I

N

S

I

G

H

T

**-- By China 2005 will require 600 million new jobs!!! --**

Imagine that by the year 2005, China will have 600 million people available for the workforce. Yes, that's correct, by the year 2005 there will be over 600 million people in rural areas who will require jobs in China. This will not decrease until 2015. ⁽¹⁾

But, what do this figures really mean to companies doing busy with China? In a nutshell, it tells us that the cost for labor in China will not increase anytime for the foreseeable future.

During a recent trip to China, to assist several companies with an FDA inspection, I had a chance to spend some time in both Shanghai and Guangzhou, two of China's major industrial centers. These companies, involved in the FDA inspection visit, were manufacturing products to be sold in the US, Europe and Japan. One company has over 600 employees; the other was quite small with only 25 employees. What both companies shared in common was that their employee salaries were unbelievable low.

While it is understandable that the base salaries in China cannot be compared to those in the industrialized countries, you must likewise be aware of the inability to compare the cost of living in China with that of the industrialized countries. Though I didn't get a chance to explore their standard of living, I would guess that most of the people do not reach the standards of the industrialized world.

The common mode of transportation for most people is by bicycle or moped. The cost of food is cheap and appeared abundant. The cost of housing is expensive in most inner cities; and, most people lived in the outskirts of the city. My observation on Chinese housing arrangements is that and we of the industrialized world may not feel comfortable living in much of the housing the Chinese people seemed comfortable.

The cost of labor in China is very inexpensive- which on first thought might be attributed to the standard of living - but from my observations it is as a result of the abundance of workers.

The average pay for a worker in China is approximately 700RMB/month or in US Dollars, about $90/month. That is a worker's salary for a 5-6 days work week, 8 hours a day. Most companies supply a lunch for their workers.

In Shenzhen, a city right over the border of Hong Kong - and one that was not there 10 years ago, and didn't have a work force -- the companies must supply housing for all employees. From what I have observed, at this time, this situations seems to be unique to this city.

With the data from the China Daily it would appear that the workforce in China will only increase in the coming years, because of the decline in the need for agricultural workers. These Agricultural refugees will be heading to the larger cities for work. The Chinese government is trying to look to the future to try to provide jobs for these workers, but the concept of 600,000,000 people is staggering.

What does this bode for the future in China? For all intents and purposes, it appears that the companies that have made a presence in China with either joint ventures or by opening their own companies, the Chinese labor force will be in amble supply for the next 10 years... which also means that the pressure to increase salaries should not be a factor. Therefore, it makes sense to realize that to be able to supply goods, especially labor-intensive goods, any company with a long-term outlook should be looking West, all the way to China, for their future.

What does this mean for the U.S. manufacturers? Probably not much. Most of the jobs we saw in China were not high tech jobs. The companies in China use labor instead of automated machinery for product manufacturing, making full use of human assembly lines for performing small tasks that U.S. manufacturers would use automated equipment for.

China will continue to supply products to Japan and Taiwan, which will be sold to the U.S. because Japan and Taiwan have labor forces that are too expensive. The Chinese manufacture products and keep prices in check, allowing for inexpensive products to be made for the U.S. market. Most of these products compete against the automated products made in the U.S., which does not require a large labor force.

The next obvious question is, what is the quality of the products from China? The answer depends on the type of products being manufactured.

The Chinese have a lot to learn about American style quality assurance. Most of the Chinese companies use the same inexpensive and abundant labor force to inspect quality into the products they are manufacturing. This, of course, is not a wise idea and far behind the times in comparison to U.S. manufacturers. But, this might be adequate for many products coming to the U.S. that do not require high tech quality, or a level of quality that is mandated by a standard.

The educational level of the most of the workers is high school graduate. There are engineers with college level and even graduate level education available. The workers definitely are highly motivated because in China, a worker can be fired for any cause. There is no recourse for the worker.

If you are looking toward the future and require a large work force for labor-intensive manufacturing at a very low price, you should be looking to China. The time is right and it appears that China will be the right place to be, for many years to come.

(1) - information obtained from the China Daily, Business Weekly, February 20, 2000.

Next Month’s Insight Report –

The next Insight Report Vol. 3 #3

A legal look at the ISO 9000

If you have any comments on these INSIGHTS we hope that you let us hear them. If you have any of your own INSIGHTS that you feel would be of value to other companies, we would be pleased to hear from you and to discuss them with you and if you allow, we would even put them up on this site for others to learn from.
e-mail INSIGHT