Drop in low-cost labor forecast
By Wang Zhenghua (China Daily)
Updated: 2008-03-12 07:56

The country's abundant supply of low-cost labor, seen as a backbone of its remarkable economic expansion, could stop growing in one or two years and start dropping in eight to 10 years, a senior economics expert said on Tuesday.

The transition into a balanced labor supply could also feature shortages in regional areas, Cai Fang, director of the Institute of Population and Labor Economics, said.

"The fundamentals of a large labor force have changed, as indicated in the shortage of migrant workers," he said.

As a result, Cai said, rising labor costs will force foreign investors to forsake "the world's factory".

China's rural labor force has spearheaded the nation's roaring growth, but a labor shortage started hitting the Pearl River Delta in 2004 before spreading to other areas including the Yangtze River Delta, mid- and large-sized cities, and even the traditionally labor-rich northeast regions.

The number of surplus laborers below the age of 40 able to migrate to cities for jobs is only about 50 million, Cai, an NPC deputy, said. Of these, a large portion would choose to stay and work rural jobs because of the central government's favorable policies for the agricultural sector.

"It doesn't make sense to have a massive labor force in rural areas," Cai said.

The shortage could also give rise to a demand for higher wages, which would shatter China's advantage in attracting foreign investors.

"Before 2003, the wages of migrant workers remained nearly unchanged," Cai said.

But last year, wage increases exceeded 20 percent on the back of annual climbs since 2003.

Meanwhile, rising wages of the poor immediately boosted their demand for consumption, which partly caused prices to skyrocket last year, Cai said.

"There are various reasons behind the continuous food price hikes, but one of them is the rising demand boosted by the spending power of low-income residents," he said.

Cai also attributed the changes in labor supply to the 30-year-old family planning policy and the expansion of the economy.

But he opposed scrapping the policy, calling for it to be relaxed instead.

"The family planning policy is a long-term national policy. It's different from the one-child policy," he said.

For instance, in many parts of China, couples who themselves are the only child in their families are allowed to have a second child. In some regions, a second child is permitted if one of the parents is an only child, he said.

"Sensible and progressive population policy reform is needed in China, and related departments are studying the possibilities," Cai said.

He also rebutted views that the family planning policy has resulted in a gender imbalance, with the country having 30 million more men of marriageable age than women in less than 15 years.

"Gender imbalance is irrelevant to the family planning policy," Cai said.

The root of the imbalance is a traditional preference for sons, which is in turn caused by widespread gender prejudice in the job market, and a defective social security system that made people, especially rural couples, feel that they needed a son to depend on when they get old, Cai said.