China - No longer the world's low-cost manufacturer?

Here are key points from The New York Times on China's job market, and some global and stock implications:

Key points:

• China is experiencing a shortage of workers.
• Two million workers are needed in Guangdong and Fujian, two provinces at the heart of China's export-driven economy.
• In previous years, there were too many workers and too few jobs.
• Now, workers are gaining bargaining power.
• New trend? Analysts believe that the current shortfalls are the beginning of a long-term trend that is already bringing wage pressures, and could eventually erode China's position as the world's dominant low-cost producer.

According to Jonathan Anderson, chief economist, UBS, Asia-Pacific region:

....It's not the end of the great China manufacturing story. But you're no longer going to be talking about China having labor so radically cheap that it will capture all the investment flows. This is an opening for Vietnam, it's an opening for India and Cambodia.

Why there are fewer workers:

• Two decades of strict family planning - the one-child policy.
• Result: Fewer young people, fewer potential workers, and a rapidly aging population.

Other factors leading to a shortage of workers:

• The Yangtze Delta region, is already beginning to rival Guangdong and the Pearl River Delta for manufacturing capacity.

Due to worker shortage, employee packages improve:

• Many manufacturers are raising pay and improving conditions.
• One Chinese tire company is offering free or subsidized food and housing, better salaries.
• In March, Shenzhen announced that it would raise its minimum wage 12% to $83 a month.

Macro implications:

• As wages increase, so do production and manufacturing costs.
• According to the New York Times:

....the choices made by workers.....can influence the world's
global trading network, because every decision about factory building,
jobs and wages in China can alter the price of a toy at Toys R Us or
socks at Wal-Mart.

• As the UBS economist suggested above, lower-cost manufacturing in Vietnam, India and Cambodia could become increasingly more appealing.

Stock implications:

• The article claims workers use e-mail and the Internet to communicate salary information between one another at different factories. Checking online job postings is the next logical step. And with more competition for workers, factories will undoubtedly use the Internet to market their employment opportunities.
• Who gains? Companies like online recruitment and human resource services provider 51Job (ticker: JOBS). The company offers both job listings in print and online. Click here for JOBS latest results.
• What other companies stand to gain? Monster.com (ticker: MNST) backed, ChinaHR. For more on ChinaHR, and Monster's equity acquisition earlier this year, click here.

Read the entire article from The New York Times here (subscription required).

51Job stock market performance: