Factories in coastal areas will struggle to sustain their workforce as recent factory data shows a willingness to increase wages from 5% to 10% to retain existing workers and recruit new ones. Many factories will face higher labor costs which include annual bonuses and transport home. From a recent decision to reduce employee contributions to 2%, factories will pay less, but these will be in percentage terms not real ones as rising labor offsets this reduction. These pension payments are eroding margins as employers aim to keep low prices.
However, cities such as Shenzhen are increasing wages as high as 19% to attract more workers. Guangdong province will have a 92% retention rate post Chinese New Year which will result in a deficit of upwards of 800,000 workers. Other cities, such as Quanzhou are launching hukou programs to entice inland workers to stay. Under the program, migrant workers will be allowed to register their families as local residents, granting them local benefits.
In Zhejiang, factories are automating at increasingly fast rates to reduce dependence on low-skilled workers as companies have failed to move up the value chain. Unlike Guangdong, factories surrounding Yiwu, Hangzhou and Wenzhou produce labor intensive goods with little brand value. Compared to factories in the Pearl River Delta, factories in Zhejiang will face less shortages.
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