Labor cost rise burdensome

Employees process laptop components at an industrial park in Chongqing, Southwest China, April 22, 2014. [Photo/IC]

A seemingly unlimited supply of cheap labor has been a hallmark of China's economy as it has risen to become a global manufacturing powerhouse. But with more and more small-and medium-sized enterprises complaining of rising labor costs in the world's most populous country, Chinese policymakers should take the issue more seriously.

A recent survey by the China Center for Promotion of SME Development found that some 79 percent of the businesses surveyed ranked rising labor costs as one of their major concerns, up 10 percentage points from a year earlier.

A rise in labor costs has long been expected to reflect the diminishing supply of cheap rural labor and the improved living standards of workers. However, the double whammy of economic headwinds and a rapidly aging population have unfortunately made life extremely difficult for small businesses. Sluggish global demand and a continuous slowdown at home have already forced many SMEs into a patch rougher than expected. Worse, the labor shortfall that China's demographic change has long predicted has begun to bite deep into their balance sheets.

Better pay for Chinese workers is certainly a desirable goal that Chinese policymakers should always aim to achieve. But that does not mean the government can afford to leave job-creating small businesses on their own as they battle to survive the perfect storm of the economic slowdown and a looming labor shortfall.

Unlike those transnational business giants that can move across regions and countries to employ the cheapest labor, the vast majority of small domestic enterprises have to absorb the shock of soaring local labor costs.

The increasingly loud complaints SMEs are expressing about their labor costs therefore justifies immediate government aid such as tax cuts. But in the long run, Chinese policymakers should also come up with a prompt and adequate answer to the country's demographic challenge before it becomes a burden too heavy to bear.