The attractive low wages in China are no more—thanks to a boom in investment and the consequences of the one-child policy. A labor shortage has spread from the Pearl River Delta to the Yangtze River Delta. Due to the shortage of low-wage labor in coastal areas where investment from Taiwan is concentrated, most Taiwanese manufacturers say that workers’ wages will multiply in the next five years. Enterprise management consultants say that the investment environment in China is now deteriorating with shortages in electricity, labor, raw materials and land.

No More Huge Crowds of Applicants

According to the electronic version of the China Times, the labor shortage that started in Guangdong Province last year has not improved despite macroeconomic controls aimed at reducing the number of new projects. In addition, as the generation of single children enter the job market and both the number of investment projects and the service industry grow, the labor shortage will only be exacerbated.

In Dongguan, Guangdong Province, factories large and small are facing labor shortages. Mr. Zeng Jijian, general manager of a Taiwanese-owned factory with more than 20,000 workers, says, “Most factories have unfilled vacancies in the past year--even our factory in Suzhou is facing the same problem.” Mr. Zeng has dealt with human resources for more than a decade and recalled how huge crowds used to line up for a few openings. Such crowds of applicants have now disappeared.

Lowering Standards

For more than a decade, Taiwanese manufacturers have never planned for labor shortages. To deal with the problem, Taiwanese manufacturers are now lowering hiring standards and raising benefits in an effort to attract new employees.

Moreover, many Chinese workers have false identification cards. Employers used to examine these carefully, but now they are less stringent. Conservative estimates show that at least 10 percent of the job applicants have falsified their ages.

Wages Will Triple in Five Years

From his own experience, Zeng said the wages had not gone up much for a decade but should at least triple in the next five years.

The Taiwanese employers who are plagued by labor shortages are trying to attract employees by increasing wages. Hong Wenzheng, deputy general manager of a Dongguan iron and steel manufacturer, said that it is inevitable that the depressed wages in Guangdong will go up in the future.

Automation to the Rescue

Lin Siming, Chairman of a corporation with more than 4,000 employees and more than a decade of operation in Dongguan, said that his company has begun to reappraise the practice of massive employment and to adopt automation in the face of labor shortages. Automation will allow a company to increase production without increasing the payroll.

As the wages increase, Taiwanese employers in the Pearl River Delta are forced to offer better compensation packages to attract employees.

Chen Guobing, Chairman of an aluminum plant in Taishan, said that automation is becoming very important. He said that polishers of aluminum alloy steel rings earning 2000-3000 yuan (US$250-375) month are hard to find. His company decided to buy an automatic polisher costing $3 million to cut 500 positions and to increase unit output by 50,000.

Moving Inland

The average monthly pay Taiwanese corporations in Eastern China offer to workers is now 1600-1800 yuan (US$193-217). Many Taiwanese employers have started plans to move further north or inland to escape from labor shortages and rising wages.

Taiwanese Employees Need Better Crisis Management

Yuan Mingren, general manager of an enterprise management-consulting firm, made a speech entitled, “How Taiwanese Employers Should Respond to the Deterioration of China’s Investment Environment” on September 27 at the invitation of the Straits Exchange Foundation. Yuan said that employers should view cost increases due to macroeconomic controls, electricity shortages and other adverse factors as part of normal business management. They should restructure their businesses and improve crisis response mechanisms during the fall and winter months when the electricity shortage is not so serious.

Yuan said that electricity shortages in China are not limited to manufacturing but are felt everywhere, including the service industry. Many Taiwanese-owned restaurants and KTV entertainment centers in Shanghai have seen dramatic business slowdowns as they are not allowed to have neon-signs and the air-conditioning temperatures have to be set at 26 or 27 degrees Celsius. He projected that the electricity shortage in China will continue for another five or six years.

Yuan said that the Chinese government confiscated the land of many Taiwanese investors, including that of a former Taiwanese legislator, especially after introducing macroeconomic controls. The cancelled development zones of Taiwanese investors in Shanghai and Jiangsu are at least twice the size of Taiwan.

Yuan called on the Taiwanese government to come up with investment incentives and more practical foreign worker regulations to attract at least 30 percent of Taiwanese investors back to Taiwan.

Yuan added that Taiwanese investors must be familiar with the changes in the investment environment in China, restructure their businesses, strengthen their crisis response mechanism to deal with adversities, and should also reconsider their over-reliance on cheap labor and land. Otherwise, whatever they had saved before might disappear overnight if China’s political and economic situation changes.