China's Pearl River Delta, the region in southern China between Hong Kong and Guangzhou, has been the world's industrial boomtown for the past two decades, fueled by factory worker wages of US$100 a month.
But severe worker shortages and rising wages, up more than 20 percent in the past three years in the Pearl River Delta and other coastal manufacturing zones like those around Shanghai, are posing new challenges for plastics manufacturers.
It's causing some to search out cheaper locations and raising questions about whether the massive manufacturing corridor, the first in China to open to the outside world, will lose ground to cheaper places like other sites in China, or Vietnam.
Hong Kong-based VTech Holdings Ltd., for example, built its new injection molding plant inland in Qingyuan, rather than expanding its existing campus in the delta city of Dongguan, because the firm said labor and other costs are less in Qingyuan.
Plastic packager and toy maker Perfectech International Packaging Products Co. Ltd., which saw sales from its PVC film and plastics business drop 37 percent in the first half of the year, recently pinpointed rising wages in China as one of its two biggest challenges.
``The ever-increasing price of petroleum ... and the annual increase in the minimum wages for labor in [China] are the two major issues faced by the group,'' the Hong Kong firm wrote in its Sept. 25 midyear financial report.
Labor shortages can be severe: A 2004 report from China's labor ministry said there were about 19 million migrant workers in the Pearl River Delta, but said another 2 million workers were needed. Conditions have not improved, according to a September report on labor conditions in the region from Hong Kong-based China Labour Bulletin, an organization that promotes union organization in China.
Shenzhen, next to Hong Kong, had a workforce of 4.2 million in 2004 but needed about 400,000 more. A Chinese government survey of half of Dongguan's factories found 270,000 additional workers were needed, a higher vacancy rate than Shenzhen, considering the city has about 4.1 million migrant workers, CLB said.
Experts suggest a variety of reasons for the shortages, such as fewer younger workers as a result of China's one-child policy, greater development in other parts of China so that people do not have to travel to find work, and changes in agricultural tax policies that make farm work more attractive.
Labor rights groups in Hong Kong suggest another reason: a history of mistreating workers. The groups said workers are typically migrants from poorer inland provinces who work six or seven 12-hour days with four to eight workers in each dormitory room.
At times the situation boils over: Workers at a plastics plant in Dongguan rioted in July, apparently over poor working conditions.
Of course, the Pearl River Delta remains a manufacturing powerhouse. It still employs millions - Hong Kong firms, for example, employ an estimated 2.5 million workers in 15,000 plastics-related factories in the delta - and firms said the area has the kind of infrastructure, cluster manufacturing and easy access to Hong Kong that make it competitive.
China's wages remain very low, even with the raises. In Dongguan, for example, the minimum wage for factory work went from 450 yuan a month (US$56) in 2004 to 690 yuan (US$87) on Sept. 1.
Some plants, like those owned by or working closely with foreign firms, sometimes pay more.
``We're seeing wages rise all over China ... [but] I don't think it's as big of a deal as people make it out to be,'' said Kent Kedl, general manager at Shanghai consulting firm Technomic Asia.
It has not, for example, seemed to dampen the competitiveness of China's booming exports, he said.
``If you go to Vietnam or Cambodia, you could drive down the costs more, but if you look at the value chain, the value chain is here in China,'' he said.
Still, the problems of rising wages and costs in heavily industrialized parts of China are real. Companies are doing things such as automating or moving to less expensive venues, said Thomas Kwok Keung Lee, principal consultant with the Hong Kong Productivity Council, a government-funded research institute that works with the local plastics industry.
For example, thermoformer Plastat Ltd., a small U.S.-Hong Kong joint venture in Dongguan, automated its five assembly lines, reducing the head count by half.
The firm also has improved meals it provides to workers, and more aggressively is promoting from within ``to increase the sense of belonging,'' said marketing manager Jason K.H. Ho.
Hong Kong partner Hung Tat Industrial Ltd. has thermoforming factories in both the Pearl River Delta and Shanghai, and finds it easier to recruit workers in Shanghai, Ho said. The labor situation in the delta region is causing companies to think differently, he said.
``Beforehand, they would only talk about using manpower, manpower, manpower, but now they've changed their minds,'' Ho said.
Another factor in China's rising labor costs, beyond increases in the minimum wage, is the appreciation of the Chinese currency, according to VTech.
The company, one of the world's largest manufacturers of fixed-phone-line telephones, predicted costs will continue to rise and said moving much of its plastics operations to Qingyuan, even as it retains the bulk of its manufacturing in Dongguan, will help trim expenses.
And while those rising costs have not had any real impact on China's competitiveness, most Chinese manufacturers are starting to raise prices, and some of those increases will stick, said Michael Kleist, general manager of content development with Global Sources, a Hong Kong-based trade show and Chinese sourcing firm.
Labor rights groups said that while the shortages and rising labor costs stem from many reasons, poor treatment of workers is a significant factor.
``Particularly in the Pearl River Delta, workers are quite tired of being exploited,'' said May Wong, coordinator of China projects for the Hong Kong-based Asia Monitor Resource Center.
Workers have told the group that while factories increased wages 15-20 percent, some took back gains by charging workers more for company-provided food and dormitory housing, she said.
The China Labor Bulletin's September report on Dongguan suggested that because workers have weak legal rights, such as reclaiming withheld pay, their inflation-adjusted wages have been flat since 1994, while the local economy has grown more than 10 percent a year.
The issue was brought into sharp focus in July at the Merton Plastics and Electronics toy factory in Dongguan, when workers rioted for several days over low wages and poor food and living conditions, according to U.S.-based human rights nonprofit group China Labor Watch.
Workers attacked several police officers brought in to quell the situation; one employee was seriously injured by a plank thrown by other workers. Police wrote a letter to workers saying managers would meet their demands for better treatment, but urged them to react peacefully, China Labor Watch said, quoting the Dongguan police letter.
While such violence is rare, the report from Hong Kong-based CLB traced the labor shortage back to factory conditions and said it is unlikely to change unless workers have the right to organize independently.
``The labor shortage afflicting many southern and coastal areas is a direct consequence of their own harsh employment practices over the past 15 years,'' CLB said.
``The one option Chinese workers do have, when their basic labor rights are violated, is to vote with their feet - and as we know, they are doing this in ever-greater numbers nowadays.''
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Causes of worker shortage in Pearl River Delta
* Fewer younger workers because of China's one-child policy.
* Increasing development in other parts of China, so people do not have to travel to find work.
* Changes in agricultural tax policies that make farm work more attractive.
* Poor working conditions for migrant workers.