Tech suppliers in China skip seasonal hiring rush amid weak demand

Normally at this time of year, the manager of a speaker maker in Dongguan, China, says he is scrambling to recruit temporary workers for the traditional peak production season.

But this is far from a normal year. The Amazon supplier has not had to make any special recruitment efforts, and its hourly wage for temporary workers remains at Rmb16 ($2.19), the minimum basic rate for the area in 2023.

“There is no need to hire any additional workers for the traditional peak season,” said the manager, who asked not to use his name. “That’s unusual . . . but demand is really weak this year.”

China’s massive tech manufacturing industry usually ramps up hiring in summer, recruiting hundreds of thousands of temporary workers to help handle the rush of orders from Apple, Amazon, HP, Dell and others ahead of the year-end holiday shopping season.

This yearly race for labour is a boon for workers, who can command higher hourly wages, signing bonuses and other perks. For suppliers, it represents a massive cost, as they not only foot the higher wage bills but also pay fees to outside recruitment companies.

The unusually weak hiring stems from a combination of slumping electronics demand — both globally and in China — and an ongoing shift of supply chains away from the country. The lull is all the more notable for its contrast with artificial intelligence, an area of the tech industry that is attracting massive investment and high hopes for future growth.

“This year it’s so easy to hire workers,” an executive at an Apple supplier told Nikkei Asia. “And they are not expensive at all.”

An executive at another Apple supplier said the company used to pay an additional Rmb450mn or so to human resources agencies to help finding enough workers during the summer surge. “But this year, we haven’t spent an extra penny on the agencies,” the executive said. “Labor recruitment and the increasing wages every year used to be a headache for us. But not this year.”

Foxconn, a major Apple supplier, has offered wages of up to Rmb35 an hour plus extra bonuses in previous years. The highest rate Nikkei Asia could find being offered this year was just Rmb25 an hour, based on an analysis of multiple online job recruitment ads. Some smaller tech manufacturers were offering less than Rmb20 an hour in Dongguan and Suzhou, two important tech manufacturing hubs in the country, sources said.

“Although there are some rush orders, we still see demand being quite slow and uncertain in China till the end of this year and next year,” an executive with chip developer Sunplus told Nikkei Asia, adding that consumption and confidence had yet to return.

“We also find some of our clients — not only from the US but also Japan and South Korea — want to have their products built out of China due to the geopolitical risks,” the executive said. “That kind of push could also have impacts on the country’s tech manufacturing industry and jobs.”

Apple, Google, Microsoft, Amazon and others have all asked suppliers to build additional capacity outside China, much of it in south-east Asia. Apple has also unveiled ambitious plans for iPhone production in India.

“This megatrend of regional manufacturing is irresistible. We are also struggling to find new orders to fill in our existing plants in China amid the slowing global economy,” said a manager at an Apple supplier, adding that the company had halted adding more capacity in China while it was expanding in India. “Many small to medium satellite factories previously serving big electronics manufacturers [in China] have gone out of business because of the supply chain shift to other nations.”

A procurement manager of a supplier to HP, Dell and Lenovo told Nikkei Asia that many of his company’s small and midsize suppliers in China were asking for advance payment so they could maintain a healthy cash flow.

Weak hiring in such a vital industry is an added headache for Beijing.

The Chinese government on August 15 suspended publication of youth jobless data for July, citing a need to revisit the methodology of how data was collected. The move came after China’s youth unemployment rate climbed six straight months in 2023 and hit a record high of 21.3 per cent in June.

China is also struggling with debt woes in its property sector that could have spillover effects on the broader economy.

While Beijing says the economy is on a steady path to recovery, with gross domestic product growing 5.5 per cent in the first half of 2023, foreign economists are cutting their outlooks for the country. JPMorgan now predicts 4.8 per cent GDP growth for the year while Barclays forecasts 4.5 per cent.

“China faces a complex set of [economic] problems, and the fact that they are connected makes sorting it out particularly challenging,” Willy Shih, professor of management practice at the Harvard Business School, told Nikkei Asia.

Shih said property development, for example, was an important source of funding for other economic development projects, whose problems would spill over to local government funding for additional projects.

Meanwhile, slow demand continues to weigh on much of the tech sector.

Taiwan Semiconductor Manufacturing Co, the world’s biggest contract chipmaker and a barometer of the wider industry, trimmed its full-year revenue guidance from mild growth to a 10 per cent decline, citing a slow recovery in China and prolonged macroeconomic uncertainties. Foxconn cut its 2023 revenue forecast to a year-on-year decline due to overall sluggish demand for smartphones, PCs and traditional servers.

Chiu Shih-fang, a tech supply chain analyst with the Taiwan Institute of Economic Research, said easier recruitment and lower labour costs would not slow the tech supply chain’s shift away from the country.

“The key driving force for this wave of shift is not just about the surging costs in China but for the risk concerns of the US-China tech war and geopolitical uncertainties,” Chiu told Nikkei Asia. And the easy recruitment situation might only be temporary, Chiu added, as labour costs could rise again once China’s economy recovers.

“Although suppliers are also facing challenges to build new ecosystems in south-east Asia and India, the diversification trend away from China to reduce risks will not slow,” the analyst said.

The supply shift could exacerbate the economic woes facing China, creating a cycle of lower demand and depressed hiring.

“Of course, as manufacturers move some portion of their volume out of China, we’ll see an impact on China’s economic recovery,” Harvard Business School’s Shih said. “When you move production to places like Vietnam or Malaysia or Thailand or even India, a lot of jobs go with them.”

A version of this article was first published by Nikkei Asia on August 25. ©2023 Nikkei Inc. All rights reserved.

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