China Labor Shortage – HR Strategies to Remain a Competitive Employer


The labor shortage in China is pushing companies to re-evaluate their HR policies to improve worker retention. In this article, we discuss the impact of the labor shortage on hiring practices in China and the strategies companies can adopt to stay competitive.

China is experiencing a growing labor shortage which is putting increased pressure on the manufacturing industry. While similar shortages are felt by many countries around the world As workers fail to return to the workplace due to lingering fears of the COVID-19 pandemic and changing attitudes toward the nature of work, China’s current situation is part of a longer term trend.

In some ways, China is a victim of its own success: an aging population and increasingly educated workforce have a white propensitynecklace positions in the growing service sector. Many people look for jobs that offer a higher level of flexibility, such as food delivery and courier services, and migrant workers who moved to big cities to find work now stay closer to home.

All of these factors, and many more, have played a role in the decline in the number of factory workers and have been a dilemma for the Chinese government and business community for many years. This in turn has led to calls for the implementation of solutions, such as a higher level of automation and raising the retirement age.

With rising labor costs and changing workforce composition, some companies are already increase incentives to attract workers and keep those they already have. Some could also completely reassess their positions in China or explore alternative solutions to alleviate the labor shortage.

For this article, we spoke to Kyle freeman, partner and leader of the International Business Advisory team in North China, which provides insight into how labor shortages are shaping hiring practices in China and argues that companies need to focus more on worker retention through progressive HR practices.

Effects of the labor shortage on hiring practices

As The results of the Chinese census highlighted this year, an aging population coupled with low birth rates resulting in part from China family planning policy led to a decrease in the labor pool.

This, along with other factors, such as slowing rural migration flows to cities and increasing availability of service sector jobs, have increased pressure on the supply of manufacturing labor.

Plant managers have been aware of this trend for some time. Currently, one of the most difficult aspects of running a factory in China is the availability of labor and the resulting increase wages necessary to attract or retain workers.

Companies are increasingly turning to automation and alternative locations to China for their manufacturing needs. However, there are limits to automation, and China remains a competitive manufacturing destination for various reasons, including infrastructure, access to suppliers, scale of production, and time to market. These benefits hold true even though labor costs in China are higher than in other places, and increases in labor costs are growing faster than productivity..

Due to the advantages offered by China in the manufacturing sector, companies are also considering moving their activities to lower-tier cities in China, where it may be higher retention rates and a lower cost workforce. Many companies are now in China for China, so exploring lower tier cities may be more attractive than moving operations to another country.

Possibility of raising the retirement age

China has a relatively low retirement age – 55 for women and 60 for men in most of the cases. This pushes some productive workers out of the workforce too early.

Not surprisingly, raising the retirement age has proved unpopular with the general public. Consequently, the government has been careful to make it clear that any policy aimed at raising the retirement age will be implemented gradually.

Therefore, raising the retirement age in this way may help alleviate some of the pressure on the Chinese retirement system, but is unlikely to have a noticeable impact on labor availability. work, particularly in the manufacturing sector, in the short term.

Alleviating labor shortages through competitive hiring and retention practices

Companies adopt a number of different strategies to avoid hiring problems. The main strategy is to increase staff retention. To do this, companies seek to meet both the financial and non-financial needs of employees.

Recruit recruitment agencies

Companies are increasingly turning to recruitment agencies to hire more skilled workers and meet short-term hiring needs, especially when there are serious staff shortages that need to be addressed urgently.

Some companies also use recruiting agencies in a more advisory capacity, primarily to create strong recruiting channels and procedures that they can then manage internally.

Build a competitive HR policy

Companies can also benefit from creating strong HR policies aimed at ensuring fair compensation practices and attracting new employees. These policies should include mechanisms for:

  • Perform internal HR audits to ensure compliance and identify weaknesses in the current policy, as well as to obtain employee feedback.
  • Perform a comparative analysis of salaries and benefits to identify the company’s competitive advantage.
  • Optimize individual roles by clearly defining the expectations, rewards and benefits of the role.
  • Actively recognize employee performance and loyalty.

Offer benefits and compensation

Companies that want to reduce compensation growth offer additional benefits to workers, such as health insurance, and other benefits that ease the burden of personal financial decisions, such as buying a home or car and retiring.

Companies are also trying to use better HR strategies to address the non-financial concerns of their employees.

Training and Development

EEmployees increasingly seek access to training and education and have higher demands for clear career progression opportunities and open channels of communication to voice their concerns.

An effective HR strategy that addresses these concerns will not only impact an employee’s length of stay with the company, but will dramatically increase the value they bring over the course of their employment.. It also helps management identify and resolve some of their concerns. Smart companies are actively seeking to link these types of benefits, especially for training and education, to employee retention policies.

Cultivate a positive work culture

The stakes of working conditions and long working hours have attracted a lot of public attention and debate in recent years. This has led to a growing understanding among companies of employeesdesire to to improve work culture and work-life balance.

These problems can be solved by measures, such as flexibility of work or schedules, or recognition and assistance with domestic problems., like babysitting, or offer more family-friendly accommodation if the company offers accommodation to its employees.

Tapping into China’s Changing Workforce

The growing shortage of factory workers is not all bad news. China is already on its way to becoming a leader in high-end technology and automation, which will require more highly skilled and experienced workers. President Xi Jinping recently presented objectives of cultivating and training high-level talents, highlighting China’s advance towards high-end and high-tech industries.

At the same time, changing attitudes towards work place greater demands on employers to provide a healthy work environment and office culture, and to provide more beneficial incentives and opportunities for growth.

Companies that recognize these economic and cultural changes and take the appropriate steps to reward and upgrade the skills of their Chinese employees will be in a better position to succeed in China’s future business landscape.

About Us

China Briefing is written and produced by Dezan Shira & Associates. The practice helps foreign investors in China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the company for assistance in China at china@dezshira.com.

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, USA, Germany, Italy, India and Russia, in addition to our business research facilities along the Belt & Road initiative . We also have partner companies helping foreign investors in the Philippines, Malaysia, Thailand and Bangladesh.