NCPA - National Center for Policy Analysis


May 18, 2005

Despite its enormous population, China is beginning to suffer labor shortages. According to the Economist, some firms in China complain that they cannot recruit enough cheap factory or manual workers. Moreover, there is a lack of skilled workers -- especially in the executive and marketing professions. These shortages are transforming Chinese business.

Fierce competition and a limited supply of talent are resulting in high turnover rates:

  • The nationwide employee churn rate was 11.3 percent in 2004, up from 8.3 percent in 2001.
  • One in ten executives changed jobs in Shezhen last year and one in 12 in Beijing.
  • Some smaller firms see turnover as high as 30 percent, while even bigger firms like L?Oreal see staff turnover of nearly 15 percent.

Consequently, pay and benefits are soaring:

  • Middle managers can now expect $27,000 to $32,000 a year, while top executives can expect $80,000 to $90,000.
  • Underlying inflation is around 2 percent, but average annual salary increases for mid-level and senior managers are now 6 to 10 percent, while accountants' salaries are rising 14 percent a year.
  • Additionally, free housing and meals, a mobile phone and a company car are becoming standard perks.

These effects of labor shortages are causing problems for business. Business plans for China rarely reflect the cost and time involved in recruiting and retraining local staff. These costs only increase when retention rates are low. Additionally, the Economist warns that the growing shortage of executive talent may make the growth assumptions of many business plans over-optimistic.

Source: "China's people problem," Economist, April 14, 2005.

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