As usual after Chinese New year restarting in factories is a little difficult. Most of factories hire mainly migrant workers (Mingong) for low added value job. These workers are mainly coming from inner rural provinces of china. They commute each year to the eastern province more industrialized where they would found employment. They are then hired by a factory where they will work and live for one year up to the next Chinese new year.

China knows this Migratory flow since many years, but it seems this year migrants don't find there way back to the coast and the factories. Many factories complain about the difficulties met in hiring workers as well in south China than in Zheijinag and Jiangsu which avoid this problem during last shortage (Spring 2008)

Knowing the roots of the phenomenon is interesting. There are some structural items as the One child policy, the increase of exportation and low improvement in productivity. But there are also other roots. Inner provinces have indirectly favor the situation by making agriculture more attractive (lowering taxes, providing a specific income...). Moreover, the wages difference between inner and coastal province still exist but is lowered. Since the international financial crisis wages in exporting (coastal) area have been frozen while not in inner province. Thus industrial jobs in eastern factories are less attractive and many workers decide to stay in their hometown to work in, maybe with lower salary but with less cost and a better life.

One can already see some factories haven't go these hiring problems even in the same area and working with Mingong too. They have built employee loyalty. It is a reason why we always check the changes in workers even if it is not a part of criteria or legal requirements. But this is an indication for a better assessment of social related risks which is the goal of an audit.

It is important too to try to assess the potential consequences of this situation. Thus once can manage its suppliers and anticipate evolutions in procurements.

As we are deeply involved in social related risk assessment, the first topics to be stressed is the likely increase in child labor in Chinese factories. The time of workforce shortage have always been related to looseness in hiring criteria thus related to higher child hiring rate. Surveying factories on this matter is obviously important and every looseness on the age of workers management would have to be closely followed.

The second obvious consequence is about wages increase. Main province have already released increase for legal minimum wages to be applied on May 1st. For the first time in industrial province the legal minimum wage for 40 hours a week would be over RMB1000.

Two other consequences are likely and would have an impact on procurements. First, some factories meet problems related to workforce costs. They try to improve the productivity. This requires to have trained workers to there methods, thus to keep them from one year to the other. Thus it as an impact on social conditions. Secondly, some other factories will try to find cheaper workforce and will relocate some production in inner provinces, with the encouragement of local governments. Impacts on supply chain are obvious.