Cheap Labor in China? Not For Long

Growth in China (due in part to US outsourcing) has left factories low on workers, which means they have to compete for labor, which puts pressure on wages.

Back in 1989, Taiwanese businessman Hayes Lou moved his bicycle and motorcycle helmet factory from Superior, Mont., to the city of Dongguan, in Guangdong province, China. Over the past 15 years he and his partners have added another helmet factory in Jiangmen, and opened a second facility in Dongguan to make plastic packaging materials. The rapid growth of Lou's business has been made possible largely by one factor: plentiful, dirt-cheap labor, fed by the constant influx into Guangdong of millions of migrant workers from the countryside. Now, much to the surprise of Lou and tens of thousands of other factory owners across China, the endless supply of new workers can no longer be taken for granted. Lou's packaging factory, for instance, is running well below capacity because he has only been able to find 170 of the 300 workers he needs. And even though he has jacked up wages some 30% since the beginning of the year, to an average of $85 a month, turnover is getting worse. "Even when you get an order, you can't produce and ship it," says Lou, who is deputy director of the Dongguan Taiwan Business Assn. "Everyone in every kind of factory is short of workers."

This is why in the long-term, the outsourcing problem solves itself. Wages rise and it becomes less attractive to use Chinese labor. Plus they have more money so they buy more of the high-end stuff made here in the states.