Chinese factory owners are cutting wages, shortening shifts, and increasingly turning to unpaid leave as they battle US tariffs, industrial overcapacity, and fierce competition for shrinking markets.
Mike Chai, who runs kitchen cabinet maker Cartia Global Manufacturing in the southern city of Foshan, aims to cut wage costs by about 30% to stay competitive against other Chinese firms. Many of these rivals have stopped selling to the US due to steep tariffs and are now targeting his long-time customers in Australia.
Chai has already halved his workforce to 100 people since the pandemic and says there is no more room to trim. Instead, he is shortening shifts and asking staff to take unpaid leave – a practice he says has become a lifeline.
“We’re in survival mode,” said the 53-year-old. “Our company barely breaks even. I told them, you don’t want our factory to go broke. You’ve worked here for 10–15 years, let’s do it together.”
China’s official unemployment rate has hovered at around 5% even as US President Donald Trump increased tariffs on imports from China by 30 percentage points this year. Washington and Beijing agreed on Monday to extend a tariff truce for another 90 days, preventing levies from returning to April’s triple-digit levels.
But economists warn that underemployment – which is not captured in official figures – is worsening. They say higher levies and overcapacity are squeezing incomes, undermining confidence, and leading to weaker consumer spending. Retail sales have faltered, consumer confidence is near record lows, and inflation in July was zero.
“It’s the people who are hammered by this model of huge competition, lower prices, thus you need to lower costs, thus you need to lower wages. It’s a spiral,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis. “The model is crazy. I’m sorry, but if you need to export at a loss, do not export.”
She added that statistics would not reveal Chinese workers as “the main losers” in the trade war because “they will not become unemployed, but they will get unpaid leave of absence or work fewer hours”.
Chai has already lost two key customers in Australia after rivals slashed prices. His factory is now running at half capacity.
“All those who have left America have come to Australia,” he said. “A lot of new supply is knocking on my customers’ doors.”
While Chinese exports to the US fell 21.7% year-on-year in July, they rose 9.2% to the European Union, 16.6% to the Association of Southeast Asian Nations, and 14.8% to Australia.
To compete, Chai plans to cut prices by about 10% – a move that requires him to slash overtime from 28 days a month to about 10. Overtime previously accounted for more than a third of workers’ pay, which now averages 5,000 yuan (£540) a month before overtime.
Other factory owners are relying more heavily on temporary contracts. Dave Fong, who co-owns three factories in southern China producing school bags, climbing gear, and industrial machinery, said he laid off 30 full-time staff at one plant, then rehired some of them on temporary terms to handle unexpected orders.
“We prefer temporary contracts so we don’t need to pay pension or insurance,” said Fong. “It’s by day or by hour. If we don’t do that, the company hits a dead end. The market is weak because consumption power has decreased. Another factor is trade, especially with the US.”
Temporary work has long been common among China’s nearly 300 million rural migrants, but recruiters say rates are falling. In Wuhan, agent Chen Chuyan said hourly pay had dropped to 14 yuan from 16 yuan last year.
“There’s a long line of people waiting for job interviews every day, but the factories don’t have that much demand,” she said.
Alan Zhang, a 30-year-old garment worker in Guangzhou’s Datang village, said he earned 400 yuan a day in 2021 but now struggles to find work paying even half that.
“If it’s just a couple hundred yuan, I won’t take it,” he said while scanning handwritten ads held by recruiters lounging on scooters. “I don’t know what happened. Suddenly it got really hard to find anything. Prices dropped fast.”
Zhang worked just 14 days in July and is worried about raising the 10,000 yuan needed each year for his son’s kindergarten fees. His wife also works in clothing factories, and their son lives with grandparents in Fujian province.
“If manufacturing wages are being squeezed, then the wider economy would feel deflationary pressure,” said Richard Yarrow, a fellow at Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government. “This is definitely a growing issue for some of the lower-skill types of manufacturing in China, such as textiles, furniture, and simple electronics.”
In Shenzhen’s Longhua employment market, dozens of jobseekers browsed bulletin boards advertising electronics factory jobs paying 17–28 yuan an hour.
Mo, 26, who holds a degree in digital marketing but could not find a job in the field, had already attended two interviews by early afternoon but rejected both.
“They’ll say 23 yuan, but actually give you 20,” he said, giving only his surname for privacy. “Then they’ll take management fees, housing, cleaning, and whatever else they can deduct.”
Huang, 46, has been checking the market for five straight days after travelling by bus from Yunnan province. A former real estate project manager, he is now divorced and survives on 10 yuan meals while paying 25 yuan a night for a dormitory bed.
“I had one interview this morning but they asked for an upfront placement fee of 80 yuan,” he said, dragging a small suitcase. “So I didn’t go. I bought some food instead.”
Boluwatife Enome
Follow us on:
