XIAMEN'S ECONOMIC AND LABOR SITUATION: RISING WAGES

UNCLAS SECTION 01 OF 03 GUANGZHOU 014846

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR EAP/CM, DRL/IL
DEPARTMENT PASS USTR FOR KARESH, ROSENBERG
LABOR FOR ILAB HELM, LI ZHAO, SCHOEPFLE
TREASURY FOR OASIA/INA-DOHNER AND KOEPKE
USDOC FOR 4420/ITA/MAC/MCQUEEN
GENEVA FOR CHAMBERLIN
USPACOM FOR FPA

E.O. 12958: N/A
TAGS: ELAB ECON EINV SOCI EAGR CH
SUBJECT: XIAMEN'S ECONOMIC AND LABOR SITUATION: RISING WAGES
TO WOO MUCH-NEEDED WORKERS


(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. PLEASE
PROTECT ACCORDINGLY. NOT FOR RELEASE OUTSIDE U.S.
GOVERNMENT CHANNELS. NOT FOR INTERNET PUBLICATION.


1. (SBU) Summary. Xiamen is Fujian's economic powerhouse,
but like many highly developed coastal cities, it suffers
from labor shortages in certain sectors. The manufacturing
sector remains its principal job provider, but its service
industry is quickly gaining ground. Average wages in the
city grew almost 10% during 2005, with farmers sharing in
the gains, as their income grew at more than 10%.
Meanwhile, there is a clear disconnect between Xiamen's idle
workers and its work vacancies, as the city's unemployment
rate stands at 3.79%, yet only half of the nearly one
million jobs offered in Xiamen during 2005 were filled.
This provides an opportunity for young migrants from
neighboring rural provinces, who join the foreigners that
have come to invest in highly visible enterprises in the
city. Skilled technical workers remain in short supply, and
Xiamen is competing with other developed coastal cities to
attract these workers through higher wages and the
reputation as one of China's most livable cities. End
summary.


2. (SBU) On April 28, Deputy Director General Wu Xuexiang,
of Xiamen's Labor and Social Security Bureau, discussed
economic and labor issues in Xiamen. Also present at the
meeting were Cai Donghong, chief of the employment and
unemployment insurance section, and other officials who did
not add to the discussion. According to the official
statistics for the end of 2005, Xiamen's workforce numbered
1.395 million, having grown by 190,000 during the year. The
city's total population was 2.25 million and its gross
domestic product (GDP) was RMB 102.955 billion (USD 12.861
billion). The city is a Special Economic Zone (SEZ) and is
being considered as a possible location for an American
Presence Post (APP).

Industrial sector is tops, service sector closing in
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3. (U) The secondary industry's workforce grew by 77,000 in
2005, to reach 660,000, or over 47% of the city's total
workforce. For its part, the tertiary industry employed
about 558,000 people, or 40% of the overall workforce,
having added some 135,000 new jobs during 2005. Meanwhile,
the primary industry lost 19,000 jobs in 2005, for a
workforce of 176,000 at the end of 2005. In 2005, the
average contribution to GDP of a secondary-sector worker was
RMB 86,683 (USD 10,820),while that of a tertiary-sector
worker was RMB 78,292 (USD 9,774). Labor-intensive
agriculture occupied 13% of the city's workforce, yet only
produced 2% of GDP.


4. (SBU) Although the secondary sector still employs 102,000
more employees, the growth rate of the tertiary sector's
employee roll was more than twice as fast (31.9%, compared
with 13.2%). Even allowing for some slowdown, the service
sector could at least equal the manufacturing sector in
terms of workers. However, it will take longer for the
former to match the latter's contribution to GDP.

Average wages up almost 10%
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5. (U) Total wages paid in 2005 reached RMB 15 billion (USD
1.87 million),up 27.1% year-on-year. Xiamen officials
attribute this growth to a corresponding growth in the size
of the city's workforce, in addition to rising wage rates.
Average wages in Xiamen grew 9.92% during 2005 to reach RMB
22,577 (USD 2,820). The per capita income of farmers grew

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10.3% to RMB 6,230 (about USD 778).


6. (U) The average wages in the primary industry grew 10.33%
to RMB 13,585 (USD 1,697). Meanwhile, average wages in the
secondary industry grew to RMB 18,013 (USD 2,250),up 6.91%.
Finally, those in the tertiary industry grew 12.74% to RMB
35,079 (USD 4,382).

