China: Wage Increases Level Off With Economy

The global solution for human resource professionals, combines custom research, strategic white papers, country primers, webinars and OnDemand educational programs, and the expert guidance...

By Mark Melnicoe

Wage hikes are moderating across China, where annual double-digit increases in the minimum wage were common until last year.

Minimum wages are set at the provincial and municipal levels, and Shanghai became the latest to hike its minimum, announcing that as of April 1 full-time workers must be paid at least 2,300 yuan ($333) a month—the highest minimum wage in the country. That's up 5 percent from 2,190 yuan last year, but it is the smallest increase in eight years following increases of 8.4 percent last year and between 11 percent and 12.3 percent for each of the three years before that.

For part-time workers, the minimum went from 19 yuan per hour to 20 yuan ($2.90).

Only six provinces or municipalities have raised their minimums at all this year. As recently as 2014, 24 of China's 31 provinces raised the minimum wage. But since then, the trend has been clear: minimums rose in 19 provinces in 2015 and only nine last year. There have been no announcements from any other provinces beyond the six for this year.

Companies Feel Burdened

The reason for this wage restraint is “likely because the authorities are balancing the burden on the employer and the employee's rights,” Grace Yang, an associate at Harris Bricken law firm in Seattle who specializes in China employment law, told Bloomberg BNA in an email April 27. “Employers have been complaining about the burden and costs of employing workers. The goal, as always, is to maintain stability of the society.”

The changes were telegraphed by Xin Changxing, a vice labor minister, who last year called for more controls on spiraling wages to keep China competitive with its Asian neighbors, where many multinational companies have moved their manufacturing.

At the end of 2016, county-level cities in Guangxi, Heilongjiang, Hunan and Liaoning provinces ranked at the low end of the wage scale, with a minimum wage as low as 1,000 yuan ($145) a month. Even that is higher than India ($137) and Vietnam ($107), however, and Shanghai's minimum now tops such countries as Thailand and Malaysia, where workers earn at least $280 a month.

“Shanghai is a very big base to the manufacturing industry,” Weiwei Gu, a partner at GLO Shanghai, told Bloomberg BNA in a phone interview April 28. “But the Shanghai government has decided to increase the quality of the whole industry—not just the minimum wage.”

Describing ways to upgrade manufacturing, which is national economic policy in China, Gu said that raising wages “is one way to do that.”

He also cited a quality-of-life factor as a way to keep and attract good workers.

“I think it's the Shanghai government's strategy to make people feel happy, because the cost of living is rising very high in the city,” Gu said. “So they try to get a balance from that.”

Average Salaries Also Rising More Slowly

Beyond wages, China imposes a social insurance system in which employers must pay substantial sums into funds that cover such benefits as medical insurance, pensions, housing and maternity care. The amount is based on the average monthly wage of workers in Shanghai, not on the minimum wage.

That means the lower limit in Shanghai was raised to 3,902 yuan a month, 60 percent of the average salary in the sprawling municipality of 24 million people. The Shanghai municipal government announced in early April that the average monthly salary in 2016 was 6,504 yuan a month, 9.5 percent above the prior year.

“Shanghai's social insurance contribution base has grown in tandem with the rapid increase in average salaries over the past five years,” according to an April 20 online note from Dezan Shira & Associates, a China-based business consulting firm.

For multinational companies directly employing Chinese workers, average salaries matter much more than minimum wages. Apart from the trend in minimums, average salaries continue their rise across the country, albeit it at a much slower pace.

In a survey of white-collar workers—the category most hired by multinational companies operating in China—Zhaopin Limited, a career platform leader in China, showed the average salary nationwide hit 7,665 yuan ($1,111) in the first quarter of 2017, up 0.8 percent from the fourth quarter of last year. The average nationwide salaries for the past five quarters were:

  • Q1 2016: 7,018 yuan (up 3.9 percent from the previous quarter)
  • Q2 2016: 7,233 yuan (up 3.1 percent)
  • Q3 2016: 7,531 yuan (up 4.1 percent)
  • Q4 2016: 7,606 yuan (up 1 percent)
  • Q1 2017: 7,665 yuan (up 0.8 percent)
  • Source: Zhaopin.com

Beijing (9,942 yuan) and Shanghai (9,802) easily led the way, followed by Shenzhen (8,892) and Guangzhou (7,996).

Zhaopin.com, which has nearly 130 million registered users, is China's top online website for job seekers. Its quarterly surveys measure which job categories are most competitive, where the highest pay scales lie, and other factors.

