Xinhua Insight: Does China still enjoy demographic dividend?
Friday, December 10, 2021 7:51 AM

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ZHENGZHOU, Dec. 10, 2010 (Xinhua News Agency) -- From unknown domestic makers of small appliances to the world's largest electronics contractor Foxconn, more firms are being lured from China's coast to inland regions by market opportunities -- and cheap and abundant labor.

On Wednesday, Foxconn, which makes computers, game consoles and mobile phones for companies such as Apple, Hewlett-Packard (NYSE:HPQ) , Sony (NYSE:SNE) and Nokia (NYSE:NOK) , signed an agreement with the government of central China's Hunan Province to set up production and research bases there.

It was the latest in a series of moves by Foxconn, a subsidiary of Taiwan-based Hon Hai Group, to move production inland from south China's booming city of Shenzhen.

The company opened a 2-billion-U.S.-dollar plant in the southwestern city of Chengdu late October, and a plant with an investment of 100 million dollars in August in Zhengzhou, capital of central Henan Province.

"What Foxconn values is Henan's abundant labor force," said Lu Zhihua, director of the Migrant Workers Division of the Henan Provincial Department of Human Resources and Social Security.

With a population of 100 million, Henan is the most populous provincial-level region on the Chinese mainland.

"Henan has a working-age population of 47 million in the countryside, but agriculture can only employ a maximum of 15 million. Among the surplus labor force, 22 million have become migrant workers, and 10 million are yet to move from rural areas," Lu said.

Foxconn, which was plagued by a string of worker suicides at a factory in Shenzhen earlier this year, had worried about the reliability of the work force in Shenzhen, but the problem does not seem to exist in Henan.

"More than 10,000 people attended Foxconn's recruitment fair in August, and job seekers queued for a kilometer," Lu said. "On average, about 500 people have applied for a position at Foxconn every day since."

According to Foxconn's plans, almost 200,000 people would work at the Zhengzhou plant at the end of next year, he said.

Also this year, Zhengzhou has seen the opening of a new Nissan Motor plant and the construction of a new PepsiCo (NYSE:PEP) plant.

The province approved 323 new overseas-funded businesses in the first 11 months, up 35 percent from a year earlier, and foreign direct investment (FDI) reached 5.6 billion U.S. dollars, up 30.6 percent, according to the Henan Provincial Department of Commerce.

Other inland regions are also seeing a surge of foreign investment.

In Chongqing, a megacity with a population of more than 32 million in southwest China, authorities predicted FDI would grow by 50 percent to hit 6 billion dollars this year, the highest growth rate in China.

The city welcomed IT giants Hewlett Packard, Foxconn, Quanta and Inventec last year.

This month they were joined by Acer, which will invest 150 million dollars in building a global manufacturing base and a second business headquarters, according to an agreement signed between the world's second-largest PC maker and the Chongqing municipal government.

To date, 164 of the Fortune 500 companies have invested in Chongqing.


Eastern and southern coastal export hubs have experienced labor shortages in recent years, prompting fears that China's demographic dividend, which helped the nation's remarkable economic growth over the last three decades, had ended.

Meanwhile, China is becoming an ageing society, fueling concerns.

The demographic dividend is a rise in the rate of economic growth due to a rising proportion of working-age people in a population. This usually occurs when the fertility rate falls and the youth dependency rate declines. During this demographic window, output per capita rises.

Such worries had intensified in the first half of the year with the salary increases at Foxconn after a string of worker suicides and with the subsequent strikes at foreign-funded businesses over low pay.

"Although China's labor costs are on the rise, its advantage of cheap labor will remain in certain regions and for a certain time as the country still has a surplus rural work force exceeding 100 million," said Prof. Sheng Bin, vice dean of the School of Economics at Tianjin's Nankai University.

"In other words, China still has demographic dividend," he said.

Ferdinando Becalli-Falco, president and CEO of GE (NYSE:GE) International, has voiced the similar views.

During a TV debate on China's investment environment at the Summer Davos in Tianjin in September, Becalli-Falco said it was an economic development law for labor costs to rise, but China was vast in territory and investors should look at it based on different regions.

Unlike Foxconn, which offers the same salaries to Zhengzhou workers as to those in affluent Shenzhen, most businesses still seek cheap labor in the vast central and western regions.

"The monthly salary for an ordinary worker in Henan is about 1,200 yuan (182 dollars), compared to 2,000 yuan in coastal Guangdong," said Guo Shujun, vice general manger of the Kaihong Shoes Co. Ltd., a Taiwan-funded business in Henan's Xihua County.

The company, founded last year, has 1,500 employees. It can make more than 3 million shoes a year for the European and American markets.

"We chose here just because of its abundant and cheap work force," Guo said.


Some economists and government officials, including Minister of Commerce Chen Deming, believe China can keep reaping the demographic dividend for another decade.

"Against the backdrop of fast urbanization, we predict China will have an abundant supply of labor until 2020," said Wang Qing, Morgan Stanley (NYSE:MS) chief economist for Greater China.

"At least 80 million to 100 million workers in rural areas need to move to cities or other industries. China still has space to efficiently distribute the labor force," he said.

But whether the demographic dividend can be transformed to substantial economic fruits is still under debate.

"The question is whether the labor resources can be fully utilized," Sheng Bin said. "Population quality is more important than the population size. To train a 'high-quality' labor force is beneficial to increase labor productivity and exert the biggest influence on economic growth."

To address the issue, China has launched a range of technical training programs for migrant workers, benefiting tens of millions of people.

"In Henan, about 2 million migrant workers receive training every year," said Lu Zhihua.

"We offer each of them a subsidy raging from 800 yuan to 1,500 yuan to encourage them to learn vocational skills," he said.

(Source: )
(Source: Quotemedia)


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