China could face low-cost labor shortage by 2010

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The supply of low-cost labor, widely considered to be fueling China’s sizzling economy, could start drying up as early as 2010, reports Xinhua. An Academy of Social Sciences report, issued Thursday May 10, states that one of the biggest reasons for the potential shortage is that the rural labor force may not be as large as previously thought.

“China is moving from an era of labor surplus into an era of labor shortage,” the report cautions.

One of the architects of the report, however, said it doesn’t necessarily mean the country will lose the advantage it enjoys in the international market because of its labor-intensive products.

Experts believe the turning point, when the new labor force will fail to meet demand, could be as close as three years. This will trigger a general increase in wages, the report says.

This raises the question of whether China will lose its competitive edge as labor costs increase. Vietnam and India are both growing as lower cost alternatives to manufacturing in China. “It can be said that the country needs to change its growth mode from relying solely on one production factor to advancing production methods,” said Cai Fang, the drafter of the report and director of the Institute of Population and Labor Economics.

According to the report, the recent labor shortage in the Pearl River Delta-a hub of labor-intensive industries-is a sign of a gradually growing labor shortage. Expect the trend to continue inland from the coastal areas through central China, affecting even population dense provinces and municipalities that currently have large labor pools.