Chinese Economy: Export Slowdown Adds To Pressure On China's Labor Market

SHANGHAI — At the Xin Ou Christmas Crafts Factory in eastern China’s Zhejiang province, summer is, perhaps counter-intuitively, normally the busiest time of year as the firm rushes to meet orders in time to get its plastic Christmas trees into stores in Europe and the U.S. by the autumn.

But this year there’s been less of a rush: “Orders are down a lot,” manager Lu Minying told International Business Times. “A lot of our customers are stores in Russia, and the ruble has devalued a lot against the dollar recently.”

It’s such falls against the U.S. dollar to which the Chinese yuan has been pegged, which led China to devalue its currency earlier this month, by around 2 percent, followed by a further fall of more than 1 percent, partly in the hope of making exports more competitive. But for some of China’s factory workers, the devaluation may have come too late to save their jobs -- at least for the moment.

Xin Ou, like many others, has had to reduce its work force due to the decline in orders, Lu tells IBTimes. Its staff, made up of migrant workers from other parts of China, now consists of 50 people, compared to 100 a couple of years ago. “The ones who left have either had to find jobs elsewhere, or have gone back home,” she says.

It’s an increasingly common situation in China: the slowdown in export orders -- an 8.3 percent fall in July prompted the devaluation of the yuan, which in turn has contributed to the falls in the world’s stock markets -- has hit the manufacturing sector, especially the cheaper, more labor-intensive end of the market.

“We’re seeing a lot of factories laying people off this year,” says Liu Kaiming, a specialist on labor issues at the Institute of Contemporary Observation in the manufacturing hub of Shenzhen, in southern Guangdong province. “Some of the smaller, less competitive ones -- especially in fields like fashion and textiles -- are closing down, while bigger companies are cutting their workforce.”

Liu, who advises many companies across China on labor relations, says it's not uncommon for firms to be reducing their workforce from 1,000 to as few as 300 -- adding that he knows of at least one factory that slashed its staff from 10,000 to just 1,000 [though confidentiality agreements prevent him from naming the firm]. The slowdown has also accelerated a trend among companies to relocate from areas like Guangdong to parts of China where wages are lower, analysts say.

It’s still not a uniform picture. A manager at one textile company in Zhejiang, who asks only to be identified as Wang, says that while his firm’s orders from Europe are noticeably down this year, he hasn’t yet had to lay off any workers -- though he adds quickly: “We won’t be taking on any more at the moment.”

Some companies are still hiring. Latest reports from Taiwan suggest that Foxconn Technology Co Ltd, the Taiwanese company that makes iPhones and other hi-tech devices, is planning to take on another 100,000 workers in China ahead of the launch of the latest version of the iPhone 6 -- though experts say many of these staff are likely to be offered only short-term contracts.

And despite the overall economic slowdown, there are still reports from some regions of China -- and some sectors of the economy -- of continuing labor shortages: it’s particularly pronounced in southern Guangdong province, and in sectors such as electronics, says Liu. One reason for this apparently contradictory situation is that the new generation of rural migrant workers is better educated than its predecessors, and consequently less willing to work in the hardest jobs for the lowest wages, according to Geoffrey Crothall, spokesman for Hong Kong-based China Labor Bulletin.

“Previously the only show in town was a factory job,” he tells IB Times. “Now there’s so much new employment in sectors like logistics, retail, wholesale, hospitality -- that’s the boom sector of the economy, even if it’s also quite low-paid.”

However, it’s precisely this increased availability of work in the service sector -- which has performed relatively well, in spite of China’s recent overall slowdown -- that has forced some factories to offer higher wages, thus contributing to raising the price of exports, making them less competitive.

The government’s hope is that the devaluation of the currency will give orders for China’s manufactured goods a shot in the arm. In Guangdong at least, “manufacturing will remain an important part of the overall economy for a while,” Crothall suggests, “because that’s where the infrastructure is, the skilled, experienced workers, the middle management, they’re all in place -- and there’s a huge domestic market in China that needs to be supplied.”

However, he adds, the current slowdown is contributing to an “unraveling of the old model of labor intensive, low-cost, low-margin, export-oriented industries, like cheap-end garments, shoes, toys -- the things that powered China's economic miracle for the last three decades are basically not working anymore, so business has to rethink.”

And while Crothall believes that China can currently create enough jobs to absorb those leaving such factories, he adds that this shake-up of the industrial sector is causing some pain, as some factories can either no longer afford to pay their staff, or seek to find ways to reduce their staffing levels without making workers redundant.

“In China if you resign from a job you’re not entitled to layoff compensation, which should be a month’s pay for every year of employment,” he says. “So very often employers just make life more and more difficult for workers, cutting bonuses, cutting overtime, but won’t actually sack them – leaving them with no option but to resign because they need to find a job elsewhere if they’re going to support their families.”

Such tactics have led to a number of strikes this year, by workers angered by their companies’ tactics. It’s another reminder of the potential fall-out from the slowdown of an economy that many economists have long said needs to grow at a minimum of 7 percent a year to keep functioning smoothly. China’s official GDP growth rate for the first half of this year was precisely that -- 7 percent -- but officials have acknowledged it will be a challenging task to maintain that figure in the months ahead.