A labor shortage in Guangdong Province in China is highlighting the problems of additional stimulus, according to an article from Bloomberg Businessweek. The article comes as China has begun releasing additional stimulus funds, to compensate for their rapidly slowing economy.
Slowing growth has macroeconomic benefits for China, as its inflation rate falls and risking lending is brought within manageable boundaries, but it presents problems for the country’s textile and apparel industry, which have set ambitious growth targets. Those industries planned to compensate for falling overseas demand by shifting growth toward domestic markets, which are now cooling.
Government stimulus, intended to stoke internal demand, is less likely to be successful if labor shortages continue. The shortages, which, according to Bloomberg, have run as high as 20 to 30 percent of workers within an industry, have begun falling. They are now running between 5 and 10 percent, according to Stanley Lau, deputy chairman of the Federation of Hong Kong Industries. This strength in the job market has made greater stimulus unlikely, as it would be of questionable social benefit and would increase shortages within export industries.
Labor costs within Guangdong province have stabilized somewhat, after the provincial government postponed a planned minimum wage increase, though employment continued to expand.
China is heavily dependent on its export industries to maintain social control. In 2008 and 2009, at the beginning of the global recession, massive layoffs led the Chinese government to stoke internal demand with a stimulus of almost one trillion dollars. The current slowdown has seen China loosen lending controls and increase infrastructure spending, but has not amounted to the tidal wave of hot money that investors have alternately feared and anticipated.
An improvement in the labor supply and slower wage increases are welcome news, though garment and apparel manufacturers continue to struggle with declining orders from Europe and the United States. Japan, the US, and EU total imports fell over 6% in the first three months of 2012 compared to 2011, and China felt those losses most acutely, showing anemic export growth in comparison to rising Southeast Asian nations such as Vietnam and Bangladesh.