China’s Manufacturing Hub Faces Labor Shortage and Higher Wages

China Labor
An employee loads bags of oats on to a conveyor at the Nestle Dongguan Ltd. factory in Dongguan, Guangdong province, China. Photographer: Brent Lewin/Bloomberg

Chinese exporters in the Pearl River Delta manufacturing hub are facing persistent labor shortages and rising wages even as the economy continues to slow.

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

Salaries are rising, driven by improving productivity levels as manufacturers become more sophisticated and producers move up the value chain, the survey found. China’s policy makers are seeking to engineer a transition away from reliance on investment and cheap exports toward higher-end production, innovation, services and increased household consumption.

“At the macro level, China is still creating jobs and maintaining income growth for now,” Standard Chartered economists led by Kelvin Lau wrote in the report. “At the company level, however, persistent labor shortages mean more cost challenges ahead.”

Around 11 percent of companies surveyed plan to move factories overseas to keep costs down, with Vietnam and Cambodia top of the preferred destination list.

“These choices indicate that companies considering relocating from China are mostly low-end producers in the textiles and garments sector,” the report said.

China’s economy grew in the first quarter at its slowest pace since 2009. Authorities have responded by lowering interest rates and encouraging more bank lending. Economists say further easing is likely.

Located close to Hong Kong, the Pearl River Delta consists of nine cities in Guangdong Province and makes up 27 percent of all Chinese exports and takes in around 20 percent of foreign direct investment, according to Standard Chartered.

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