DC Velocity - May 2011

As a result, those centers are suffer-
ing severe labor shortages. A survey
conducted in Shenzhen before the
2010 Chinese New Year revealed a
shortage of 800,000 people, and 90
percent of the surveyed enterprises
said they would have an urgent
demand for labor within the first
two months following the holiday.

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encouraged a growing number of migrant workers to return to the fields, where they also enjoy access to health care and education that is only available to them in their hometowns, as outlined in the Chinese Hukou (Household Registration) system.

China’s constantly evolving labor laws—coupled with migrant workers’ demands for higher wages and employer-sponsored, personalized training—led analysts to estimate that labor costs overall would increase by 5 percent last year. There is still a notable disparity between regions when it comes to wages, however. Some economists posit that pay scales can be up to 30 percent lower in inland provinces than on the coast.

Operating expenses in traditional man-
ufacturing areas are also rising, due in
large part to the higher cost of real estate.
A recent commentary by a representative
of the commercial real estate firm Colliers
International, reported on a Chinese-lan-
guage website, indicates how much real
estate prices have changed in China’s
coastal business centers. According to the
representative, “a few industrial estates in
Shanghai with a geographic advantage
(i.e., coastal region with easy access to
logistics services) are experiencing a 100-
percent increase in their [purchase] price
… The lease for these estates has
increased by 12. 1 percent as compared to
2008.”
Moving production inland becomes
even more alluring for foreign companies
when provincial governments offer incen-
tives to establish operations in their
regions. Chongqing, for example, offers
local and enterprise income-tax deduc-
tions or exemptions for foreign compa-
nies operating in its ethnic minority
regions; most of those lands are poverty-
stricken and have yet to be developed for
business use. This win-win situation not
only opens up new markets with lower
production costs for foreign companies,
but also allows local governments to
engage directly with multinational corpo-
rations in an effort to improve their citi-
zens’ standard of living—a primary moti-
vation underlying China’s “Go West”
strategy.