Low Skilled Labour – A Weak Link in China’s Industrial Strategy

A vast majority of Chinese manufacturers are facing labour shortage. According to a survey of China International Intellectech Co. (CIIC), the shortages range from a few hundreds to thousands of workers in many factories constituting equivalent to 10%-30% of their total work force. Chinese businesses face labour shortages of 70% and it is 55% for companies, according to the ‘Blue Collar Employment and Compensation Management Report 2021’. China’s Ministry of Education has forecasted a shortage of nearly 30 million manufacturing workers by 2025. Although, a large number of young people enter into job market every year, they lack appropriate skills and training to handle machines and tools, apart from electronic gadgets and computers.

Beijing’s failure to increase the high-skilled share in its workforce is hitting China’s growth prospects and President Xi Jinping’s aspirations to accelerate the pace of technological innovation in the country. It is frustrating for him as efforts to transform Chinese economy into an advanced global center of manufacturing as being constrained mainly due to shortage of skilled workers and inadequate vocational training opportunities.

Already a demographic transition has ensued in China where the share of ageing population is increasing. Experts warn that Beijing may also face distortions in labour market due to increase in ageing population, besides diminishing returns on state investment due to low labour productivity. Besides, it is also hurting China’s ambition to achieve high- income status amid low college attainment rates in the country compared with those of advanced economies.

High-end skilled personnel are needed for China’s transformation from a large manufacturing country to a strong one and for China’s rise in value chain. The cultivation of skilled talent has become an increasingly important key for China’s efforts to escape the “middle-income trap” which many analysts believe has become a reality to stay.

Labour movement from rural areas to urban areas in China has also slowed. Domestic migrant workers’ wages in low-skilled industries in China have more than doubled since 2011 because the quantity of migrant labour from rural areas has declined continuously during recent

times. Due to increasing labour cost several major foreign manufacturers are moving away from China, relocating their operations to lower wage countries. Companies which have so far not relocated their plants outside the country are withholding their expansion plans in China. This is one of the reasons for large scale unemployment among low-skilled workers in China recent times.

Beijing claims to have good education system. However, educational funding is mostly used by an elite urban minority. It was estimated that as of 2020, only about 14% of China’s population had graduated from secondary school against at least three-quarters of their populations in high-income countries with advanced manufacturing sectors. China’s investment in education is just half of its high-income counterparts as a percentage of GDP as of 2017, despite having invested heavily in education during the last two decades.

Beijing lacks quality education system at least up to secondary level in rural areas. Many of China’s new rural secondary school graduates attended poor quality vocational schools. Systemic shortfalls in early childhood education and health in rural areas also render many young people unprepared to learn complex skills as they age.

Low skill work force has other issues. Analysis of China’s workforce reveals that nearly 70% China’s workforce is low-educated and low- income workers. Further, the promotion of automation has disproportionately affected the low-skill workers. To keep the edge in efficiency and to boost industrial productivity in domestic manufacturing, Beijing is now being forced to use robotics innovation. It is estimated that as a result of automation at least 100 million low-skilled workers would risk losing their jobs in sectors such as agriculture, textiles and manufacturing.

China has resorted to various plans to upskill its low-skilled labour force. Beijing’s non-university upskilling programme has been retraining millions of low-skilled workers since 2019. The government had provided students free tuition, accommodation & meals, and a subsidy of Yuan 2,000 a year for rural poor students.

However, the programme is facing many hurdles including corruption. The programme has outdated content and scarcity of teaching expertise.

Further, Chinese workers lack the knowledge of need for upskilling requirement and therefore, they are not enrolling in right courses. All these resulted in high dropout rate in China’s ambitious upskilling programme.

Industry insiders say the problem of shortage of skilled labourers in China can partly be explained by long-held perceptions in the country that blue- collar or “technically skilled” jobs are inferior and are meant only for people with a poor education.

Traditional Chinese Confucian culture is an important historical reason for society’s prejudice against “skilled workers”. “The ancients divided jobs into ‘three teachings and nine sects’ and those at the bottom of this chain are all skilled workers, which is a deep-rooted concept among many Chinese people, who believe these workers are in undignified professions” says Zhang Xiaorao, Director of Silk Road Vocational College, which trains mechanics and automation technicians.

Experts suggest that Beijing needs to increase investments in basic education and enforce higher standards at vocational schools to produce the high-skilled workers suitable for advanced manufacturing industries. It is estimated that China’s technology industry will need 10 million highly skilled employees by 2025. The semiconductor industry is already facing shortages of highly skilled 200,000 to 300,000 workers.

China’s nearly 1 billion working-age population already peaked in 2014 and has dipped in the last few years. By 2100, China is projected to have a workforce size of less than 400 million, according to a UN data. The changing workforce landscape will also bring challenges for China’s 292 million migrant workers – unskilled laborers who move from rural areas into cities to seek jobs mainly in construction and manufacturing, according to a McKinsey report. Many of them cannot access quality training programmes and have limited capacities to make work transitions. China is facing a real problem in its labour market like never before. This is a scepter hanging on China’s growth prospects in short and immediate terms.