No China labor crunch in 2013, say experts

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In the weeks immediately following Chinese New Year, many factories reported a higher return rate than in prior years for employees who left for celebrations in their home provinces. Meanwhile, other suppliers said finding employees to replace those who did not return to their jobs has so far been easier.

According to RBC Capital Markets analyst Amit Daryanani, the hiring freeze by Foxconn right after the festival indicates lower attrition rates. Daryanani estimated the employee return rate following the most recent Chinese New Year at China factories was nearly 90%, compared with 70% to 80% in previous years.

A related RBC report says, "Our checks at other supply chain companies suggest that the worker return rate in China post-Chinese New Year has been much higher in 2013 vs. historical averages. This may be one reason Foxconn implemented a hiring freeze post-Chinese New Year."

Cornelius Mueller of Shenzhen’s Sinoland Worldwide Ltd made the same observation. "The general employee situation in electronics plants is much more relaxed now when compared with the past 5 to 10 years."

Mueller is referring specifically to Pearl River Delta plants, adding that he has not noticed any major labor shortage this year among Sinoland's partner factories. "Previously, some plants had to replace 50% to 70% of employees. This year, the same suppliers face just 20% of workers not returning."

Suppliers will have a clearer picture of employee requirements as operations normalize. So far, the PRD situation is "not markedly worse," says Renaud Anjoran of Sofeast Quality Control, which helps importers improve product quality in China. Anjoran also described the current employee deficit as the same or perhaps a little better than in 2012.

With most of its employees returning after Chinese New Year, Oneleaf (HK) Ltd's Shenzhen factory has a labor pool deep enough to meet all of its current manufacturing commitments.

While annual labor shortages have been reported in China for the past decade, the Urban-Rural Migration Project found that a large percentage of the rural labor force has not migrated to cities. They are deterred by the "hukou" system, which restricts migrants’ access to social welfare and other benefits.

"Many economists think China has run out of cheap surplus rural laborers," RUM project leader Xin Meng said in a The Wall Street Journal interview. "However, our data shows that only about 25% of the rural hukou labor force migrated to cities in 2010. They frequently stay in cities for a relatively short time, from seven to nine years."

More perks, more pay

Better compensation packages, and improved working and living conditions at factories could be a factor behind the high return rate of employees this year.

Suppliers are offering better fringe benefits and also raising wages in an attempt to encourage worker loyalty.

Perks, in fact, are now the norm in China's manufacturing companies. "Post-90s employees have higher expectations than their post-80s counterparts," says Wen Zhong Peng, export sales merchant at Shenzhen Gao Su Da. "They want a more relaxed work atmosphere and more holidays. A monthly salary of 2,000 - 3,000 yuan (US$320 - US$480) is not enough."

Qingdao Zehan Machinery Mfg Co. Ltd provides workers with social security and rewards them with 300 yuan (US$48) for every month of perfect attendance. They also get free lodging, plus a tenure-based allowance.

These incentives, along with a 1,000 yuan (US$159) salary hike, helped the parts maker have a 100% return rate this Chinese New Year. A total of 30% of Qingdao Zehan's employees are migrants.

Sofeast's partner factories in the PRD have similarly boosted compensation packages, giving staff who return early a bonus on top of a competitive salary. Mid- to long-term employee benefits include improved, air-conditioned dormitories, as well as sports facilities.

Chinabest Home Appliance Co. Ltd now pays over 3,000 yuan for certain positions. The maker of gas stove and water heaters has more than 2,500 employees.

Meanwhile, in Guangzhou, salary adjustments will range from 9% to 12%, according to the Guangzhou Human Resource and Social Security Department.

At a local job fair last February 20th, employers raised wages of common factory staff by 9% year over year to 2,000 - 2,500 yuan (US$320 - US$398). Rates for experienced technicians were increased 10%, to 3,800 - 4,500 yuan (US$605 - US$717). Garment factories offered skilled workers 4,000 yuan (US$637).

There are also provincial-level efforts to improve wages. Guangdong authorities have just increased the minimum wage by almost 20% or 1,500 yuan (US$240) as of May 1st.

"Things are improving," Meng of RUMiCI says. "The proportion of migrant employees with unemployment insurance rose from 11% in 2008 to 21% in 2012. Similarly, those with health, pension and work-injury insurances rose from 13%, 18%, and 17% in 2008 to 27%, 31%, and 23% in 2012, respectively.

Her study also shows an increase in the average duration that migrants stay in cities from 7.8 years in 2008 to 8.9 in 2012.

Meng is also an economics professor at Australian National University.

A 'family' approach

After the weeks-long CNY break, employees returning to Qingdao Hengda Co. Ltd's Shandong factory were greeted by 50 senior executives, who lined up at the gate, bowing in welcome.

The shoemaker is not alone. A growing number of China manufacturers are taking unconventional steps to attract new personnel and to make current employees feel they are valued.

PassageMaker Sourcing Solutions, which is both a sourcing agent and a contract manufacturer, has adopted a Western approach. "We have fun. We hold corporate barbecues, beach parties, river-rafting trips and volunteer work," says founder Mike Bellamy. "Employees are rewarded for their ideas about efficiency and cost savings. All this helps build team spirit and make work more than just a pay check."

Additionally, the company has a monthly KPI-based bonus system that complements base salaries. This is somewhat unique in China, where staff members usually wait for their big year-end bonus, then leave their posts.

The "human touch" has also proven effective for Qingdao Hengda. The company said 99.3% of its 5,600 personnel came back to their jobs after Chinese New Year. About one-tenth of the staff is from Jiangsu and Sichuan provinces; 60% from the county-level city of Jimo where Qingdao Hengda is based, and the rest from various locations within Shandong.

The non-returnees were mainly women who were about to marry and have children.

For 27-year-old Hua Jingguo, personal reasons like that played heavily in his decision to not return to his job in Qingdao after Chinese New Year. "My wife is having a baby in May and I want to be with her," says Hua, who opted to stay in his hometown in Henan province. His former employer's plans to relocate to Guizhou only reinforced his decision.

Hua has already found employment at a local fertilizer plant, earning almost the same salary as at his apprentice job. "Now, I can also look after my parents too," Hua says.

Slow orders in 2013

Aside from the steps suppliers are taking to boost employee retention, another reason for the labor abundance this year could be slower overseas orders.

Many factories report that orders have not picked up at a pace that requires them to hire additional staff.

Oneleaf has put off recruiting more personnel until more new business comes in, relying on its existing labor pool to process current orders. Most of these deals were secured in late 2012.

Battery and power bank maker Dongguan In & Out Electronic Ltd also says that business is slow at present.

Sina.com noted the demand lag in the fashion industry, quoting a Zhejiang-based apparel manufacturer as saying that some local companies have been forced to shut down operations due to a weak economy.

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James Jakoplic has 2 articles online

James Jakoplic is a writer for Global Sources, a leading business-to-business media supplier and facilitator of trade with China. They have experience in all industries, from Electronics to Garments & Textiles

 

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No China labor crunch in 2013, say experts

This article was published on 2013/08/30