Forget steel, it's a labour shortage that's now testing China

Chinese factory owners, used to a plentiful supply of cheap workers leaving paddy fields, are having a tough time this year. Bicycle manufacturers in Guangzhou are raising wages and offering paid-for holidays home to entice workers to stay. Migrant labour wage rates could increase by 30 percent this year. Cheap Chinese bicycles will soon become more expensive...
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China's strict population controls, rising education levels and diminishing pool of rural workers is forcing up labour costs.

Rural migrants and redundant state workers still form the world's largest pool of surplus labour. They powered the world's largest and fastest industrial revolution.

Chinese factories produce 61 percent of the world's exported bicycles, 51 percent of trainers and 46 percent of knives, forks and spoons.

But prices for manufactured goods now look set to rise because of a labour shortage.

Rising food prices - caused, in part, by factories building on paddy fields - have caused Chinese consumer prices to jump 5.3 percent in the year to July 31, after six years of deflation.

Rural incomes have risen 16 percent in the year to June 30, compared with 2 percent in each of the two preceding years. This is a faster rise than urban incomes, reducing the incentive for farmers to leave for the city.

There's an estimated shortfall of 2 million workers in cities in the Pearl River delta, which include Guangzhou and Shenzhen, where most of the world's cheap bicycles are made.

Like Japan, Korea and Taiwan before it, Chinese factories will have to 'add value' to their exported goods because rising wages will force manufacturers to raise prices.

A report from Goldman Sachs said:

"The quiet shift in supply and demand for rural labourers may signal China's infinite supply of cheap labour is coming to an end with profound implications for China itself and the world around it."

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