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UNCLAS SECTION 01 OF 03 GUANGZHOU 000301 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ELAB ECON EINV CH
SUBJECT: The Labor Shortage in the Pearl River Delta 
 
REFERENCE: A) 06 Guangzhou 31579; B) 06 Guangzhou 32421; C) 06 
 
Guangzhou 32431; D) 06 Guangzhou 32432 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (U) SUMMARY: In the wake of the week-long lunar new year holiday, 
Guangdong's Pearl River Delta (PRD) businesses and governments are 
fretting about a labor shortage that has become more pronounced 
during the past few years.  Migrant workers who left for the holiday 
are switching jobs, staying home, or traveling to other 
manufacturing centers such as the Yangzi River Delta, where wages 
are higher and working conditions better.  The shortages are most 
acute for jobs that require technical and managerial skills and 
those in the lowest-paying industries, such as textiles.  Despite 
government efforts, such as minimum wage hikes, the shortages will 
likely intensify as the PRD's demand for skilled professionals 
rises, other parts of the country industrialize and compete for 
labor, and the workforce ages.  END SUMMARY 
 
The Chinese New Year Migration 
------------------------------ 
 
¶2. (U) Most PRD factories shut down for the week of the lunar new 
year holiday (February 17-24 in 2007) and many of the area's migrant 
workers return to their homes in China's interior provinces.  PRD 
factory owners are concerned about the number of workers who are 
switching jobs when they return or not coming back at all.  Migrant 
workers comprise 35 percent of Guangdong's work force, according to 
the All-China Federation of Trade Unions.  Local newspapers and 
television stations have been running stories on the labor shortage 
and quoting factory owners who are having trouble filling their 
jobs.  In one story, a Guangzhou garment factory owner lost 
two-thirds of his workforce and was recruiting workers directly from 
the city's railway and bus stations.  In another, an electronics 
factory owner could fill only 700 of 1,000 openings, despite 
offering pay above the minimum wage. 
 
Government Numbers Point to a Shortage 
-------------------------------------- 
 
¶3. (U) The extent of the labor shortage is difficult to determine. 
Local PRD labor departments report that Guangdong is experiencing a 
shortfall of migrant workers for the third consecutive year; 60 
percent of Guangdong employers were affected by shortages in 2006. 
The Guangzhou labor department reported the city has 1.2 job 
openings for every one job-seeker, while Guangdong authorities 
reported that the province only filled 4.8 million of the 7.3 
million job vacancies in 2006.  Compounding the problem is the fact 
that workers are changing their jobs more frequently as they seek 
out better pay and benefits.  Guangdong labor officials expect the 
demand for skilled workers to increase by 20 percent this year and 
the demand for unskilled workers to rise by 10 percent. 
 
¶4. (U) The Guangdong Labor Department has stated, perhaps somewhat 
optimistically, that companies that pay well and provide good living 
and working conditions will have no trouble finding enough workers. 
They also announced that the number of migrant workers arriving in 
Guangdong after the holiday was up 8 percent over 2006 and 90 
percent of workers in Guangzhou have returned to their jobs.  This 
assertion was contradicted by an Italian company representative who 
said his firm has faced difficulties not only in attracting but also 
in retaining skilled workers, many of whom depart shortly after 
being trained by the firm.  Loyalty to a firm is totally lacking, 
according to this representative, despite good pay and benefits 
which are well above minimum levels. 
 
Vacancies: Not Across the Board 
------------------------------- 
 
¶5. (U) Local government and industry concerns about a labor shortage 
seem to fly in the face of national pronouncements that China is not 
generating enough jobs.  China's Labor and Social Security Minister 
Tian Chengping recently announced that China will have a shortfall 
of 10 million jobs by 2010.  A closer look at the labor market 
shows, however, that the PRD's vacant jobs are at opposite ends of 
the labor spectrum: those that require specialized skills and those 
that require no skills and in which laborers' working conditions are 
poor.  For the majority of jobs, which fall between these two 
extremes, there are generally enough workers to maintain Guangdong's 
strong economy, which has had almost 12 percent growth for the past 
20 years and has the highest per-capita GDP in China. 
 
An Evolving Economy 
--------------------- 
 
 
GUANGZHOU 00000301  002 OF 003 
 
 
¶6. (U) The shortage of workers to fill jobs in technical and 
managerial positions points to a gradual shift that is taking place 
in the PRD economy toward higher value-added and high-technology 
industries.  Behind this shift are market forces, such as higher 
land and labor costs and an appreciating RMB, as well as government 
efforts to establish a long-term, sustainable economy.  Two-thirds 
of Guangdong's manufacturing industry is process and assembly, 
almost all of which is for export, compared to 55 percent 
nationally, according to Huang Jingbo, Dean of Zhongshan 
University's Economics Department.  Process and assembly factories 
have low profit margins, offer the lowest wages, and have very 
little technology transfer.  This move away from low-end, process 
and assembly manufacturing accounts for the 20 percent increase in 
demand for skilled workers in the PRD in 2007 and has increased the 
burden on the region's universities and vocational schools to train 
enough professionals. 
 