Salaries ‘Hit the Brakes' in Last Six Months

Among the findings in Zhaopin's first-quarter 2017 survey:

  •   Competition among white-collar workers for jobs heated up in the first quarter with an average 44.6 applications per job vacancy, up from 40.3 applications in the fourth quarter of 2016.
  •  Beijing was by far the most competitive city for white-collar workers with 96 applications per vacancy, followed by Shenzhen (60.5), Chengdu (59.4) and Shanghai (53.3).
  •  The most competitive sector for job seekers was online games at 73 applications per vacancy.
  •  Software/internet development/system integration was the most competitive occupation with 136.1 applications per vacancy.

The firm noted that salaries for white-collar workers “hit the brakes during the past two quarters, slowing down from a 4.1 percent rise in the third quarter of 2016.”

Still, average salaries have been rising much more quickly than minimum wages the past few years as China competes for workers. Before the big slowdown in the last two quarters, Zhaopin figures show quarterly increases of 3.9 percent, 3.1 percent and 4.1 percent in the first three quarters of 2016, respectively.

Generally, average wage increases have slowed along with the economy, as China's GDP growth drops amid years of economic restructuring.

One feature that marks Chinese wages is huge regional disparities. Minimum wages have been rising much faster in less-developed inland areas than in the more economically advanced coastal provinces.

It is noteworthy, Dezan Shira said in an online note, “that other developed regions, such as Fujian, Jiangsu, Zhejiang, and Sichuan, have all controlled the growth of their minimum wages.”

“China's divergent income levels—with much smaller increases for developed regions and more rapid growth for less developed regions—requires that foreign investors pay close attention to the locations that they channel their investment into,” the note read. “The latest figures and government policies indicate that overall labor costs in China will not significantly increase.”

The average monthly salaries for select Chinese cities in the first quarter of 2017 were:

  • Beijing: 9,942 yuan ($1,440)
  • Shanghai: 9,802 yuan ($1,420)
  • Shenzhen: 8,892 yuan ($1,288)
  • Guangzhou: 7,996 yuan ($1,158)
  • Foshan : 7,873 yuan ($1,140)
  • Dongguan: 7,862 yuan ($1,113)
  • Ningbo: 7,680 yuan ($1,102)
  • Hangzhou: 7,608 yuan ($1,093)
  • Suzhou: 7,548 yuan ($1,080)
  • Xiamen: 7,452 yuan ($1,080)
  • Haikou: 7,407 yuan ($1,073)
  • Nanjing: 7,342 yuan ($1,064)
  • Urumqi: 7,095 yuan ($1,028)
  • Fuzhou: 7,073 yuan ($1,025)
  • Guiyang: 7,023 yuan ($1,017)
  • Wuxi: 7,021 yuan ($1,017)
  • Chongqing: 6,971 yuan ($1,010)
  • Nanning: 6,946 yuan ($1,006)
  • Chengdu: 6,941 yuan ($1,006)
  • Kunming: 6,862 yuan ($994
  • Wuhan: 6,769 yuan ($981)
  • Tianjin: 6,733 yuan ($975)
  • Lanzhou: 6,704 yuan ($971)
  • Zhengzhou: 6,692 yuan ($969)
  • Hefei: 6,684 yuan ($968)
  • Nanchang : 6,669 yuan ($966)
  • Changsha : 6,660 yuan ($965)
  • Qingdao: 6,651 yuan ($965)
  • Dalian: 6,631 yuan ($961)
  • Jinan: 6,487 yuan ($940)
  • Shijiazhuang: 6,413 yuan ($929)
  • Shenyang: 6,367 yuan ($922)
  • Taiyuan: 6,355 yuan ($921)
  • Yantai: 6,274 yuan ($909)
  • Xi'an: 6,197 yuan ($898)
  • Changchun: 6,090 yuan ($882)
  • Harbin: 5,915 yuan ($857)
  • Source: Zhaopin.com

More Reforms for Shanghai

Shanghai, always a leader in China's economic reforms, has undertaken a number of other HR initiatives. It recently launched an online work permit registration system for foreigners and made it easier for foreign workers in the Shanghai Free Trade Zone to get green cards. Shanghai also became the first city in China to allow residence permits for foreign domestic workers, a benefit to foreign businessmen who want to hire from outside the country

The city has undertaken other reforms in the FTZ, which opened in 2013 as an incubator for more open policies in the service sector.

The Shanghai reforms keep coming “in the name of being competitive and luring international talent,” Yang told Bloomberg BNA.

“I think now is a better time than in the past simply because many foreign-trained talents are coming to China and many of them are of Chinese origin holding foreign passports” she said. “The goal is to make their lives easier.”

To contact the reporter on this story: Mark Melnicoe in Shanghai at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

For More Information

The announcement of Shanghai's minimum wage increase and other HR initiatives is available in Chinese here. Zhaopin's Chinese-language website is here.

For more information on Chinese HR law and regulation, see the China primer.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Try International HR Decision Support Network