Every year after the New Year, the mainland will stage a wave of recruitment boom, but over the years, the problem of “recruitment difficulties” and “labor shortage” in the manufacturing industry has become more and more prominent, and many bosses are lamenting that the boss used to pick the workers, but now the workers are picking the boss, and the monthly salary is 8.000, Even if the monthly salary is 8,000, no one can be recruited.
According to statistics, China’s manufacturing sector accounted for 32.5% of GDP in 2006, but it has dropped to 27.2% in 2019, and the rate of decline is too fast and too early compared with other industrialized countries. Japan’s Daiwa Securities has also predicted that China will lose its status as the “factory of the world” by 2022 at the latest.
So, what is wrong with China’s manufacturing industry? Will China’s status as the world’s factory be sustainable in the long run? Today we will talk about this topic.
China’s manufacturing industry is getting old before it gets rich” GDP share is accelerating to decline
Let’s take a look at the global share of China’s manufacturing industry. From 1990 to 2010, the share of China’s manufacturing industry in the world soared from 2.7% to 19.8% in 20 years. Since 2010, China’s manufacturing value added has surpassed that of the United States to become the number one manufacturing power, and it has maintained it until now. However, so far, China can only be said to be a “manufacturing power”, but not yet a “manufacturing power”.
At the end of last year, the Strategic Consulting Center of the Chinese Academy of Engineering and other institutions jointly released a “2020 China Manufacturing Power Development Index Report”, which shows that, in terms of core competitiveness of manufacturing, China is in the third tier of manufacturing power, behind the first tier of the United States, and the second tier of Germany and Japan.
Moreover, the study also found that the main support force of China’s manufacturing development is still stuck in “scale development”, while most of the developed countries take quality and efficiency, structural optimization and sustainable development as their superior competitiveness.
For example, the “manufacturing value added rate” of industrially developed countries such as the United States and Germany is above 30% on average, while China’s “manufacturing value added rate” always hovers around 20%. In addition, in 2019, although China’s “manufacturing total labor productivity” increased by 6.8% year-on-year, it was only one-fifth of the level of the United States (20.46%) and one-third of Japan and Germany (32.8%, 33.2%).
In other words, China’s manufacturing industry has no advantage in the global horizontal comparison, and as we mentioned earlier, within China itself, the share of manufacturing industry is also showing a declining trend, and it is happening earlier and faster than other countries. According to the data of the Sadie Research Institute of the Ministry of Industry and Information Technology of the Communist Party of China, the United States has dropped 8.1 percentage points in 27 years, Japan has dropped 2.8 percentage points in 23 years, while China has dropped 5.3 percentage points in only 13 years, which is obviously too fast.
Moreover, the United States, Germany and Japan, they all began to decline in the share of manufacturing only when their per capita GDP reached the high income level of 17,000, 19,000 and 20,000 USD respectively, while China? In 2006, when China’s GDP per capita was US$3,069, the share of manufacturing industry began to decline, that is, “the rich are getting old before the rich are getting old”.
So, what causes China’s manufacturing industry to “age before it gets rich”?
China entered the “Lewis inflection point” due to the reduction of manufacturing labor force
In the late 1970s and early 1980s, China’s working-age population grew rapidly, and continued to do so until 2011. At that time, the manufacturing industry was not worried about finding low-cost labor and thus formed the advantage of labor-intensive industries, which was an important condition for China’s rapid economic development in the past decades, which is what we now call the demographic dividend.
However, with the changing demographic structure, this advantage is now gone.
From 2012 to 2019, China’s working-age population between the ages of 16 and 59 has declined in both number and share for eight consecutive years. As we know, the Chinese Communist government just released the results of the seventh census two days ago, showing that the total working-age population in 2020 will be 880 million, a value that is more than 40 million fewer than in 2010 and represents a 6.8 percentage point drop in the share of the total population.
Additional data show that the number of migrant workers in the manufacturing industry decreased by an average of 2.84% per year from 2008 to 2018, and the total number of migrant workers in 2020 will be 5.17 million less than in 2019. In other words, the working population supporting the development of China’s manufacturing industry is getting smaller and smaller.
Not only that, migrant workers are also aging. From 2008 to 2019, the number of migrant workers in the 21 to 30 age group has decreased by 12 million; while the proportion of migrant workers over 50 years old has increased from 11.4% to 24.6%.
A friend who works in a labor agency said that in the past, there was mainly a seasonal shortage of workers, and young people were actually inexhaustible, like in machinery factories, mold factories, electronics factories, textile factories, etc., which were full of young guys and girls, but now, there are fewer young people and the workers are getting old.
