As a follow up to my last post on how fast the hiring market is growing in China, and the barriers to further rapid growth, let’s start with a look at the recently issued Manpower Employment Outlook Survey (MEOS).

The MEOS shows fairly significant increase in net employment outlook, compared to the doom and gloom of older reports, but we have to take into account that the MEOS is forward looking. There are no guarantees that any of this projected hiring will happen. At the same time it is highly unlikely that the projections will fall seriously short of expectations.

Regionally, the story is a little more complex but the basic message is that the government’s push west appears to be working. Companies are shifting factories and offices across to cities like Chongqing and Wuhan because the big cities on the east coast are now too expensive, and the inner provinces, although very far away, are getting the support that they need to attract investment, and jobs.

Labor Market Inefficiency

On the downside, the European Chamber has recently noted a bit of a pullback in the process of opening up the economy. This is potentially troubling because China ranks low on labor market efficiency, especially in terms of firing costs ( china-draft-labor-law-third-edition ).

Institutional memories are long, and companies will remember the high cost of firing in China over the last year. As such they will factor it into their future investments. Let’s hope this current crisis leads to more openness, as similar crisis have done in the past.

Labor Market Efficiency Ranking (CHINA)
7.01 Cooperation in labor-employer relations ………………..60
7.02 Flexibility of wage determination…………………………..53
7.03 Rigidity of employment*………………………………………43
7.04 Hiring and firing practices …………………………………..77
7.05 Firing costs  ……………………………………………………109
7.06 Pay and productivity……………………………………………12
7.07 Reliance on professional management …………………..46
7.08 Brain drain…………………………………………………………39
7.09 Female participation in labor force*……………………….20

The overall ease of doing business ranking for China (below), puts it at or near the bottom of the pile but China does better when compared with other countries in Asia, which is perhaps a fairer comparison.

Market Potential

Where China does really well is on the size of its domestic market, a key factor drawing in Foreign Direct Investment (FDI) (still falling but less than before). The domestic market is already large and open, and has a great deal of latent potential, so it is likely to offer the kind of growth that leads to few downturns, and even fewer mass firings.

Market Size - China Ranking

10.01 Domestic market size index* ………………………………….2
10.02 Foreign market size index*……………………………………..1

This market is more than enough to compensate for China’s low labor market efficiency, and certainly enough to counter the lack of openness and transparency in the labor market. The strength of this market is based on investment and this was dealt with in much greater detail recently by Andy Rothman of CLSA, who showed that Chinese economic growth does not equate to just exports, but is more closely linked to the internal investment rate. China is no longer a location for companies to export from, but a market for them to invest in.

Finally, in simple terms, if investment increases then hiring will increase, and investment is increasing in China. So hiring is about to, and planning for the wave must start now.