Wall Street Journal: China's Labor Market Tightens

China Labour Bulletin is quoted in the following article. Copyright remains with the original publisher.

By Tom Orlik

23 August 2012

BEIJING—Job cuts in China appear to be on the rise, dimming prospects for a labor market that has been a resilient bright spot amid a slowdown in the world's second-largest economy.

The latest sign came on Thursday, when preliminary gauges of August factory activity and hiring showed continued weakness. The HSBC China Manufacturing Purchasing Managers' Index dipped to 47.8 for August from July's 49.3, continuing a 10-month string of results below the 50 level that separates growth from contraction.

Behind weak activity: a slowdown in trade and shrinking real-estate investment. China's exports grew just 1% in the year to July, and exports from coastal hot spots such as the city of Shanghai and the provinces of Jiangsu and Zhejiang contracted.

Meanwhile, an August reading of 47.7 in the PMI survey's employment subindex, unchanged from July, shows firms shedding workers for the sixth consecutive month.

The results follow sporadic reports of job cuts in some parts of the country.

"Anecdotal evidence suggests that an increasing number of coastal enterprises are laying off workers or closing down factories," HSBC economists said in a note. "It is time for Beijing to focus more squarely on the job market."

There are also some signs that labor unrest is on the rise. China Labour Bulletin, a nongovernmental organization that tracks collective action by Chinese workers, recorded 37 incidences of worker strikes and protests in July, roughly double the number in January, with more actions over unpaid wages.

Third-quarter economic data so far suggest China's first-half slowdown is continuing, increasing pressure on policy makers to increase lending or boost government spending to rekindle growth.

Judging the true state of China's labor market is difficult. So far the weakness appears to be well short of the job losses that followed the global financial crisis, which saw as many as 20 million unemployed migrant workers head back to their home towns—a major factor in prompting a massive stimulus spending program by Beijing.

Other gauges suggest many firms are still hiring, albeit it at a slower pace.

At a government labor exchange in the center of Beijing on Thursday, there was little sign of anxiety among those looking for work. Lin Wei, a recent graduate from China University of Petroleum, was looking for a first job in civil engineering. "I have only been looking for a week but there seems to be a number of opportunities," she said.

Song Guibo, a human-resources manager at Vanke Management Services, was at the exchange to fill vacancies for security guards, receptionists, and cleaners. His main complaint was a shortage of workers. "We mainly employ migrant workers, and they can get higher wages in the provinces now, so not so many are coming to Beijing" said Mr. Song.

The Chinese government publishes numbers on unemployment, which shows the rate at 4.1% in the second quarter, unchanged from the end of 2010. But economists widely regard the figure as unreliable, partly because it does not measure joblessness among migrant workers.

Analysts say that unemployment may lag changes in the economy. A new labor law, which came into force in 2008 and makes it costly to fire workers, and concern about a shortage of workers when growth picks up mean firms are reluctant to let workers go.

A shoe-factory owner in the eastern city of Wenzhou who gave his name as Mr. Mao said that new labor regulations make it difficult for him to lay off any of his 800 workers. "We don't fire them, they fire us," he said, referring to a practice in which migrant workers hop between factories based on where orders and wages were strongest.

"The problem with the generation of workers born after the 1980s is that they are not able to eat bitterness," he said. "They are not as hard working as their parents."

Chen Shao, China analyst at Macquarie, says that factory owners he visited on a recent trip to Fujian were hanging on to workers to avoid losing face. "They don't want to signal to competitors or creditors that they are in difficulty," he said.

Guo Sheng, the chief executive officer of recruitment website Zhaopin.com, said that growth in the number of jobs advertised on the website had slowed sharply, from 77% growth in 2011 to 17% growth in 2012. "The bad news is that growth in job opportunities has slowed, the good news is there is still growth," he said.

He also sees signs that the slowdown in China's growth was denting wage increases. "At the end of 2011 and the beginning of 2012 wages were rising at around 15% to 20% a year," he said. "From the second quarter we are seeing slowing growth and falling inflation reducing wage increases."

—Lilian Lin contributed to this article.

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