The promise of cheap land and an abundant pool of low-cost labour has attracted over 60,000 Hong Kong companies to invest in the Pearl River Delta, mostly manufacturers, since China first opened its doors in the late-1970s. These investments have helped raise salaries for management and technical personnel in the delta by around 5 percent annually, but wages for low-skilled workers (general workers) have basically remained stagnant. Over the past 12 years, factory workers' salaries have risen by a paltry ¢D68, which when inflation is taken into account is actually negative in real terms. Despite this, the PRD has always had an over-supply of labour, as peasant workers from poor inland provinces, such as Jiangxi and Sichuan, flooded into Guangdong in search of work. This year, however, the situation has started to change.

The PRD has long been short of skilled workers, especially engineers, and some Chamber members have complained that they have been trying to fill engineering openings for the past three years. According to Mainland statistics, there are an estimated 1.8 million skilled job vacancies in Guangdong. Starting this year, general workers have also been in high demand. Labour service companies in Dongguan estimate that 90 percent of enterprises in the township are short of labour. Previously, companies seeking workers needed to do little more than post a notice on their factory gates to attract a flood of hopeful applicants. Now, factories must enlist employment agencies, advertise in newspapers, and even visit inland cities to recruit workers. Currently, the ratio between job seekers and job vacancies in Guangzhou is around 1:1.2 to 1:1.3.

An estimated 16 million peasant workers from China's hinterland now work in Guangdong, and the inflow of workers is noticeably slower this year. Over the past years, Sichuan has exported 7 million peasant workers, half of whom ended up in the PRD. This year, among the 800,000 peasant workers leaving Sichuan in search of work, only 50,000 have decided to work in the PRD. Why is the PRD less attractive to peasant workers now? If this trend continues, Hong Kong companies' operations in the PRD will be affected and Hong Kong businessmen may have to change their investment strategy in the Mainland.

Inland economic development

As the first region to grow rich as a result of China's door-opening policy initiated in 1979, the PRD became a magnet for all peasants looking to improve their lot. Ten years ago, these peasants working in southern China could look forward to earning ¢D5,000 a year, a far cry from the typical farmer's income of a few hundred dollars a year. Better transport and lopsided government policies have continued to attract the lion's share of foreign investments in the Mainland to the coastal areas, leaving industrial development in inland provinces almost stagnant. Little wonder then, that villagers all headed south for work.

Following the "Go West" policy launched in 2000, the Central Government has been toiling to narrow the gap between coastal and inland provinces, especially central and northeast China. Improved transportation networks, and cheaper land and labour costs are enabling more investors to set up manufacturing operations in inland, which would have once been impractical. For example, Dongguan's Yue Yuen Industrial (Holdings) Ltd. has invested ¢D900 million in Ganzhou, Jiangxi Province, to set up a 60,000-worker operation to generate ¢D6 billion worth of output annually. In Dongguan, workers are paid an average of ¢D850 per month while those in Ganzhou earn only ¢D500. As the PRD's manufacturing operations migrate inland, many peasant workers are choosing to work nearer to home, as they feel the pay difference cannot justify the cost of working far from home, often for years.

Peasant workers' wages in the PRD

Currently in Guangdong, minimum wages are divided into seven classes ranging from ¢D510 to ¢D280, whereas in Shanghai and Jiangsu the minimum wage is set at ¢D635 and ¢D620 respectively. In Guangdong, wages for local workers are much higher, and the minimum wage level is mainly to protect peasant migrant workers. In 2002, the average monthly salary in Guangdong was ¢D1,397.

Studies by the Guangdong General Labour Union have found that most peasant workers are paid between ¢D500 and ¢D800 per month, one-quarter of which is overtime pay. Low wages is part of the reason behind the PRD's labour drought. Enterprises offering higher wages, like Yue Yuen, which has a workforce 40,000, are not too badly affected by the labour shortage.

Another factor behind the shortage is that factories are short of female workers, not males. For labour-intensive factories in the PRD, the ratio between male and female workforce ranges between 1:4 to 1:9. Factory owners prefer female workers because they are easier to manage, more skilful, careful, willing to work over time, and perhaps most importantly their salaries are lower than their male colleagues' pay.

Factory owners in the PRD are already suffering from labour shortages with some worrying that they will not be able to fulfill outstanding orders on time, while others are having to turn away some business. High demand for labour is also driving up wages, which in turn makes the PRD less competitive than the hinterland where labour costs are far lower. To survive, PRD manufacturers will have to invest more in high-tech production processes which will generate higher returns over the long term. Also, factories will need to start offering higher wages to attract skilled workers in the manufacturing of high-end products. This is an issue that all Hong Kong entrepreneurs with factories in the PRD have to work hard to resolve.