We have all heard the expression ‘War for Talent’ applied to China so often its meaning is being lost in the repetition. And yes, I am as much responsible as anyone else ...

But what else would you call massive shortages of skilled professionals in the Chinese labor force?. There is no other quick way of getting across the intense competition between firms to get the best of those scarce resources to work for them.

The War for Talent conjures up images of free-wheeling growth, and this has tended to make people believe that all is rosy in China, at least from the point of views of economics. China boasts huge Foreign Direct Investment, lots of new factories, plenty of jobs, and a solid path to the future.

All boats rising in a rising tide, as they say.

In actual fact not all boats are rising, and not just because of the recent stalling of growth figures. Many economists feel that China is reaching a Lewisian Turning Point and this will cause a shift from unlimited to limited supplies of labor. The nature of this labor shift is already apparent to companies on the ground.

The Labor Divide

The sophisticated hiring market for professionals contrasts heavily with that of the basic labor market, but within this hiring market itself there is a degree of schizophrenia.

Alongside qualified, experienced professionals juggling multiple job offers you have new graduates struggling hard to get a job. The recent crop are having it particularly hard. This split doesn’t seem to make sense until you think a little more deeply about how recent the growth in China has been, and how shallow that makes the labor pool.

Many industries in China have taken off only recently. So as a consequence it is difficult to look back through the pipeline and find people with many years of experience in that industry.

Automotive took off about 3-5 years ago, and is very hot now, but you would be hard pressed to find a high quality 20-year veteran of the automotive industry in China. 20 years ago China had virtually no private cars, and the few that were produced were of such low quality that anyone making them back then would have very suspect skills and training.

Double Trouble

To complicate things further the demand for unskilled labor is outstripping the supply, while many peasants remain unemployed.

The context is a hard-to-overstate churn within industry in China. Tens of thousands of local State Owned Enterprises have been pushed to the wall in the past decade, as new jobs are created by foreign and local companies, and millions of peasants from the countryside move to the cities.

A recent paper by Cai Fang and Du Yang, from the Chinese Academy of Social Sciences, co-authored by Albert Park, at the University of Oxford asks ‘Can China Meet Her Employment Challenges?. The answer appears to be yes, and they show how urban unemployment actually fell from 8.1 to 5.2 per cent between 2001 and 2005.

Before 2001 unemployment had been rising consistently every year so this is a good situation to be in. The labor shortages in China’s East coast cities can only have gotten worse since 2005, and we can only hope that the moderating effect of China's new labor law, and the slowdown in the world’s economy will be allowed to take it’s effect.unemployment in china.jpg

The urban situation seems to be under control but on a broader basis China generates about 25 million new entrants into the workforce each year.

This year, unfortunately, it is likely that the number of new employment openings will amount to much less than this figure. China created about 51 million jobs in urban areas in the past five years, but government sources say about 20 million people come to those urban areas every year looking for work.

Even the peak 11 million new jobs created in 2006 was a record for China and even then you can easily see there is a shortfall of about 14 million jobs. This is likely to continue until the year 2010 according to the Institute of Population and Labor Economics of the Chinese Academy of Social Sciences.

Many of the new entrants to the workforce are rural residents who have recently moved to the city to seek a better life and there is said to be more than 140 million of them. This dwarfs the 10+ million people who have been let go by non-performing State Owned Enterprises (SOEs) over the past decade.

According to Cai Fang and Du Yang’s report, the city folks are getting replacement jobs, but clearly this is not true for the unskilled peasants who are on the move to the cities. Many have left their little plots of land but have not been officially registered in their new town or city. They are undocumented, and constitute what is referred to as China’s 'Floating Population'.

The Final Word

So while the pressure is on for companies in China to find suitable professionals for experienced hire roles, finding new graduates is a matter of screening hundreds of jobs applications. The pressure is also on for them to find workers, and problem does not appear to be going away, even with the slowing effects of the labor law and the world economic slowdown.

Meanwhile, government Employment Centers are focused on helping unskilled hires to find positions in these companies. They appear to have managed the task well when it comes to urban workers but the floating population is just that much harder to deal with.

Bureaucrats only see an issue if it is directly in front of them, and the floating population may simply be seen by individual bureaucrats as too difficult to solve without massive, coordinated central government support.