Manufacturing meltdown has HR implications

China, home to 1.41 billion people, the so-called world's factory, and one of the most popular global destinations for foreign direct investment, isn't, however, the place where factory bosses expect to find enough number of young people to work at their workshops. Finding the right talent has become an almost impossible task－and recruiters aren't a happy lot these days.

According to data released by the National Bureau of Statistics in late April, the number of migrant workers in China declined by 5.17 million last year compared to 2019, the first drop since 2008. Migrant workers engaged in the manufacturing sector accounted for 27.3 percent of the total, and their proportion in this category continued to drop.

The key reason is the rise in labor costs. The NBS data showed that in 2020, the average monthly income of migrant workers in the manufacturing sector was 4,096 yuan ($634), an increase of 138 yuan, or 3.5 percent, over the previous year. The average monthly income of migrant workers who went to cities for work was 966 yuan in 2006.

This should ring a bell to those who are aware that the income of migrant workers has roughly quadrupled in 15 years, abundantly indicating that the cost of employment for manufacturing companies has also soared.

Provinces with a large number of export-oriented manufacturing companies, such as eastern China's Zhejiang and Jiangsu provinces, and Guangdong province in the country's southern region, once were major areas of employment for migrant workers. But, they are also facing issues caused by "difficult recruitment environment" and "labor shortage".

Factory owners may be tempted to raise wages to keep workers close to the assembly lines, but sooner or later they will likely realize that unreasonably high wages would make their businesses unprofitable, stunting growth.

At the same time, young people's attitudes toward job selection and career preferences have also changed. Amid an environment of economic growth and consumption upgrade, youngsters from rural areas, unlike their parents, are reluctant to engage in high-intensity jobs that may entail trade-offs like extra hours, low welfare and humdrum workplace environment in the manufacturing sector. Truth to tell, manufacturing holds little attraction for today's young generation.

However, it is worth noting that the manufacturing sector has always been the foundation of China's real economy. The country's 3.27 million manufacturing companies have created 105 million jobs, accounting for 27.3 percent of the total employment, ranking first among all industries, data from the Ministry of Industry and Information Technology showed.

Manufacturing remains China's most competitive industry. The decline in its share of the whole economy will definitely generate a huge impact on the competitiveness of the entire country.

With reference to international experience, even in the United States, where the proportion of manufacturing is too low, a series of risks will likely prove inevitable.

Under such circumstances, improvements to the industrial infrastructure and social public services, optimized taxation, better financial and other related policies, enhanced investment confidence of entrepreneurs, and efforts to promote the growth rate of manufacturing investment become imperative; and they need to be consistent with, or even exceed, the growth rate of total investment in fixed assets.

It is also vital for China to resolve issues such as many fundamental capabilities that are still weak and key and core technologies that are restricted by other economies. Such interventions are necessary to prevent domestic companies from stopping operations due to shortages of raw materials and intermediate products, which may cause more risks.

To sustain their growth in the factory business, advanced manufacturing and strategic emerging industries should account for more than 50 percent in the next development phase. Only then can the country rely more on the power of industrial clusters to mitigate the pressure exerted by labor shortages and low-margin manufacturing businesses.

After all, the status of "Made in China" cannot be easily replaced. Chinese manufacturing has become an indispensable part of the global economy. Without Chinese players, the cost and product prices of industrial goods will rise across the world.

At the same time, the education level of China's labor force has notably improved, and the bottom line is changing from a simple, seemingly unlimited supply of labor source to a comprehensive advantage in human resources. The country also has competitive advantages in innovation, technological capabilities and industrial support.

For example, Vietnam lacks resources such as engineers and spare parts. Therefore, it is difficult for the manufacturing industry in certain countries to operate normally after the COVID-19 outbreak.

Since the speed of economic globalization is much faster than in the past, the labor cost in Southeast Asian countries such as Vietnam will rise rapidly, and their advantage may be lost in less than a decade.