I can’t count the number of times I have heard people use that old line about how hiring in China must be really easy because, as all newly arrived foreigners will say, ‘For God’s sake, there are 1300 million people!’. Then we all collapse laughing at the irony of our comment, and the naivety of the imagined speaker (which used to be us).

But those 1300 million people have choices, and now they are choosing not to work in just any old job or factory. During the economic crisis workers returned home to the western provinces, and they are now returning only-ever-so-slowly to work in the factories on the east coast.

Forbes’ Shaun Rein has an interesting piece that sheds light on this issue. He concludes that:

Chinese workers’ options are improving and they are becoming more expensive

Younger Chinese are no longer willing to work in factories far from home.

Laborers are now finding work in their home provinces, making them more reluctant to travel to manufacturing hubs like Guangdong.

Female migrant workers are becoming major breadwinners, as they can earn several times more as maids or masseuses than their male counterparts can as construction workers.

More men are choosing to stay at home in the countryside while their wives travel to work in cities.

It has to be said that none of this information is new, in the sense that the trends he identifies are long-term and have been somewhat true for over ten years. The difference is that these trends have accumulated and are now a window on the China market, not just an interesting byproduct of economic success.

To Shaun’s comments I would add:

Both professionals and workers are becoming sufficiently expensive to make companies think twice about locating in China’s East Coast. They will have to automate or relocate.

Firing staff, since the China Labor Law was introduced, is now sufficiently expensive to make companies think twice about locating anywhere in China.

Younger Chinese not only will not work in factories in other faraway cities, they also will not work in factories, or design centres, or sales offices on the other side of their own city. This is a big problem in the 1st Tier cities, where 2-hour commutes are common.

Factories are moving to the west but professionals are still moving to the east. The fact that workers are staying in the west, and will take jobs on lower salaries, is offset by the fact that the professionals will exit your company when they know that you are moving west.

New graduates are still finding it very difficult to find a job. The Expo is soaking up some of the excess but this will be over in 6 months.

It’s little comfort to hiring companies in the market here, but China was the only bright spot in the most recent Hudson hiring survey (2nd QTR 2008).

This is a good jumping off point for a discussion on China hiring because China is likely to be trending downwards from here. This may bring the country back in line with other countries in the region. By then of course those countries may have trended further down.

China’s lead in economic growth makes it likely that it’s lead in job generation will continue into the mid-term future at least. It’s nice to be the leader of the pack.

Most companies around Asia are currently pulling back executive hiring plans, and the general tone is one of pessimism. Unfortunately, the slowdown seems to be restricted to actual hiring numbers, and there is little pressure off salary inflation for new hires. ‘Pay me more money because things are more expensive’ has replaced ‘Pay me more or I take a better paying job’ as the new mantra.

According to Hudson, Hong Kong, followed by Japan, will see the sharpest slowdown in executive hiring, with only 42 percent of survey respondents in the Chinese territory planning to hire this quarter, down from 57 percent in the second quarter.

Overall the attitude of hiring managers is one of caution, not fear. But the negative news keeps coming in. What I am hearing from managers in China is that they are not sure about the overall economic climate, but that 2009 will see some sort of slowdown in their industry. Individual cases, such as semiconductors, textiles, paper, shoes and packaging are already exhibiting signs of a slowdown, some serious.

The worst affected are the low value added industries who are closing factories by the thousands in Guangdong, Jiangsu, Zhejiang and Shandong. Luckily this has little knock-on effect for hiring in the industries that the average reader of this blog is likely to be working in.

The Good News

The Hudson report concludes that China will continue to see strong demand for managerial talent, but this was on the basis that the economy was expected to grow by 10 percent this year. Only a few months later and this looks increasingly unlikely.

Year on year the 10% might be achieved, but month on month it is looking less and less probable. Some industries operate their hiring processes on a month on month basis, and will put hiring on hold for a month or a quarter at a time. Some companies in these fast responding sectors may already be on a hiring stop.

In the Hudson survey, 55 percent of respondents in China forecast a higher headcount this quarter, up from 52 percent in the second quarter survey. They also suggested the Olympics would be a positive factor here, but I think we are all agreed that the Olympics were generally bad for the Chinese economy over the past 6 months.

The really good news is that companies in China are beginning to report a slight easing in their ability to identify and on-board suitably qualified staff.

Finally, a little relief.

(Ed: This is an ongoing series of posts that presents specific items of actionable advice for HR in China. Call it the Top 10 things to do, or not do.) 

A friend of mine in China is a headhunter and we often swap stories about hiring.

Last year he told me about a client who emailed one of his Consultants with a demand to provide ‘at least 10 candidates for my position by next Friday’. I kid you not. Literally those words. The threat was that the company would end their partnership if the Consultant did not comply.

Of course my friend backed his Consultant and the client’s Recruiter nearly got fired. But it got me thinking, and that thinking led to the questions and answers below. I hope they will help explain why it didn’t make sense for the Recruiter to have sent the original email.