Foreign Companies Feel the Squeeze 
----------------------------------- 
 
¶7. (SBU) Foreign companies in the PRD, including those in the 
American Chamber of Commerce-South China, are clearly concerned 
about the lack of skilled managers and technicians.  The shortage 
has led to higher turnover rates, unsustainable wage increases, and 
companies poaching talent from each other (see ref A).  According to 
Mercer, managers can earn a 50 percent pay raise by switching 
companies and some managers in PRD-based firms are earning as much 
as their Hong Kong counterparts.  According to an AmCham-South China 
survey that will be released on March 15, U.S. companies cite a lack 
of qualified managers and specialists as their second biggest 
concern overall, after regulatory issues.  Rising labor costs ranks 
fourth.  In an October 2006 AmCham-South China survey, the lack of 
skilled talent topped the list of human resource concerns. 
 
The Unskilled Worker Shortage: Poor Conditions 
--------------------------------------------- - 
 
¶8. (U) On the other end of the spectrum, PRD businesses with the 
lowest paying jobs and the poorest working conditions, such as those 
in the garment industry, are also facing a shortage.  Most of these 
factories are owned by domestic, Taiwan, or Hong Kong investors and 
operate on the thinnest of profit margins.  They are being squeezed 
by rising labor, land, and energy costs as well as the appreciation 
of the RMB.  Foreign-invested factories, which have a better 
reputation because of competitive pay packages and good working 
conditions, are, for the most part, finding enough unskilled 
workers.  (Foreign subsidiaries are not without problems; PRD 
factories producing goods for Apple, Disney, and McDonald's made 
news in 2006 when media and labor groups exposed poor working 
conditions). 
 
¶9. (U) Low-end factories are more likely to flout labor laws by 
paying less than the minimum wage, requiring overtime without 
compensation, and ignoring worker safety (ref B).  The lack of 
effective trade unions and lax enforcement by labor bureaus means 
the situation has been slow to improve.  As a result, the PRD has 
developed a reputation for poor working conditions and low pay and 
migrant laborers are choosing to go to other manufacturing centers 
instead, such as the Yangzi River Delta (YRD), where wages are 
higher and working conditions better. 
 
Government Efforts to Attract Workers 
------------------------------------- 
 
¶10. (U) PRD governments have taken measures to alleviate the 
shortage.  The Guangdong Labor Bureau offers labor rights training 
programs and legal aid centers in a number of PRD cities to improve 
conditions for migrant workers (ref C).  The bureau is also pushing 
local governments to improve health care and educational 
opportunities for workers' families.  In early 2006, Shenzhen became 
the first city in China to adopt a medical insurance system for 
migrant workers.  Guangzhou's Labor Department remains understaffed, 
however, and reportedly plans to hire 100 new inspectors to ease the 
burden.  To compensate, local governments rely on labor NGO's, both 
registered and unregistered, to provide assistance and training (ref 
D). 
 
¶11. (U) Local governments are also rapidly hiking their minimum 
wages to attract workers.  The average minimum wage increase in 2006 
across the province was 17.8 percent - the highest to date. 
Guangzhou raised its minimum wage four times between 2000 and 2006, 
from 450 RMB (USD 58)per month to 780 RMB (USD 101).  Shenzhen's 
minimum wage has been raised twice during the past two years and 
currently stands at RMB 810 (USD 101).  The minimum wage in 
Dongguan, Zhuhai, Foshan, and Zhongshan is RMB 690 (USD 86).  In 
addition to wage increases, Guangdong's labor bureau has urged local 
 
GUANGZHOU 00000301  003 OF 003 
 
 
labor departments to organize more job fairs and offer job referral 
services. 
 
An Aging Workforce 
------------------ 
 
¶12. (U) Experts also point to the aging of China's workforce as a 
factor in the PRD's labor shortage and predict more pronounced 
shortages over the long term.  Cai Feng, Director of the Chinese 
Academy of Social Science's Institute of Population and Labor 
Economics, said in February that China's labor supply is peaking, 
causing "a structural labor shortage" in some regions.  The number 
of Chinese over 60 years old will increase from 143 million in 2004 
to more than 200 million by 2014, according to government estimates. 
 
 
Comment: Beyond the PRD 
----------------------- 
 
¶13. (SBU) Whereas PRD business owners once could rely on an 
unlimited supply of labor, they are now being forced to compete for 
workers with other regions of China.  Skilled workers in the PRD 
have never been in a better position to negotiate their pay and 
benefit packages.  Migrant laborers, who are increasingly well 
connected, are less willing to accept poor working conditions and 
more liable to switch jobs.  As the work of NGO's and government 
labor bureaus expand and improve, low-end factories will be forced 
to leave - to inland China closer to migrant worker homes or abroad 
- in greater numbers because of labor costs.  Local governments are 
hopeful that, with the proximity of the PRD to ports and Hong Kong, 
high-tech factories will take their place. 
 
¶14. (SBU) For those factories that are priced out of the PRD and 
move further inland, wage pressures will likely prove inescapable. 
Labor shortages and rising wages are already occurring north of the 
PRD in central Guangdong.  The owner of a newly built factory that 
produces shoes for Nike in Qingyuan, which is two hours north of 
Guangzhou, told us that rising labor costs would likely force him to 
relocate again within five years.  A 30,000-employee electronics 
factory down the road, which recently moved from Dongguan, has 
reportedly had trouble finding enough workers.  This will likely 
force enterprises to relocate further inland, a move that will be 
encouraged by the rapid development of the better and more efficient 
transportation network that is being constructed under the 11th-Five 
Year Plan. 
 
GOLDBERG