Unemployment, reemployment, and no employment
--------------


7. (SBU) The unemployment rate in Xiamen for 2005 was 3.79%.
This rate compares favorably to China's 4.2% rate and
Fujian's 4.0%. However, it compares less favorably to
Guangzhou's 2.08%. During the year, 224,000 laid-off
workers were reemployed. Of these, just 3,600, or 1.6%,
were over the age of 40. Xiamen also offered vocational
training to 26,000 people. Despite the unemployment rate,
of the 920,000 jobs offered in 2005, 460,000, or half, went
unfilled. It appears that Xiamen's surplus labor is not of
the kind that its booming economy needs. Likely, those that
have fallen by the wayside are mostly older workers that
companies do not care to train, calculating that they will
not be able to get much work out of them before they retire.

Insurance coverage
--------------


8. (U) 840,000, or over 60%, of Xiamen's workforce were
covered by medical insurance; 780,000 (55.9%) by pension
insurance; 680,000 (48.7%) by unemployment insurance;
630,000 (45.2%) by industrial injury insurance; and 210,000
(15.1%) by birth insurance. RMB 3.6 billion (USD 450
billion) worth of employment-related insurance premiums were
collected in Xiamen during 2005.

From China...
--------------


9. (SBU) Like in China's other boomtowns, much of the labor
behind Xiamen's economic success has come from poorer,
inland provinces. The main providers of labor are Jiangxi,
Chongqing, Sichuan, Guizhou, Guangxi and Hunan. Contrary to
the case in Guangzhou and Shenzhen -- where many migrants
come from other parts of Guangdong province -- the rest of
Fujian was not mentioned as a significant source of labor.
Anecdotally, however, it seems a notable proportion of
Xiamen's service-sector professionals hail from Quanzhou,
Fujian's third-most important city, after Xiamen and its
capital Fuzhou.

... And Beyond
--------------


10. (SBU) About 1,200 foreigners are part of Xiamen's
workforce. These include more than 70 Americans, whose
principal places of employment are the local Dell and Kodak
factories. Meanwhile, with a small resident population,
Singapore typically punches above its weight, holding key
investments in the hotel and entertainment sectors.
Additionally, some 2,000 people from Taiwan work in Xiamen,
mostly in the electronics, rubber, food-and-beverage, and
real estate industries. Xiamen is also home to some 500
Hong Kongers and Macanese. Hong Kong interests own more
than half the shares of TAECO, a leading aircraft-
maintenance company that does work for giants such as Japan
Airlines and Lufthansa, and which carried out the first
conversion of an aircraft from passenger to cargo use in
China.

Jinmen: Xiamen's "golden door" to Taiwan?

GUANGZHOU 00014846 003 OF 003


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11. (SBU) Ferries between Xiamen and the nearby island of
Jinmen (which in Chinese means "golden door") are part of
the "mini three links" between the Mainland and Taiwan-
controlled islands of Jinmen (Kinmen or Quemoy) and Mazu
(Matsu). They are called "mini" to distinguish them from
the regular "three links" (postal, transport and trade),
which currently do not exist between the Mainland and Taiwan
proper. This has proved a boon to people from Taiwan that
happen to live in Xiamen, by allowing them to travel back to
Taiwan with much more ease than their counterparts in other
Mainland locations, who must fly via an intermediate
location, typically Hong Kong or Macau. However, the ferry
has not yet demonstrated its worth as a trade link.


12. (SBU) From Jinmen there are multiple daily flights to
Taipei and other destinations in Taiwan, and many of these
are scheduled to take in passengers coming in on the Xiamen
ferries, which take less than two hours. Airlines based in
Taiwan have offices in Xiamen's ferry terminal. Meanwhile,
pilgrims from Taiwan use the Xiamen ferry during visits to
worship the goddess Mazu (Matsu),protectress of fishermen
and seafarers, at her home temple on Fujian's Meizhou
Island.

Comment: Not enough workers
--------------


13. (SBU) Like the rest of the developed coastal cities in
Fujian and nearby Guangdong, Xiamen is suffering from an
inadequate supply of labor for its hi-tech sector. This is
good news for skilled workers, as factories have been
raising their wages to increase retention and attract new
workers. The labor shortage, ironic in a country with
millions of unemployed and underemployed citizens, is very
much due to a misallocation of educational resources. While
there has been a huge surge of students graduating from
universities in the past few years, it appears that fewer
are headed into technical fields. While investors may think
twice about investing in Xiamen if they fear they will be
faced with insufficient skilled labor, this is a problem
that China as a whole is facing.


14. (SBU) While not entirely good news for the city's
economy, the wage increases serve to move the city's
manufacturers up the value chain and ultimately bring about
economic transfers to inland provinces from whence the
migrants originate, in the form of remittances and savings
taken back by returnees, as well as by the reduction of the
population base to which the authorities back home must
provide services. Nonetheless, for now, and despite rising
wages, Xiamen is competing with other cities also struggling
to attract a limited number of skilled and hi-tech workers.

DONG