Covid Zero broke the system that keeps China’s factories running

CHINA says its economy will soon be back on track after three years of Covid Zero. But the shadow of the disruptive policy still lingers over its manufacturing heartland, casting doubt over the pace of the recovery.

In downtown Guangzhou, the southern metropolis that’s home to China’s largest garment wholesale markets, factory owners and recruiters say workers are reluctant to come back, scarred by the experience of long lockdowns, no wages and violent protests during China’s efforts last year to stamp out the virus.

Some hold up cardboard signs touting job vacancies, while others run after prospective employees, begging for a few minutes to talk about conditions and benefits.

Tang Ning, a recruiter in the district of Haizhu – which was locked down for a month late last year – says she hasn’t been able to hire a single worker in the week she’s been trying. The garment factory she’s worked at for more than a decade had more than 30 employees before the recent Chinese New Year break, but just 10 returned from their traditional trip home to see loved ones.

Their reluctance, she says, is understandable.

“Imagine that you are far away from home in a megacity where your salary for your entire life can’t afford a house, you live in a tiny old room with a shared toilet with many others and work 12 hours a day. The only goal is to make and save as much money as possible,” said Tang. “But then the lockdown came. You don’t know how long you’ll have no pay at all.”

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Migrant workers’ reluctance to return to the big factory hubs that account for about a third of the world’s manufacturing output is exacerbating long-term structural problems in China’s labour market.

Before Covid Zero, the workforce was already shrinking because of an ageing population and young people have become less willing to work in lower-paid, labour-intensive industries.

While no data exists on how many of the 296 million migrant workers that power China’s export economy aren’t returning to factory floors, interviews with employees and managers show the challenges some sectors face in getting back on track, forcing companies to dangle perks and raise pay.

The group was one of the hardest hit by President Xi Jinping’s flagship pandemic policy, which put factories including those that supplied major brands like Tesla and Apple in ongoing cycles of lockdowns. Workers went without pay for months or were forced to live in punishing “closed loops” where they couldn’t come into contact with anyone off-site and were separated from their families.

“More migrant workers became more determined to stay in their hometowns after experiencing the uncertainties amid the Covid lockdown,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle. “Improving infrastructure and the governments’ supportive policies in the rural areas managed to convince more workers to seek jobs locally.”

Nearly 40 per cent of workers who returned home for New Year want to seek employment there, of which about 15 per cent have already done so, according to a survey conducted by online recruitment site Zhaopin.

As well as offering pay rises, some manufacturing hubs are rolling out the red carpet. Foshan city in the economic powerhouse of Guangdong sent delegations to Guizhou province in late January as part of a recruitment drive.

Some firms have turned to chartered flights and trains to relocate employees, while officials in Beijing, Shanghai, Zhejiang and Fujian are offering cash subsidies to get companies to resume production.

But workers interviewed by Bloomberg in the heart of Guangzhou’s textile hub said their core demand from employers was stability, even if it came with a lower salary.

Job seekers are now less enthusiastic about pursuing more money at the expense of time with their family, said a man who asked to be identified only by his surname of Zhang. He’s looking for a job with a monthly salary of about 7,000 yuan (S$1,365) to 8,000 yuan, lower than what he’s earned previously, as he wants a less-intensive role with a reliable boss and work environment with fewer uncertainties, he said.

A 50-year-old woman who asked to be identified only by her surname, Chen, said she’s willing to give Guangzhou one more year to see if things improve.

She typically earns 7,000 yuan a month, with about 1,000 yuan going towards rent and other expenses, but sudden production halts during Covid-19 flareups and a slowdown in orders meant some months her pay was cut by more than half.

If she returns to her hometown in Hubei province she’ll have fewer expenses. And between farm work and another part-time job, such as in a supermarket, her savings may be in line with what she manages in Guangzhou, she said.

So far, the worker shortage doesn’t appear to be affecting all sectors and areas equally. Apple supplier Foxconn Technology Group, which doled out bonuses to get staff back to their factories, has said operations are returning to normal after a series of lockdowns last year that saw workers flee the Zhengzhou campus known as iPhone City.

Factories in other hubs in Zhejiang and Fujian also say they’re not facing a labour crunch, though some report that weak orders mean they’re not looking to expand headcount substantially.

The higher salaries needed to entice workers into some labour-intensive industries are likely to hurt the country’s long-standing advantage as a low-cost labour supplier, according to Joerg Wuttke, president of the European Union Chamber of Commerce in China.

“Definitely, China, over a very short period of time, will lose every opportunity it had on labour-intensive things,” he said, pointing to countries like Bangladesh, Vietnam and Indonesia as beneficiaries. “If China wants to be competitive, they have to look after the migrant workers. It’s a very simple proposition.”

Vicky Wu, who owns a garment factory that employs 60 people, said she barely made a profit last year after labour and raw material costs rose, Covid-19 curbs curtailed output and orders subsided. She’s cautiously optimistic on the year ahead, though.

While there’s a question mark over the recovery in Chinese consumer sentiment, and retailers are placing fewer big orders in favour of tighter inventory control, a recent jump in new orders is offering her encouragement, she said.

“Everybody here is working hard now to make the money back,” she said.

The slow return of migrant workers shows how China’s economic outlook remains uncertain, despite Beijing’s desire to put the chaos of Covid Zero behind it.

Consumer confidence remains close to record low levels, with sales of durable goods like cars continuing to plunge and the housing sector remaining a major drag. And while industries like catering and tourism rebounded during Chinese New Year, spending remains well below pre-pandemic levels.

Back in the side streets of Haizhu, Tang waits anxiously for someone to want to hear her offer: 9 yuan per pair of pants, which means workers could earn more than 10,000 yuan a month, she says. If Tang continues to have no luck hiring, the factory would consider raising salaries, but the increase will be limited as profits are already thin.

Originally from Sichuan province, she has worked in Guangzhou for more than a decade and considers the city home for her, her husband and their five-year-old child.

She knows that feeling isn’t shared by some of her younger colleagues, who joined last year’s lockdown protests and tried to pull down the barricades that kept them sealed away from the rest of the city. For them, the pandemic laid bare the hardships of toiling away so far from home.

“For young workers who only came in the past three years, Guangzhou only gave them the experiences of living in the tiny rooms, being locked down and failing to make any savings,” Tang said. “What’s the point of staying?” BLOOMBERG