Hong Kong. June 20, 2017 — Time is running out fast for Chinese manufacturers to adapt to an increasingly hostile business environment, as well as for Chinese workers to upskill and keep their jobs in the face of automation and technological advances, a large scale cross-province survey has found. The “China Employer-Employee Survey”, jointly initiated by researchers from Hong Kong University of Science and Technology, Stanford University, Wuhan University, and the Chinese Academy of Social Sciences, is one of the most comprehensive surveys of its type in China. It surveyed more than 1200 companies and 11300 employees in the Guangdong and Hubei provinces in 2015 and 2016, in order to study how Chinese firms are coping with business challenges, and the implications for Chinese workers.
“Many people have speculated about how firms and workers are responding to rising labor costs and weakening external demand, but we really didn’t have very detailed data to know for sure what is happening in firms and to workers. “says Prof Albert Park, Director of the HKUST Institute for Emerging Market Studies (IEMS), who is one of the founders of the project and chairs the project’s International Advisory Committee. “The survey helps policy makers and business leaders to truly understand what drives and hinders the growth of China from ground up, so that they can make better evidence-based decisions.”
How are firms coping
The business landscape is unforgiving — around 15.8% of firms have exited over the 18-month period prior to the 2015 survey in Guangdong, while nearly one fifth of the firms interviewed in Hubei in 2016 exited during the previous 30-months. Meanwhile, nearly 20% of surveyed firms earned negative profits in 2016, With 26% of state-owned enterprises (SOE) making losses, a much higher rate than for private or foreign firms.
It’s been widely reported that labor costs have surged significantly in China, hurting China’s global competitiveness in labor-intensive sectors. In fact, the survey found that the Chinese wage level is now nearly the same as in Brazil and significantly greater than in other emerging markets such as Malaysia, Thailand, Mexico, Vietnam and India. Worker turnover is high too, with 26% of workers leaving Guangdong firms in one year (from 2015 to 2016).
In face of the severe challenges, China’s manufacturing sector is making efforts to adapt. 40% of firms use automation equipment and some (7%) have adopted robots. The mix of workers is becoming more skilled over time. Investment in R&D is being led by state-owned enterprises, exporters and high-tech firms, which has corresponded with an increasing share of sales driven by new products. Local governments across China provide an array of subsidies, especially via tax breaks, to attract and support businesses, and drive structural changes. 52.8% of firms reported repeating government subsidies, with these subsidies greater for more capital-intensive firms.
What’s there for the workers
While Chinese workers benefit from a rising wage and better social protection mandated by law, researchers caution that they may eventually feel the pain from the struggles of the firms. The survey found that firms reduced employment of frontline production workers by 6.2% from 2014 to 2015, while production of skilled workers has been stable. Globalization has actually reduced (increased) the demand for abstract (routine) job tasks in foreign firms and exporting firms, consistent with insourcing of routine jobs from more developed countries. But routine tasks are likely to be increasingly replaced by automation.
“The response to the ever challenging business environment is far from painless,“ says Prof Park. “More research is needed to find out if the various measures adopted by the government and firms are on the right track. It’s very important to strike a balance between supporting businesses and protecting workers’ welfare.”
The CEES survey is conducted by the Institute for Quality Development Strategy at Wuhan University, with support from provincial governments. It’s partially supported by funds from the World Bank awarded to HKUST Institute for Emerging Market Studies, the Hong Kong Research Grants Council General Research Fund, the Chinese Academy of Social Sciences, and multiple grants from Chinese government sources.
About HKUST Institute for Emerging Market Studies (IEMS)
HKUST Institute for Emerging Market Studies (IEMS) provides thought leadership on issues facing businesses and policy makers in emerging markets. Building on the research strengths of the faculty at the Hong Kong University of Science and Technology, the Institute focuses its research and activities on the themes of human capital, employment, and structural change; innovation and entrepreneurship; global economic integration; financial development; strategy, firms, and markets; and organisational and consumer behavior. Find out more at http://iems.ust.hk
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