Many scholars have predicted that China’s demographic dividend will disappear soon, and some analysts say that China has entered the “Lewis inflection point”, that is, the labor force has changed from surplus to shortage, and the future economic growth will be driven by reform and innovation. Some scholars also believe that China’s demographic dividend has long been gone, and from this year to 2025, China’s labor force is expected to decrease by 10 million each year, and will face a situation of both supply and demand shrinkage.
Young people are reluctant to enter factories and there is a shortage of manufacturing talents
In addition, another major reason for the “labor shortage” in China’s manufacturing industry is that the new generation of young people are not willing to work in factories.
For these people, the attractiveness of manufacturing industry is weakening. Even children from rural areas are unwilling to engage in the common manufacturing work like their parents’ generation, such as high-intensity overtime, low welfare protection, simple working environment and assembly line and screw type.
For many young people, compared with the manufacturing industry, some flexible and free jobs are more attractive to them, like take-away, express delivery, online taxi and other service industries. In 2019, the number of courier workers in China has exceeded 10 million, and the total number of food and beverage takeaway workers has exceeded 7 million. There are also data showing that during the 2020 epidemic, 580,000 new take-out riders were added in two months, and 40% of them switched from manufacturing.
Of course, higher incomes are also a big part of the attraction for young people to join these industries. The 2020 Meals on Wheels Employment Report shows that the average salary of mainland delivery riders last year was RMB 8,750, which already surpassed the white-collar positions of administrative and clerical workers. And in 2019, the salary level of mainland enterprises above the scale, that is, industrial enterprises with annual main business revenue of 20 million and above, shows that the average salary of people engaged in manufacturing and other jobs within the manufacturing industry, for example, is less than 5,000 yuan per month. In 2020, the average monthly income of migrant workers in the manufacturing industry will only be $4,096.
The reason for this wage difference is, on the one hand, because such take-away platforms do not have to bear the same employer responsibilities and social security contributions as factory owners, so this cost is translated into a relatively high level of pay. On the other hand, it is also determined by the low profits of the manufacturing industry, which according to the Ministry of Industry and Information Technology of the Communist Party of China, the average profit of Chinese manufacturing enterprises is only 2.59%.
With the superposition of various factors, the difficulty of recruiting workers in manufacturing industry becomes a prominent phenomenon. The “Research Report on Labor Shortage in First-line Blue Collars” released in January this year also shows that recently, two-thirds of the enterprises have experienced labor shortage, and another 13% of the enterprises have indicated that there is a perennial labor shortage problem. Other reasons include poor working conditions or working environment, and lack of competitiveness of salary and benefits provided by enterprises.
On the other hand, as manufacturing factories become more and more intelligent and automated, enterprises have a growing demand for knowledgeable and skilled personnel, especially the lack of front-line skilled workers and senior technicians. However, China’s academic education has no way to solve the urgent needs of factories. This is partly because university graduates want to be white-collar workers, and partly because there is a disconnect between university education and the real needs, with a shortage of practical jobs and a pile-up of impractical professionals.
In March this year, the surveyed unemployment rate of young people aged 16 to 24 was 13.6%, up from the same period of the previous year, which shows that labor shortage and employment difficulties exist in China at the same time.
Foreign capital withdrawal has a greater impact on the manufacturing industry
However, what is more deadly for China’s manufacturing industry is the withdrawal of foreign capital, in addition to the fact that no one is working. A financial source posted a few days ago that manufacturers from big investors like Taiwan, South Korea and Japan are leaving China in droves.
Just two days ago, netizens posted a video of a job-hunting street in Guangzhou, full of people looking for work, but few hiring. The video also said that this year’s slow hiring season has come a month early, which also raises the question of whether the trade war and the withdrawal of foreign investment are to blame.
In the wake of last year’s outbreak, many countries realized that total reliance on China for their supply chains could threaten national security, with the result that since last year, Japan and the United States have offered to fund their companies to move production lines out of China, and last year, more than 1,700 Japanese investment companies and manufacturers have pulled out of China.
And Delta Electronics, which supplies Apple and Tesla, said in March that they plan to reduce their Chinese workforce by 90 percent, and that even without the U.S.-China conflict, China is no longer a good place to manufacture, mainly because of rising wages and high employee turnover rates.
And South Korea’s Samsung, after closing its cell phone factory in Huizhou, Guangdong province, in 2019, has hit the local economy along with it, with at least 60 percent of local businesses, including smaller auxiliary factories, stores and restaurants, also forced to close, and a Dongguan factory that relied on Samsung for large orders also suffered heavy losses, as thousands of workers and management were forced to take vacations or work fewer hours because there were no orders to be made.
Although the Communist Party has emphasized for years that it wants to move from a “manufacturing power” to a “manufacturing power,” the declining share of manufacturing, labor shortages, shortages of skilled personnel, and the withdrawal of foreign investment have all contributed to the uncertainty of this goal.