Behind the rising labour costs in the Chinese construction industry
The labour cost in the Chinese construction industry has been on the rise due to labour shortages across major cities. However, the wage rise has still not overcome the shortage issue. The average wage in the Shanghai construction market reached nearly RMB 7,000/month in the final quarter of 2016, and registered an increase of 5% compared to the same period last year. Commodity Inside understands that the government estimates are apparently conservative, and in reality it increased by around 10% Year-on-Year. Meanwhile, labour costs are also growing in tier 3 & 4 cities. For instance, the average labour salary in Chengdu is higher than the tier one cities and even in some cases more than the white collar workers’ pay.
Major cities like Shanghai are slowly losing its lustre due to the fast developments in smaller cities. These smaller cities have a greater demand for infrastructure construction and pay even higher salary than tier 1 & 2 cities. Salaries in the construction market in the top three most developed cities- Beijing, Shanghai and Guangzhou- are lower than cities located in the Midwest area such as Chengdu. The lower living costs and proximity to home are additional benefits which attract rural labour to smaller cities.
According to the NBS latest estimates, the total rural labour population was around 277 million in 2016, where the construction industry accounted for 21.1%, though registered a fall of 1.2% compared to the preceding year. The proportion of rural labour in the central region increased, but the trans-provincial labour ratio reduced. Meantime, the national average wages for rural workers in the construction industry increased by 6.6% last year.
Another issue which has been emerging and creating labour shortage is the age of workers. Currently, labours born after the 80s account for around 14.5% of the total labour in the construction market. The new generation of rural labour who gains higher education is more willing to work in a relatively comfortable environment, such as manufacturing industry, whilst less inclined for working in the construction industry. As a consequence, there has been some growing shortage of skilled labour workers which is driving wages.
The changes in the rural labour market have impacted companies’ profits. Commodity Inside China Analyst Yuefeng Wang writes “In growth terms, labour wages increased more than profits in the central and western parts of the country over the first nine months in 2016. This implies that construction companies suffered from higher labour costs. “
It is expected that the growth of rural labour will decelerate further over the next ten years, resulting more shortage in labour resources and higher labour costs. Commodity Inside expects that innovations in construction and the use of technology will be some of the trends going forward to reduce labour shortage and cope with the rising costs. The State Council of China introduced a policy in 2016, which require the use of 30% prefabricated building materials in all new buildings. Indeed it will to some extent reduce the use of labours and improve safety, though the labour cost is expected to remain elevated.