FORTUNE — Even as pundits sharply debate China’s economic future, most agree that much of it is riding on the stability of its working population. And depending on who you talk to, the Chinese labor market is either Beijing’s biggest asset or its ultimate albatross.
The world watched this year as labor strikes erupted at factories around China, prompting private companies as well as local governments to increase wages by as much as 30%. Beijing didn’t blink an eye — indeed, some have argued that the government even subtly encouraged the strikes in its media statements.
The takeaway, experts have said, was that Beijing recognizes now more than ever that the Chinese economy must move away from heavy industry and towards domestic consumption to retain its competitive edge in global markets — and the government also recognizes that higher wages are an essential part of this process.
But there are labor issues outside the government’s watchful eye, underscoring the depth of the challenges China faces in the coming decade.
Oddly enough, the world’s most populous country faces a labor shortage. Nearly two-thirds of China’s workforce is considered rural, but salaries have traditionally been better and more consistent in coastal factories than on the farm. The expansion of China’s manufacturing industry over the last decade owes much of its success to the 150 million workers who have migrated to urban areas.
Now the number of migrant workers is shrinking. The U.S. census bureau predicts that the number of 15 to 24 year old Chinese nationals ready to work will fall by almost 30% over the next 10 years. Even this past year, excess workers were scarce, particularly in eastern China. Some factories couldn’t fill all their orders.
With underemployment a thing of the past and commodity prices booming, farming incomes are rising. Factories are suddenly competing with both the agricultural sector and — more intensely than ever — with each other for human capital.
“Particularly around the Chinese New Year, a lot of migrant workers go home and look for better jobs,” says Mark Williams of Capital Economics, a research firm based in London. “It’s becoming an increasingly competitive market for employers, each of whom are quite aware of what conditions rival employers are offering, like higher wages or waived dormitory fees.”
At the same time, the unemployment rate among college-educated Chinese youth is rising. According to a recent paper from the National University of Singapore, 30% of the 6 million graduates who enter China’s job market each year can’t find work. The number of applicants for public servant jobs, for instance, surged from 87,000 in 2003 to 1.4 million in 2009, according to official data. This may point to China’s increasingly patriotic Gen Y, but it also reveals the sheer number of college-educated workers looking for jobs outside of factories and farms.
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