Will magic of pay, charm stop vanishing act?

Underlying problems

A group of migrant workers make their way home for the lunar new year holidays through the winter snow in Southwest China's Chongqing municipality on Jan 19. [Photo/Xinhua]

A worker stacks pans at an electronic cooker factory in her hometown in Shandong province. Many people are now finding jobs close to their families and friends. [Photo/China Daily]

A labor shortage in eastern coastal regions, however, does not necessarily mean China is short of labor in real terms, said professor Feng. He explained that it simply shows migrant workers are no longer willing to put up with rock-bottom wages.

As of last September, there was a surplus of more than 100 million laborers in rural areas, according to China's Human Resources, a white paper released by the Information Office of the State Council.

"Favorable government policies toward farming in recent years have made farmers richer," said Feng. "Some (workers) might choose to stay at home if salaries in the cities are not that much higher."

In 2006, the central government scrapped the country's agricultural tax, which had been levied for almost 2,600 years. Estimates suggest that exemption from agricultural tax will save farmers a combined 50 billion yuan a year.

At the same time, increased agricultural investment and allowances were introduced to encourage people to grow crops, while protective prices were set on grains so that farmers would not be hit by falling prices. The government's purchase price for white wheat also rose to 1.9 yuan a kilogram from 1.44 yuan a kg in 2006. Authorities even offer consultancy services to boost the use of advanced technologies and productivity.

"The labor shortage in coastal regions, such as the Pearl River and Yangtze River deltas, is also attributable to the growth of second-tier inland cities like Chongqing and Wuhan (capital of Hubei province)," said Du Yang, director of the Chinese Academy of Social Sciences' labor and human capital research center. "Salaries have grown rapidly in these places along with economic development, and many migrant workers prefer to go there because it's simply closer to home."

Another reason for the labor shortage, say experts, is that younger generations of workers view the world differently from their parents.

"Young people were raised in much better environments than their parents and are under much less pressure to support their families," said Feng at Fudan University. "They are generally more educated and thus more aware of their legal rights. They also have more open minds and, to some extent, want to live like their city peers."

Young migrant workers showed their discontent over low wages and infringements last year with a series of strikes to demand better working conditions, including one at a Honda parts factory in Foshan, Guangdong.

As well as demonstrations, the number of labor disputes going to arbitration or courts also rose sharply. In 2008 and 2009, when factories were closing due to the financial crisis, roughly 700,000 labor disputes went to arbitration, almost double the number in 2007, according to the Ministry of Human Resources and Social Security.

"The era of cheap labor and materials, which has underpinned China's rapid economic development for 30 years, is over," said Du at the Chinese Academy of Social Sciences. "Companies should prepare for higher salaries or face a labor shortage."

Shen Gaoming, chief economist at Citigroup Global Markets Asia, said that, although China's labor supply will not peak until 2015, daily working hours have been steadily shrinking due to higher incomes.

"When a country's GDP per capita reaches $3,000 to $4,000, workers have more than enough money to subsist and want more leisure and entertainment time, making them reluctant to work overtime," he said. "That effectively reduces the supply of cheap labor and tends to push up workers' wages in the long term."

Feng at Fudan University expects migrant workers' salaries to rise in tune with the country's GDP growth rate over the next five years, with welfare and working conditions improved accordingly. "Incomes are on an upward track, as supported by the draft of the 12th Five-Year Plan (2011-2015), which significantly highlights the need to boost domestic consumption," he said.

The central government's plan pledges to build a "long-term mechanism" to increase domestic demand, which is "critical" to upgrading its economic development model.

From a long-term perspective, increased labor cost is a positive thing, said Du, "as it forces Chinese enterprises to transform from labor-intensive to technology- and capital-intensive or face losing competitiveness".

"It's a turning point for Chinese industries and is a phase developed nations like Japan have all gone through," he added. "A transition has to be made to make the growth models of Chinese companies and the overall economy more sustainable. There will be pains during the transition but it is the right way to go."

Like dozens of other migrant workers at Fuzhou Railway Station in Fujian province on Jan 10, Zhang Xiao sat on a pile of bulging bags waiting for a train to take him home. He was chatting excitedly with a friend about his plans for Spring Festival.

"My boss wanted me to stay longer and even offered me a higher wage, but I turned it down," said the 27-year-old chef from Chengdu, capital of Sichuan province. "I just can't wait to see my son.

"I may not come back after the holiday, as I'm thinking about opening my own restaurant in my hometown. I may earn slightly less than working in the city at first, but the living cost is far less," he added.

Wei Tian in Fuzhou contributed to this story.

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