The supply of low-cost labor, widely considered to be fueling China's sizzling economy, could start drying up as early as 2010, a report warns.

One of the biggest reasons for the potential shortage is that the rural labor force may not be as large as previously thought, the report, issued by the Chinese Academy of Social Sciences on Thursday, says.

"China is moving from an era of labor surplus into an era of labor shortage," the report cautions.

One of the architects of the report, however, said it doesn't necessarily mean the country will lose the advantage it enjoys in the international market because of its labor-intensive products.

Experts believe the turning point, when the new labor force will fail to meet demand, could be as close as three years. This will trigger a general increase in wages, the report says.

Related readings: Population economics China's status as the world's most populous country gives it plenty of reasons to closely monitor demographic shifts that could significantly impact its course of development.

Rising labor costs will pose the question: how long can China rely on its "population bonus". Some foreign investors have already moved their businesses to countries with lower labor costs, Wang Yiming, deputy director of the Academy of Macroeconomic Research, under the National Development and Research Commission, wrote in a column published on Wednesday.

The quality of labor has to be improved and industrial structures urgently upgraded, he said.

The Ministry of Labor and Social Security has also raised fears that further appreciation of the yuan will result in millions of jobs being lost.

"It's still too early to say whether China will lose its competitive edge as labor costs increase... But it can be said that the country needs to change its growth mode from relying solely on one production factor (labor) to advancing production methods," said Cai Fang, director of the Institute of Population and Labor Economics, and the report's leading draftsman.

The number of redundant workers below the age of 40 in rural areas is only about 52 million in absolute terms, far less than the estimated 100-150 million, said Cai.

The transformation of the population under the family planning policy and economic and social development is complete, he said, and the country has now entered a period of low birth and death rates, with a very gradual increase in population.

The effect of this will be a gradual labor shortage in the country.

The recent labor shortage in the Pearl River Delta region, a hub for labor-intensive industries, is a sign of this trend, said Cai. "The phenomenon is spreading gradually from coastal areas to central China or even some provinces that boast huge labor surpluses," said Cai.

The labor force, however, is and will comprise a large proportion of the population for a long time, added Cai. In fact, the labor force will continue growing until 2015, the first year likely to see "zero increase".

(China Daily 05/12/2007 page1)