Labor in China: Where are the Workers?

by Julian Righetti on May 13,2013 in China Trade ,

Shanghai, Beijing, and Guangzhou now resemble New York, London, and Tokyo in terms of prices and wealth. As certain parts of China join the global elite set of cities, other regions in China are also changing. Wages and salaries are increasing all over China. Below are some factors influencing rising wages and tips on how to adjust your sourcing strategy.

Slower Growth Based on a Consumption Economy

As a new generation of Chinese leaders begin to tackle the coming economic challenges China faces, one of the most important problems Chinese leaders must address is how to transition from an export-based economy with high levels of infrastructure investment to a consumption-based economy with consumer spending and service businesses

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providing more sustainable growth for the future.

Urban China is changing. Beijing and Shanghai’s real estate is now as expensive as London or New York. The Chinese government’s historical strategy of large infrastructure investment sustaining economic growth and providing employment is winding down as additional investment in roads, highways, trains, and airports will only yield minimal gains in greater economic growth and productivity.

People are richer. As labor costs in China rise, multinational companies are looking to other areas where labor costs are cheaper. In the first half of 2012, nearly 80% of Chinese administrative governments enacted some form of labor initiatives and 16 provinces increased the minimum wage by 19.7%.

Rural China is also changing.The Chinese governments efforts to modernize the agricultural industry via tax policy and investment has helped to narrow the wage gaps between urban export centers and rural areas. China’s population is also aging. More workers want to stay closer to their hometowns and families. Thus, many migrant workers from poorer regions of China are no longer moving to Shanghai and Guangzhou looking for work.

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This has raised the costs of labor in these areas also as factories compete over dwindling labor pool in more developed cities.

Shifting Labor in China

In Dongguan and Guangzhou, labor costs increased more than 10% from 2011 to 2012. These wage increases have forced companies to look at new sourcing areas for labor-intensive, low-value add products. Areas such as Sichuan, Henan, and Hubei are increasingly attractive investment spots for textiles as labor in China in these areas is much cheaper. Guangzhou, in particular, is experiencing a major shortage of workers and companies are reacting by investing in new, inland areas in China:

“Foxconn, one of the world’s largest electronics manufacturers, plans to increase its investment in Central China’s Henan province

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after moving factories to Henan and Southwest China’s Sichuan province last year.

Foxconn plans to invest in 19 new projects in Henan, including factories that will produce camera lenses and LED lighting rigs, as well as more branches of Foxconn’s retail chain Cybermart…”

In Guangzhou, entrepreneurs and businesses in these high-cost labor areas are investing in greater productivity tools, more skilled workers, and more capital equipment. Historically, Chinese workers rank extremely low in terms of productivity.

China is not featured here, but ranks 82nd with a labor productivity of US$11,612. Compare this to S. Korea with US$60,489 and you can see the difference.


  • These businesses are also attempting to move higher up in the value chain and away from low-cost businesses such as textiles. Shijiazhuang is becoming a major pharmaceutical production center. Tianjin is expanding its financial services. Hangzhou is becoming an e-commerce technology hub.
  • Companies are now focused on moving production for low-cost products to areas where input costs are lower. Xi’an is a city where abundant natural resources and labor in China are both inexpensive.

Table 1: Monthly Minimum Wages

City 2010 2011 2012 2012 vs. 2010 % Increase
Beijing $152 $184 $200 31
Shanghai $177 $203 $230 29
Shenzhen $174 $209 $238 36
Wuhan $142 $174 $174 22
Chengdu $135 $135 $166 23
Guangzhou $174 $206 $206 18
Xi’an $120 $136 $158 31
Nanjing $152 $181 $209 37
Chongqing $108 $138 $138 27

(Source: China Statistical Bureau)

How do these changes in labor in China affect your sourcing strategy?

  • Negotiate regionally-recognize that many suppliers may actually have significantly different cost structures than they did 2 years ago.
  • Invest in understanding the inland Chinese suppliers-Business culture in Guangdong is relatively open-many years as an export hub has transformed and internationalized business people here. Henan has only recently started to undergo industrialization. Recognize that the two cultures may be different.
  • Always Test the Market-Do not become a “captive” buyer to your “trusted” Chinese partner. If your partner is not innovating or reevaluating their cost structure, then you will pay the price.

Hammersourcing is a trade services business based in China. For more information, you can reach us at

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