China’s manufacturing sector is grappling with wage cuts and reduced working hours as companies struggle to remain competitive amid the ongoing trade war with the United States, according to Reuters.
Factories like Cartia Global Manufacturing in Foshan have been forced to cut wage costs by about 30 per cent to withstand increased competition from Chinese firms that have exited the U.S. market due to steep tariffs. These firms have since shifted their focus to other markets such as Australia, intensifying price competition.
The owner of Cartia Global Manufacturing, Mike Chai, said the company had already halved its workforce since the pandemic and is now shortening shifts and asking workers to take unpaid leave to stay afloat. “We’re in survival mode,” he said. “Our factory barely breaks even.”
Despite China’s headline unemployment rate holding steady at around 5 per cent, economists warn that underemployment and reduced income for manufacturing workers are worsening as firms cut costs to manage tariff-related pressures and industrial overcapacity.
Consumer confidence remains near record lows, retail sales have weakened, and inflation was flat in July, painting a subdued picture of China’s economic outlook.
Additionally, the chief Asia-Pacific economist at Natixis, Alicia Garcia-Herrero, explained, “It’s the people who are hammered by this model of huge competition and lower prices. To survive, companies need to lower costs and wages, it becomes a spiral.”
Reuters added that while official statistics may not fully capture the extent of job insecurity, many workers are facing unpaid leave or reduced hours rather than outright unemployment.
Chai has already lost two key Australian customers due to increased competition from other Chinese firms that have exited the U.S. market. To remain competitive, he plans to reduce prices by about 10 per cent and cut overtime hours, which previously made up more than a third of workers’ income.
The use of temporary workers on short-term contracts is also rising, with factory owners hiring and dismissing staff based on fluctuating demand to avoid pension and insurance costs.
Reuters reported that this shift has pressured wages, with hourly pay for temporary factory workers falling from 16 yuan to 14 yuan over the past year. Workers like Alan Zhang in Guangzhou now struggle to find enough work to meet basic living expenses.
Also, a fellow at Harvard Kennedy School, Richard Yarrow, noted, “If manufacturing wages are squeezed, it exerts deflationary pressure on the wider economy.”
The ongoing trade tensions and resulting cost-cutting measures highlight the fragile state of China’s manufacturing workforce as companies navigate an uncertain global market.