Wednesday, March 9, 2011

China Weekly: Labour Shortages Lead to Re-Think of One-Child Policy; PBOC Eases RRR For Well-Behaved Banks


A silent week in Plates 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 Plates (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, counting further
raising of the RRR rate. Rather, the action reflects part of an
ongoing campaign by Beijing to curtail simple loan practices, which
the administration fears could lead to lax lending standards,
increasing terrible loans and ultimately hurt the financial system.
The go 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 Plates bank stocks.

Turning now to the labour market, amid a hiring drive by domestic and
worldwide companies there is a dire shortage for skilled labour which
has led to frenzied bidding to attract certified 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 plot 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 further than mainland Plates, counting 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 conundrum 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 adage that enterprises in his
province were struggling to find workers, though problems were less
severe than in the east of the country.

Finally, reports ahead of schedule this week indicated that Plates may
be taking into account lifting its family-plotting restrictions, and
is taking into account 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 Plot,
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 Plates. His
comments were echoed by analysts at Bank of American Merrill Lynch who
said "Plates'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
making 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 bring to somebody's attention the retirement age for women
as they remove the one-child policy in an effort to ease concerns
about the aging population in Plates and tackle a shortage of workers
across the labour market.

Written by Jonathan Granby, DailyFX Research Team


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