This is China! BLOG

The 20/30 Problem: Employing China’s Interior

In the previous log entry I explained the 20/30 Problem as the under/un-employment of people in their 20’s and 30’s in China, both university-educated and otherwise. A local Chinese government administrator presented to me the problem is of such importance to the Chinese national government precisely because it is at the heart of any kind of potential destabilization of the central government; that is, if the people don’t have jobs they will take it out on a paternalistic government that has promised economic opportunity for all.

And this is where the government’s understanding that manufacturing will only take the country so far in creating full employment for its people. It realizes that in time manufacturing will become constrained by the availability of land for commercial use, the availability of talent to manage and organize operations, by the cost of labor for industries with already razor-thin margins, and by the eventual automation of manufacturing operations to gain greater effeciencies and economies of scale.

Enter Business Process Outsourcing (BPO). More so than IT Outsourcing, BPO promises to employ armies of Chinese at rote, detail-laden tasks that the Chinese education system promotes to this day. An Economist magazine article from 4 May 2006 cites, “All this suggests that, for the moment, China is likely to capture an increasing share of low-level BPO tasks, such as data entry, form processing and software testing…”

The beauty of the interior of China is that it is still third-world cheap, and looks to remaining so for the coming decades. The interior of China, though underpinned by an agrarian economy, is home to some of the largest cities in the world. Cities such as Chengdu, Wuhan, Dalian and Hefei are promoting their local economies as platforms specifically for BPO. The provinces of the interior of China together make for the seventh most populated country in the world. The Central Government is actively developing the infrastructure in these provinces to not only support the manufacturing sector, but also to give the high-tech structure the BPO industry requires.

In other words, China Central government has a plan. It knows the coastal regions are becoming less competitive because of the overcrowding of manufacturing operations forcing up costs and straining infrastructures; it also knows that it has huge reserves of educated human capital (China has one of the highest literacy rates in the world) that is perfectly suited to back office operations that India is unwilling (at the Tata and Infosys levels) to engage, and unable (the infrastructure and literacy rates of citizens outside the hotspots of Mumbai and Bangalore are woefully lacking).

It may even be that BPO operations on the east coast of China serve as the front offices of relatively higher value transactions, while the operations outsource more commodity-level transactions to their branch operations in the interior of China to reduce costs even further for Western companies – both in and outside China.

One day with 20/20 hindsight we’ll see that the 20/30 problem was just another opportunity to develop China’s role in the world as a major services provider. A win for the Chinese people; a win for the world.

William Dodson
Suzhou, China