China factories cut shifts and workers’ pay as US tariffs bite

Mike Chai aims to cut wage costs at his kitchen cabinet factory by about 30% to remain competitive against other Chinese firms, which have stopped selling to the US due to steep tariffs and are now coming after his longtime customers in Australia.

- DAVID KIRTON

Mr Chai had already halved his workforce to 100 people since the pandemic and says he has no more room to trim. Instead, he is shortening shifts and asking workers to take unpaid leave - an increasingly common practice that has become a hidden deflationary force in the world’s second-largest economy.

“We're in survival mode,” said the 53-year-old, adding that his company, Cartia Global Manufacturing, in the southern city of Foshan, “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 headline unemployment rate has held around 5% as US President Donald Trump raised tariffs on imports from China by 30 percentage points this year. Washington and Beijing extended on Monday a tariff truce for another 90 days, during which tariffs will not return to April’s triple-digit levels.

But economists say underemployment — which, in common with other economies, is not tracked in data — is worsening due to higher levies and industrial overcapacity, squeezing workers’ income, undermining their confidence about the future and prompting them to spend less.

Consumer confidence lingers near record lows, retail sales have weakened, and inflation in July was zero.

Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, says it is China’s manufacturing workers who suffer while exports, and the economy, keep growing despite the US tariffs.

“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,” she said.

“The model is crazy. I’m sorry, but if you need to export at a loss, do not export.”

‘THE MAIN LOSERS’