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China's Talent Crunch Hampering Growth

This is a transcript of top stories presented by China's CCTV Business Channel as produced by CNBC Asia Pacific.

Good evening to our viewers across China.

I'm Saijal Patel and you're watching “Asia Market Daily”.

Despite having a population of 1.3 billion, many Chinese firms face difficulties in securing the right talent.

And they're expecting wage increases to worsen the employment situation in the next few years.

Reporter Cheng Lei explains why.

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For many firms, managing a labor force is proving to be increasingly challenging. With rapid urbanization and the fast development of hinterland cities, traditional sources of cheap labor are rapidly depleting.

A younger generation of workers is also opting for the comfort of familiarity. Hu works as a driver in inland city of Chongqing. He's a recent graduate who spent some years in the southern city of Shenzhen but has since relocated back to the city where he spent some time growing up. Hu says for those starting out like him, job opportunities are equal in both cities.

(SOT) Hu Jingxiu, Recent graduate:

"As a key city in the western region, Chongqing is extending the high growth pace that Shenzhen has enjoyed these past ten years. Chongqing is comparable to Shenzhen now."

Manpower availability and lower costs are also drawing large multinationals inland. Many like HP, General Motors, Acer, have set-up manufacturing bases in western cities like Chongqing and Chengdu, to counter rising costs in other first-tier cities. Others say a potential consumer base is part of the draw.

(SOT) Amit Midha, Greater China President, Dell:

"Clearly being in the proximity of our customers where consumption is happening does help us optimize supply chain. West China has the additional advantage that in the next couple of years, or next 2-5 years, it may have a railroad link to Europe as well."

While relocating can be a strategic corporate move, the trend of rising salaries in China can no longer be ignored.

Official statistics show that wages in China have increased at an average of 13 percent per year since 2005.

(SOT) Stephen Green, Head of Research for Greater China, Standard Chartered:

"People get paid more fairly for what they are doing, people get a bigger share of profit and growth and that would help tremendously, restructure the economy. Cause, we know now, we need Chinese consumer."

But such structural shifts also mean other challenges. To maintain its competitive streak, China has to be more productive to offset rising costs. Already, low margin, low-tech industries are being gradually phased out, as manufacturers both local and foreign seek out lower cost options in locations such as Vietnam and Bangladesh. Others have resorted to automation to raise output. Despite having 6 million graduates entering the work force each year, China still lacks the nuts and bolts for quickly moving up the value chain.

(SOT) Guo Xin, Managing Director, Greater China, Mercer:

""I talk with a lot of clients, and invariably, they all talk about talent shortage, they all feel difficult to attract top talents. Because they all want to grow."

Going forward, Mercer says the staffing gap will be more evident in growth sectors like oil and pharmaceuticals and firms need to continue to place staff retention as a top priority this year. JP Morgan economists also forecast that this will result in employers having to enforce quick and sustained wage hikes in order to retain talent.

At least 20 million jobs need to be created for new job seekers over the next 5 years. Building an able workforce will continue to be high on the leadership agenda.

But will China make or break? Some say the lack of skilled talent is the number 1 constraint on China's growth.

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Thanks for watching “Asia Market Daily”.

I'm Saijal Patel from CNBC Asia.

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