Bloomberg News

Guangdong Labor Shortages Signal Stimulus Limits: Economy

June 06, 2012

China Labor Shortages in Guangdong Show Stimulus Limits

Workers process shirts at a factory in Shenzhen, Guangdong province, China. Photographer: Forbes Conrad/Bloomberg

Guangdong’s job market is showing signs of withstanding China’s slowdown as factory owners report that shortages of workers persist in the southern export hub.

“Before, most of the factories were short about 20 percent to 30 percent of workers or technicians,” said Stanley Lau, deputy chairman of the Federation of Hong Kong Industries, whose members have garment, watch, toy and footwear factories in the province. “Now, it’s getting better, but still about 5 percent to 10 percent.”

Strength in the job market may encourage the ruling Communist Party to limit the scale of the stimulus that’s being rolled out to support the world’s second-biggest economy. In the latest sign of concern at the slowdown, a front-page commentary in the state-run China Securities Journal today said that an interest-rate cut is becoming “imperative” to boost confidence and growth.

“Labor conditions are still all right,” said Hong Kong- based Wang Tao, chief China economist for UBS AG. “That’s probably one reason why the government is not so worried that they feel the need to come up with a big stimulus.”

China’s currency has weakened 1 percent against the dollar this year, aiding exporters as Europe’s debt crisis constrains demand. The yuan traded at 6.3648 per dollar as of 2:53 p.m. in Shanghai. The Shanghai Composite Index (SHCOMP) is up about 5 percent as investors bet that the government will bolster growth.

While Premier Wen Jiabao called last month for a bigger focus on sustaining growth, Bank of America Corp. economist Lu Ting said yesterday that stimulus is likely to remain “small” provided exports don’t collapse. Barring a Greek exit from the euro region, measures are likely to amount to 400 billion yuan ($63 billion) or 500 billion yuan, he said.

Stocks Advance

Asian stocks rose for a second day as Australia’s growth exceeded forecasts, the U.S. services industry expanded faster than expected and a newspaper reported that Europe’s bailout fund is considering extending money to Spain. Spain may receive a precautionary credit line from the European Financial Stability Facility, Germany’s Die Welt said, citing unidentified people familiar with talks about the option.

The MSCI Asia Pacific Index added 1.2 percent as of 3:54 p.m. in Tokyo.

Australia reported today that economic growth accelerated last quarter from the previous three months. The expansion was 1.3 percent, more than double the median forecast in a Bloomberg News survey.

ECB Decision

The European Central Bank will probably keep interest rates at a record-low 1 percent at its meeting today, economists predicted in a Bloomberg survey. The ECB will also release its latest economic projections for this year and next and President Mario Draghi will announce whether the central bank will continue to lend banks unlimited liquidity at its benchmark rate. Spain and Germany will release industrial output data for April.

A U.S. report on mortgage applications is due today from the Mortgage Bankers Association, a Washington-based trade group. The Labor Department will announce revised non-farm productivity and unit labor costs data for the first quarter, while the Federal Reserve will release its Beige Book survey.

In China, rates should be cut at an appropriate time to boost confidence and avoid any “excessive” fluctuation in growth, the securities newspaper said.

Guangdong Outlook

Signs of resilience in the Chinese labor market contrast with the slump during the financial crisis of 2008 and 2009, when millions were thrown out of work as factories closed,

Lau, who’s the managing director of Renley Watch Group, said that while the labor supply is “slightly better than before” in Guangdong, manufacturers are wrestling with declining orders from Europe and the U.S.

Talking of labor costs, he said that the Guangdong provincial government postponed a planned increase in the minimum wage in January after business groups objected and he predicted that any such move will not be until late this year or next year.

“Of course, we don’t expect frozen minimum wages forever,” he added.

The minimum wage in the provincial capital of Guangzhou rose to 1,300 yuan ($204) a month in March 2011, according to the local government. The level in the cities of Zhuhai, Foshan, Dongguan increased to 1,100 yuan, the government said. In Shenzhen, which is a special economic zone, the minimum wage rose this year to 1,500 yuan.

Toys, Robots

Hong Kong-listed Kin Yat Holdings Ltd., a maker of toys and vacuum-cleaning robots that has operations in Guangdong, said June 4 that it probably swung to a loss for the year ended March 31, 2012. The company cited reasons included falling revenue, increased minimum wages, raw-material costs, and gains in the yuan, up about 5 percent against the dollar in 2011.

For the nation as a whole, an employment gauge held above 50 for a third straight month in May in a manufacturing survey released by the statistics bureau and the logistics federation. That level is the dividing line between expansion and contraction.

Besides weakness in exports, government restrictions on home purchases are cooling the economy. JPMorgan Chase & Co. has cut its growth forecast for China twice in a month and now estimates an expansion of 7.7 percent this year, down from 9.2 percent in 2011.

Subsidies for the purchase of energy-saving home appliances are among government efforts to stimulate consumption. Policy makers will take steps to support domestic demand, investment and trade if growth slows further, according to the state-run Xinhua News Agency, citing Commerce Minister Chen Deming.

Exports rose a less-than-forecast 4.9 percent in April from a year earlier, underscoring the threat to Asian economies from weakness in global demand.

To contact the reporter on this story: Justina Lee in Hong Kong at

To contact the editor responsible for this story: Paul Panckhurst at

Toyota's Hydrogen Man
blog comments powered by Disqus