1. Q: Why do HR departments in China have difficulty getting a retained headhunter’s attention?.
   A: He has too much on his plate and wants clients who can definitely close candidates. Everything else he leaves on the table for contingency recruiters.
    
2. Q: What happens when you work with a lot of contingency recruiters instead?
   A: You get what you deserve ie. candidates thrown at you without any assessment of their fit, and a ton of interviewing that generates few successful hires. Meanwhile, your competitor works with a retained company that works with them in a partnership. Hiring is hard in China and success requires a partnership.
    
3. Q: Why do headhunters have difficulty getting strong candidates’ attention?.
   A: Strong candidates get 6 calls a month and always have a firm offer in hand. If the company calling them is not a recognizable ‘name’ they will think twice about continuing the conversation.
    
4. Q: Why do headhunters have difficulty getting any candidate’s attention in China.
   A: All candidates in China get ‘only’ 4 calls a month and often have 1 firm offer already in hand, or are close to getting one. Staff in China actually compete with each other to see who has the most calls from headhunters. The winner pays for dinner. 
     
5. Q: Why do HR staff and in-house Recruiters have difficulty getting their General Manager’s attention?.
   A: HR is still seen as ‘just support’ in China. GMs want Recruiters to give them ‘more candidates’.
    
6. Q: Why can’t line managers get HR’s attention with regard to their need for new staff?.
   A: HR has too many requisitions. Hiring is the HR department’s No. 1 job and it gets more difficult by the day.
    
7. Q: Why does HR have difficulty getting the IT department’s attention?.
   A: There is always a budget for an ERP because the value has been proven by finance people who speak the language of the board ie. numbers and cash. But there is never a budget for an ATS or a Succession Planning System because HR tends to speak in vague generalities. 
     
8. Q: Why has online hiring technology, like Applicant Tracking Systems (ATS), been slow to develop in China?
   A: ATSs are excellent in markets where there are thousands of candidates. In China there are few candidates for any given job and the need to automate the internal hiring process is less. The good news is that for the larger companies in China deployment of ATSs has started. Cost is no longer a barrier because there are new online ATSs that can be paid for on a monthly basis. 
     
9. Q: Why don’t we see more adoption of software systems for succession planning and performance management?
   A: Everyone is too busy replacing the last person who resigned, and hiring for the next round of resignations. 
    
10. Q: When will this cycle end?
    A: Hope that it never does because it will only end when there is a dip in the economy, and we are not ready for a dip in the Chinese economy. No one in China has actually had experience of falling stock markets, declining exports, collapsing real estate prices and so on. The consquences for employment will be very significant, to say the least.

It all comes back to jobs and hiring in China. That’s why the Recruiter should not have sent that email.

The South China Morning Post, a newspaper that commands a huge audience in Asia, recently reported that Guangdong’s  labor shortage (see map below) is expected to increase again in 2007.

The logic of the argument is that migrant workers are exiting Guangdong, in the South of China, because the province offers poor working conditions and  low wages. The big beneficiaries are Shanghai and the second tier cities around it, such as Suzhou, Wuxi and Hangzhou.

Opening Up

Guangdong was the first province in China to open up and it benefited immediately from an influx of textile companies from Hong Kong. Gradually the province has moved up to toys and electronics and it now boasts the most affluent population in China.

The province has been the test bed for many new ideas in China and a watchword for openness, and the benefits have accrued rapidly. At the same time it is suffering a little from its own success and this has led to an opportunity for other provinces to compete with it.

The ability of Guangdong to fight back is limited by a couple of inherent weaknesses. This includes a dependence on other provinces for its raw materials, low population by comparison to the rest of China, and a lack of good universities. It also is very dependent on its initial success in toys, textiles and electronics.

This compares unfavourably with ‘The Dragon’, ie. that region in China from Shanghai to Chongqing. Shanghai is the head of the dragon, Chongqing is the tail and the Yangtze river is the body.

This region boasts a huge population and an integrated economy that covers all upstream and downstream activities. Iron ore and oil is converted into steel and plastic in the inner regions, while intermediate products are produced in the second tier cities outside Shanghai. Finally, these intermediates are converted into cars, plastic components, white goods and electronic items in Shanghai itself.

The other competitor is the North of China but this region has been less successful as a whole. There are isolated pockets of success such as Tianjin and Dalian, but the region suffers from a dependence on ’sunset industries’ like chemicals and steel. However, there are emerging signs of success here and this region should not be written off just yet.

Skills Shortages 

For Guangdong province, the numbers are not encouraging. Government officials in the area estimate that the demand for skilled workers in Guangdong will increase by 20% in 2007. What they mean by skilled workers is not defined but it does reflect an economy that is moving up the value chain. More and more of the shortages are at the top, and that, paradoxically, is good news.

At the same time the number of non-skilled workers demanded will rise by 10%. Of itself this number is meaningless but it is estimated that last year there were about 7 million job vacancies in Guangdong and less than 5 million positions were filled. The shortfall is the total population of a reasonable sized city in Europe or the US.

And that’s only one province in China.