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back to index backCHINAtalk May,  2016


What You Need to Know About Manufacturing in China Today

The relentless momentum of investors turning their sights towards China has softened of late, as slowing growth and stock market volatility have caused alarm among observers. In 2015, foreign direct investment into China’s manufacturing sector came in at US$39.54 billion, a drop from 2014 (US$39.94 billion), but still accounting for 31.4% of total FDI.

While some of the fears are grounded in reality, others are overblown. This is particularly true in relation to the manufacturing sector – China’s principal driver of growth during its boom years – which made the country known as the factory of the world.”

The number of Chinese youth aged 20-24 is expected to decline from 125 million to 68 million over the next decade. This generation is better educated and has less interest in poorly paid and physically demanding manufacturing jobs.

After decades of rapid growth and development, China’s manufacturing sector is inevitably changing. Shifts in demographics, hiring practices, technology, and markets are increasingly giving Chinese manufacturing a different look than during its years of unabated growth.

These transformations are not unconditionally negative for the country’s competitiveness, however. China’s evolving manufacturing sector will invariably change the way investors operate their factories and presents new opportunities for growth in the country’s increasingly multifaceted economy.

Age Demographics

During the years of double digit growth, the manufacturing sector capitalized on China’s massive supply of young able-bodied workers. High birth rates during the 1960s and 1970s contributed to a demographic dividend that flooded the labor market with cheap, young, and strong workers – prime for the physical demands of manufacturing.

Children born during these years entered their late teens and early 20s during the 1980s and 1990s, coinciding with the government’s shift from a planned economy to an increasingly market-based one open to foreign investment. This fortuitous combination greatly contributed to China’s historic growth and industrialization.

These same workers, however, are aging and beginning to retire from labor-intensive manufacturing jobs. The number of people aged 60 and older is projected to grow from 200 million in 2015 to over 300 million by 2030.

In contrast, the number of young workers is dwindling as a result of urbanization, rising living standards, and the infamous One-Child Policy. While China’s elderly population is ballooning, the ranks of youth aged 20-24 is expected to decline from 125 million to 68 million over the next decade.

Further, this generation is better educated than previous ones, and thus has less interest in poorly paid and physically demanding manufacturing jobs.

Hiring Practices

In response to the emergence of the domestic service industry, growth in China’s Western regions, and more stringent labor protection laws, factories are changing who they hire and how they do so.

Chinese employers have traditionally favored hiring women for many labor-intensive industries. At its peak, women comprised about 80% of the workforce for occupations such as toy and electronic assembly.

Men are now much more prominent in these areas, as many women previously working in manufacturing have instead opted to join the service sector. In 2013, services surpassed manufacturing as the largest contributor to China’s GDP.

The proliferation of restaurant and coffee franchises and other service industries catering to domestic consumers has attracted many unskilled female workers, who enjoy better conditions than in many manufacturing positions.

Workers not only have greater choice over which industry to work in, but where to work. Migrant workers have traditionally comprised at least a third of China’s total labor pool. Because of the prohibitive hukou housing registration system, employers regularly exploited migrant workers by withholding payment, not contributing to employee benefits, and forcing massive amounts of unpaid overtime.

Source: CFO Innovation - GAI





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