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A year after Chinese manufacturers laid off millions of workers to cope with declining exports, many are now reporting a shortage of labour to meet the pick-up in demand from Western retailers.

And factories fear they will be forced to raise wages this year if they are to attract enough workers.

The problem is common in the weeks following Chinese New Year, when migrant workers travel home for holidays. But millions of workers have not returned to the export hubs.

James Fu, general manager at Quanzhou Green Garments in China’s eastern Fujian province, told just-style only 70% of his workers had returned.

“It’s better than many others in this city but we still need to find more. Right now the production schedule is very tight.”

In Guangdong, some factories are said to be falling behind schedules because they cannot find enough workers. Many are offering signing bonuses and higher salaries.

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By GlobalData

One of the reasons that workers have not returned to factories is because a huge government stimulus programme is creating jobs closer to home.

But others point out that the problem is not new. Masked by the downturn, it has simply returned.

“It appeared last year and the year before that there was a small signal. But this year it is very serious,” said John Wong, export manager at Red Kids, another Quanzhou-based company.

China’s supply of factory workers is on the decline, with the one-child policy reducing the pool of young people requiring jobs.

The younger generation is also better educated and not prepared to accept the same conditions as their parents.

“Young workers are becoming more discriminating. For them to take a job in the city, there has to be added value there,” explains Geoffrey Crothall, spokesman for China Labour Bulletin, an NGO that defends workers’ rights.

Crothall says the current labour shortage should be blamed on the low pay at factories. “Wages in major manufacturing areas are not going up sufficiently.”

The basic wage in the Pearl River Delta is still little more than the minimum wage, which has been frozen at between RMB770 and RMB1,000 (US$113 to US$146) since the crisis hit at the end of 2008, he added.

Some companies are considering moving inland, closer to the rural labour supply. They can benefit from low taxes and other government policies designed to reduce the income gap between residents in the coastal cities and those from poorer regions.

“Our boss is thinking about it,” said Wong.

But many factories will simply have to pay their workers more, and those extra costs will have to be passed on to customers.

“We will need to increase the salary, probably by about 10%, to attract workers,” said Fu. “For sure this will affect the selling price.”

With rising inflation becoming a concern, provincial governments are anyway likely to raise minimum wages this year, said Crothall. Jiangsu has already moved, increasing wages by 13%.

“Eventually business has to wake up and realise they’ve had it all their own way for the last 20-30 years and it’s time for that to change.”

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