China Weekly: Labour Shortages Lead to Re-Think of One-Child Policy; PBOC Eases RRR For Well-Behaved Banks
A quiet week in China last week leaves us with an opportunity to look at some social and political changes taking place, but firstly to the banking system. It has been reported that the Chinese central bank, The People’s Bank of China (PBOC), has reversed an increase in the reserve ratio requirement (RRR) for some lenders as a reward for prudent lending practices. Despite the positive action by the central bank we believe that this shouldn’t be misconstrued to suggest a shift in policy by the central bank. We continue to hold that more tightening measures are in the pipeline, including further raising of the RRR rate. Rather, the action reflects part of an ongoing campaign by Beijing to curtail easy loan practices, which the administration fears could lead to lax lending standards, increasing bad loans and ultimately hurt the financial system. The move which was reported both in the domestic press and by the international media gave Chinese banking stocks a boost, which despite the recent bout of RRR and interest rate hikes are performing relatively well so far this year. Hopes of strong profits on the back of solid earnings growth in 2010 for Chinese banks coupled with increased earnings in coming years is buoying China bank stocks.
Turning now to the labour market, amid a hiring drive by domestic and multinational companies there is a dire shortage for skilled labour which has led to frenzied bidding to attract qualified personnel. Candidates with the necessary credentials are now typically seeing alluring offers that include salary increases of 40% to 50% and improved bonus and benefits packages. Employees who plan to leave their job are often getting counter-offers from their current employers which often exceed the rival offer, as companies are wary of losing personnel through poaching. The jobs squeeze is also spilling over to service-centrer hubs outside mainland China, including Hong Kong and Singapore. The shortage of workers is also affecting lower rungs on the employment ladder as labour trends show that fewer Chinese workers are opting for menial, low-paying factory jobs. This problem has afflicted the east coast for some time now and is now set to spread inland to the nation’s less developed central and western regions. Yin Weimin, minister for human resources and social security, said that labour scarcity problems, which have been felt most strongly at factory and service-industry jobs on the east coast, appeared structural in nature and were set to spread inland. The governor of Hunan province, Xu Shousheng, commented saying that enterprises in his province were struggling to find workers, though problems were less severe than in the east of the country.
Finally, reports early this week indicated that China may be considering lifting its family-planning restrictions, and is considering a ‘two-child’ policy. The deputy director of the Committee of Population, Resources and Environment, Wang Yuqing, said that he personally favoured a gradual opening of a two-child policy. Adding that he believes the limitations on the current policy will be lifted by the end of the 12th Five-Year Plan, covering 2011 to 2015. Wang went on to say that wide implementation of a two-child policy won’t lead to a population boom in China. His comments were echoed by analysts at Bank of American Merrill Lynch who said “China’s one-child policy might have contributed to high growth in the past, but the Chinese population is rapidly aging, economic growth is slowing and inflation is rising, due partially to this outdated policy”. Meanwhile, Citigroup economists who have been creating models for the possibility of a two-child policy since the 1980s say that “the proportion of two-child families is declining due to rising costs of raising kids and leisure”, again suggesting that the relaxing of the one-child policy wont necessarily lead to a population boom. Citigroup also noted, that policy makers were also likely to raise the retirement age for women as they remove the one-child policy in an effort to ease concerns about the aging population in China and tackle a shortage of workers across the labour market.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.