China Review: Tight labour support is pushing up costs across the country

Murmurs of labour shortage that started early this year from the coastal regions have been confirmed by official statistics. For the first time since 2001, available job openings have exceeded the number of job applicants nationwide, according to a labour market supply and demand report recently published by China Human Resources Information Monitoring Center.  To be exact, every 100 applicants had 104 openings to choose from in the first quarter of 2010. The conclusion is drawn by the center after analysing data from 100 job centres across the country. The first-quarter data represent significant improvement in job supply from the second half of 2008, when the economic slowdown sent available job openings per applicant to a low of 0.85.

Apparently, labour shortage is most severe in coastal regions where export industries congregate. In particular, the Pearl River Delta, the Yangtze River Delta, the areas around the Bohai Sea in the north and along the Fujian coasts facing Taiwan find it most difficult to fill available jobs. In southeastern Fujian, for instance, job openings per applicant were 1.27 in the first quarter. Some blame the tight labour supply on the recent recession, which led to the exodus of millions of migrant workers since 2009 from the coastal regions. Many of them have since found jobs closer to home, in order to spend more time with families, and to take advantage of local public services such as education and healthcare that they can hardly access as migrant workers in the coastal regions.

Minimum wage levels have risen in recent months in response to the labour supply situation. Jiangsu province in the Yangtze River Delta took the lead, raising minimum wages by 13 per cent this February, as the government tried to help local businesses attract workers from the southeastern coastal regions. Other provinces and municipalities soon followed suit, raising minimum wages by an average of 17 per cent. (See detailed chart of wage increase below) Since many exporters use the minimum wage as a benchmark to set salaries for their employees (mostly migrant workers), it is fairly safe to assume that exporters face a double-digit increase in labour cost this year and will see their already slim margins further squeezed.

Monthly minimum wage in China (in CNY)

Market recap

The stock market was rattled this week by a 50-basis-point increase in bank reserve ratio announced on Sunday, the third one this year, and by tough policies from municipal governments in cities including Beijing to contain speculation in the property market. The April PMI data from HSBC, which showed a slowdown in the pace of expansion in manufacturing sector in China, contrary to the positive trend shown by the official PMI data in China, also led many to fear troubles on the horizon, sending them to the sideline of the market. The Shanghai Composite Index fell to its lowest level since last September, down by 6.35 per cent to 2688, while the Shenzhen index fell 9.1 per cent to 10,146.

Macro and industry updates

Official April PMI shows improvement, but HSBC begs to differ

According to the semi-official China Federation of Logistics and Purchasing, the purchasing manager's index (PMI) for the manufacturing sector in China was at 55.7 in April, up by 0.6 from March, although it was down from the recent high of 56.6 in December 2009. This is the 14th month that the PMI index remained above 50, which indicates expansion. However, the April PMI statistics compiled independently by HSBC paints a slightly different picture. Its PMI index fell to 55.4 in April from 57 in March, indicating a slowdown in the pace of expansion. 

Bank reserve ratio up by another 50 basis points

On Sunday, the Chinese central bank announced the third increase in bank reserve ratio this year in an effort to rein in bank lending. Effective May 10, reserve ratio will go up to 17 per cent for major banks and 15 per cent for smaller ones. The first two raises took place in January and February. In the past week, the central bank also auctioned CNY 110 billion worth of 3-year bills in its open market operations to mop up excess liquidity. It seems that the government has decided to keep the interest rate and the dollar peg unchanged for now.

Robust growth in auto sales and production continued this year

According to the latest release from the China Automotive Technology and Research Center, auto sales volume jumped by 40 per cent to 1.39 million units, while production rose by 35 per cent year over year to 1.53 million units, although it was down 9.8 per cent sequentially. 
Due to easy comparison with the same period last year, auto production and sales in the first four months of 2010 jumped by 60 per cent and 35 per cent respectively.

This is an edited version. The article originated from Morningstar.com.au.