If you find yourself in Asia looking for business opportunities, stay away from China. High labor costs over the last few years have pushed up the price of doing business in Shenzhen, a major business metropolis in the southern Guangdong province that links Hong Kong to China’s mainland, and thousands of factories owned by Hong Kong companies in the area have closed their doors. According to an analysis by one Hong Kong trade group, the number of manufacturing plants in the area has dropped by one third to 32,000 in 2013 from a 2006 peak.
Those that remain standing are moving towards new methods of production that involve the use of advanced automation and higher technologies that rely less and less on human assistance.
As a result of these changes, thousands of foreign as well as local workers are being pushed out of their jobs and are seeing their dreams for economic security fade into oblivion.
Over thirty years ago, American apparel companies were acting fast and furious in moving their production plants to China to take advantage of cheaper workforces. Levi Strauss & Co. was one of the first clothing manufacturers to relocate their facility to China where their iconic jeans could be sewn be an endless stream of workers willing to stitch for a few dimes an hour. Hundreds of other companies followed Levi’s lead.
High labor costs over the last few years have pushed up the price of doing business in Shenzhen…and thousands of factories owned by Hong Kong companies in the area have closed their doors.
Big Changes
The Chinese economy is the 2nd largest in the world but the global environment is changing dramatically and Chinese workers are no longer willing to scrounge for their money. Many foreign workers who have left their farms and families behind and have settled in the major cities where job offerings were plenty are now out of work and their frustrations are obvious.
While China’s some factories are willing to pay more and keep their good workers happy, many show no remorse for the plight of their employees and don’t give them any forewarning of an impending decision to restructure or close down. This has lead thousands of out-of-job workers to take to the streets.
Worker protests and strikes are wide spread and growing fast. A Hong Kong-based civic group, China Labour Bulletin, noted that strikes and labor protests nationwide nearly doubled in the first 11 months of 2015 to 2,354 from 1,207 in the same 2014 period. And China’s labor ministry reported that 1.56 million labor-dispute cases were accepted for arbitration and mediation in 2014, up from 1.5 million in 2013.
While layoffs have become widespread, at the same time, there is a shortage of people willing to do the assembly-line type of work needed in smaller factories or plants. Analysts predict that over the coming decades, this labor shortage will force scores of other Western clothing brands to have second thoughts about their China operations and most of them will pack up their belongings and leave for greener pastures, acerbating the already increasing unemployment numbers.
Changes are in the offing but it will take time to feel their effect. Last month, China announced that it was abolishing its decades-old policy of restricting married couples to one child. Whether or not that will encourage the Chinese to have larger families is questionable. Those that do, will need additional income to support two children in the lifestyle they are used to and they might be inclined to take on a job with lower pay rather than face no employment at all.
The new policy will probably not affect the country’s looming demographic problem, however, as it will be at least 16 years before any additional babies enter the job market.
It would seem that there is no looking back and in order to forestall an exodus of manufacturers from the country, Chinese Communist Party Chief Xi Jinping last year called for “an industrial robot revolution” in China, which has provided the impetus for the country to become the world’s largest market for automation and a November report showed that China’s manufacturing industry has recovered a tad from the lowest level in 6 and a half years during the first 10 months of 2015.
China’s fluctuating economy over the last year has had major global repercussions and it continues to be one of the most decisive factors in the upcoming Fed rate hike decision. Only time will tell how the cards will play out in the coming year.