The latest news about Samsung breaking ground on its second smartphone factory in Vietnamhas stirred once again Chinese concern over its decreasing labor advantage. After the factory is completed, together with Samsung’s first factory in Vietnam, over half of Samsung’s smartphones will be produced and assembled in Vietnamby 2015, benefiting from Vietnam’s cheap labor.
The growing anxiety about the future of China’s labor-intensive industry has been stirring up discussions on China’s demographic dividend, once one of its comparative advantages. But as the demographics shift, challenges emerge.
The absolute reduction of the size of the labor force is the immediate cause of the challenge. According to a report released by the China Development Research Foundation, the working-age population of China will shrink by 29 million from 2010 to 2020. The World Fertility Report 2009 classified China as a low-fertility country, with a fertility rate of just 1.4 compared to the 2.1 needed to maintain population.
The direct consequence of the decreasing work force is the increasing cost of labor. In contrast with the monthly 2,000-3,000 yuan ($322-484) average wage of Chinese laborers, the average wage in Vietnam is much lower at only $206 per month.
Considering the rising cost of other factors such as rent, water and electricity, it is not surprising that Samsung is going to move its priority factories out of China.
The Chinese demographic dividend has produced a 20-year miracle, setting the nation afloat on the seas of the global market. However, with the spring tide about to recede, we must realize that it is the quantity of this demographic dividend instead of its quality that has been the wind in China’s sails this far.
China’s large labor force resulted from the population boom before the family planning policy took effect. However, as the booming population is about to age out of the work force, the lack of high-quality talent and the rusty dependence on quantity enfeebles economic development.
Improving the quality of labor requires government and enterprises take a two-pronged approach, focusing on the optimization of the external environment and the transformation of the internal industries.
As for the government, what really matters is how to unbar the restrictions that have long been obstructing the demographic dividend from being unleashed. Thus, the top priority should be the reform of the household registration system.
Compared with other countries which have gone through the same shift, China’s decreasing demographic dividend faces more challenges. China’s working-age population declined in 2012, some time after the shortage of migrant workers first emerged in 2004.
The Chinese working-age population is trapped by the dilemma of getting old before getting rich. Therefore, the crux of the reform is to soften the restrictions on population mobility, which can provide better public services for migrant workers and get them more involved in industrial production.
As for the enterprises, it is high time for them to make most of the networks and facilities that have been established in the last 30 years and transform labor-intensive industry to technology-driven enterprises.
As the absolute reduction of the working-age population cannot be avoided, industry needs to seek opportunity out of disaster. Workers, the core of the economy, need better professional training and creative thinking. Enterprises must concentrate on the standardization and upgrade of their training programs, which will serve as a crucial tool to enhance their competitiveness in the international market.
By expert estimates, 2013 will be the turning point of China’s demographic dividend. Which course the country chooses will not only determine the trend of China’s economy, but also impact people’s welfare and social stability.
Source: Global Times