growing, so is that of educated, English-learning, management and professional-level workers. Like their factory girl cousins, whatever they lack in income per person, the Middle Kingdom’s new middle class more than makes up in volume.