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If land and labor costs in central and western provinces continue to rise rapidly, factories would be unwilling to relocate there due to their inferior logistics network.
As China’s inland economies are gaining momentum while coastal regions are losing steam, migrant workers are seriously considering opportunities close to home.
Sichuan, the Chinese province perhaps most synonymous with the export of rural labor, now has more rural laborers employed at home than in other provinces. In the first half this year, there were 10.9 million rural workers from Sichuan employed inside the province, up 23.7% year on year. By contrast, there were 10.1 million rural migrants employed outside the province, down 4.1% year on year, according to official statistics.
It is a trend that many workers welcome. One rural laborer from Hubei, who had recently returned home after working outside the province for many years, said there was no longer a substantial difference in the income that could be earned by working closer to home. Moreover, he would have more time for his children and elderly parents.
China’s migrant workers now account for nearly a third of the country’s total labor force. A gradually shrinking labor population in China indicates migrant workers would have more bargaining power with their bosses. In the first half this year, migrant workers’ salary went up by 15%, faster than that of urban workers. Experts expect their salary to continue its upward trajectory in the next decade.
New growth engine
Inland provinces such as Sichuan have established themselves as an engine for economic growth in China and they are expected to maintain that status in the future. Sichuan registered 13% growth in the first half this year, against 7.4% growth in Guangdong and 7.2% growth in Shanghai, both below the national average of 7.8%.
Fixed asset investment in China’s central and western regions has also grown faster than in the east. They saw 25% and 24.2% growth year on year respectively in the first seven months of 2012, compared with 19.2% growth in fixed asset investment in the eastern region.
Francis Cheung, CLSA head of China/HK strategy, said the major strengths of inland provinces in attracting investment are that the government is putting more money into infrastructure development and more migrant workers are coming home, turning inland provinces into low cost and competitive economies.
“Although overall infrastructure growth in China has been declining rapidly as the government spent so much money in 2009 and 2010, new infrastructure spending is mostly in central and western provinces and these two regions are going to get a larger share of investment spending from China in future,” said Cheung.
Investment incentives in Sichuan include more favourable tax, land, mining and bank lending policies for both domestic and foreign enterprises. These policies have successfully attracted major Taiwan companies like Foxconn, Compal and Wistron, as well as their suppliers, who are eager to move inland to cut production costs amid the global economic slowdown.
Jobs moving inland
Foxconn, the world’s largest electronics manufacturer, said back in 2010 that it would cut the number of employees in Shenzhen from 450,000 to 300,000 and transform the Shenzhen plant into a research and development, pilot production and logistics centre. In the same year, it opened its iPad plant in Chengdu, the provincial capital of Sichuan.
Foxconn chairman Terry Guo said in 2010 the Chengdu plant plans to achieve an annual output of 100 million iPads by 2013 and recruit 500,000 workers by 2015. There are around 80,000 workers in Foxconn by May this year, about one fifth of the total number of new jobs created by major investment projects in Chengdu last year, according to statistics from Chengdu Human Resources and Social Security Bureau.
For an entry-level worker, Foxconn is paying around 1,550 yuan ($243.7) a month in Chengdu versus 1,800 yuan ($283) in Shenzhen. Many migrant workers from Sichuan don’t care too much about this 250 yuan ($39.3) gap as their living expenses are relatively low and they can enjoy a better quality of life closer to home.
A sound equipment salesman from Hunan who has been working in Shenzhen for a year and earns around 3,000 yuan ($471.8) a month said that if his hometown has Foxconn, he would definitely go back.
“When you stand on the busy streets and watch the passers-by, you feel the income gap, the different social classes and values. It doesn’t give a firm footing to a worker like me,” he said. “Although I can save a lot of money in Shenzhen, I do not feel at home in the big city.”
Not only are migrant workers being attracted by job opportunities close to home, they are also setting up new businesses in the province with the skills and experience gained from years of working in coastal provinces. Statistics from Sichuan showed in the first half this year, migrant workers who returned to Sichuan had set up more than 2,000 businesses with a total revenue over ten billion yuan.
Cheung said looking forward, if land and labor costs in central and western provinces continue to rise rapidly, factories would be unwilling to relocate there due to their inferior logistics network.
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