Chinese labour costs are continuing to rise. Some 20 regions across the country increased their minimum wages during 2017 compared with nine in 2016 and 19 in 2015 - although the figure was higher in 2014 at 24.
Regional authorities that took such action last year comprised Beijing, Fujian, Guizhou, Heilongjiang, Henan, Hubei, Hunan, Inner Mongolia, Jiangsu, Jiangxi, Jilin, Ningxia, Qinghai, Shaanxi, Shandong, Shanghai, Shanxi, Shenzhen, Tianjin, and Zhejiang.
While the rate of minimum wage growth was lower than that of much of the last decade, salaries are rising from a higher base than before, and wage increases continue to outstrip increases in productivity.
As a result, minimum wages in parts of China such as Beijing, Shanghai, and Shenzhen are now higher than in certain countries of the European Union, namely Bulgaria. But at their lowest levels, as in parts of Anhui, Guangxi, and Hainan, salaries are more comparable to countries like India and Vietnam.
Since 2016, meanwhile, regional governments have had more authority and discretion to adjust minimum wages to suit local conditions. Most provinces set different levels for different areas depending on their stage of development and cost of living. For example, the provincial capital and the most developed cities are placed in a higher wage bracket than smaller cities and rural areas.
Qinghai, on the other hand, eliminated such grading entirely last year and instituted a common minimum wage across the province instead. Hunan allows individual districts to choose their own classifications rather than imposing a single uniform one, while Guizhou places each of its urban areas rather than specific cities in a higher wage bracket, while rural areas are given a lower one.
Fujian, Heilongjiang, Jiangxi, and Jilin, among others, also rearranged their classifications in 2017 to add more nuance to wage differences between regions. Click here for a complete guide to minimum wages across China.
Minimum wages are typically updated in the first half of the year (if at all), but by early June 2017 only five regions had done so. Furthermore, major provinces such as Guangdong and Sichuan actually froze wages in an effort to maintain their economic competitiveness.
But the delay in upgrading minimum wages could partially be attributed to the fact that the politically important 19th Chinese Communist Party Congress was held in October last year. Here the Party’s top leadership convenes to announce any changes in policy and leadership.
On this occasion, President Xi Jinping reaffirmed his pledge to eradicate rural poverty by 2020 and made the campaign a central pillar of his tenure as president. The late increases in minimum wages, combined with other policies such as tax cuts for small and micro businesses, could help him to earn the support of a key political constituency at a sensitive point in time.
But whatever the impetus, China’s wages are expected to continue rising going forward. For many foreign employers though, such hikes are more likely to be the result of market demand rather than statutory wage increases.
According to a recent survey published by the German Chamber of Commerce, 86.4% of German companies in China cited rising labour costs as a major challenge to doing business in the country, but only 11.8% considered minimum wage increases to be very important influencers on wage levels.
Rise in labour costs
This growth in labour costs is largely due to the Chinese economy’s transition away from low-value, labour-intensive manufacturing towards higher-value manufacturing and services. But it is also a result of the country’s rapidly ageing workforce.
What it means though is employers that rely on paying low wages are increasingly looking to alternative locations in India and Southeast Asia to base their operations. Much of China’s appeal these days lies in its growing ability to undertake higher value activities, while also offering access to a large domestic consumer market.
These factors mean that, for many foreign businesses, market considerations are now more important in determining salaries than prescribed minimum wage levels. In China’s flourishing tech sector, for example, average salaries are around five times higher than the local minimum wage and much higher for positions that require greater levels of skills and qualifications.
These rising wages are resulting in many foreign businesses looking west towards inland China in order to access lower labour costs, special incentives and growing markets. Other companies though are continuing to make the most of China’s affluent coastal regions where the infrastructure is more developed and talent more readily available.
As a result, when investing in China, there is no one-size-fits-all and the best advice is not necessarily to chase the lowest wages but consider how your business plans best match local conditions.
By Alexander Chipman Koty and Zhou Qian, editors, Dezan Shira & Associates.
First published by China Briefing.
Dezan Shira & Associates Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email usat info@dezshira.com. Further information about the firm can be found at: www.dezshira.com.
Chinese labour costs are continuing to rise. Some 20 regions across the country increased their minimum wages during 2017 compared with nine in 2016 and 19 in 2015 - although the figure was higher in 2014 at 24.
Regional authorities that took such action last year comprised Beijing, Fujian, Guizhou, Heilongjiang, Henan, Hubei, Hunan, Inner Mongolia, Jiangsu, Jiangxi, Jilin, Ningxia, Qinghai, Shaanxi, Shandong, Shanghai, Shanxi, Shenzhen, Tianjin, and Zhejiang.
While the rate of minimum wage growth was lower than that of much of the last decade, salaries are rising from a higher base than before, and wage increases continue to outstrip increases in productivity.
As a result, minimum wages in parts of China such as Beijing, Shanghai, and Shenzhen are now higher than in certain countries of the European Union, namely Bulgaria. But at their lowest levels, as in parts of Anhui, Guangxi, and Hainan, salaries are more comparable to countries like India and Vietnam.
Since 2016, meanwhile, regional governments have had more authority and discretion to adjust minimum wages to suit local conditions. Most provinces set different levels for different areas depending on their stage of development and cost of living. For example, the provincial capital and the most developed cities are placed in a higher wage bracket than smaller cities and rural areas.
Qinghai, on the other hand, eliminated such grading entirely last year and instituted a common minimum wage across the province instead. Hunan allows individual districts to choose their own classifications rather than imposing a single uniform one, while Guizhou places each of its urban areas rather than specific cities in a higher wage bracket, while rural areas are given a lower one.
Fujian, Heilongjiang, Jiangxi, and Jilin, among others, also rearranged their classifications in 2017 to add more nuance to wage differences between regions. Click here for a complete guide to minimum wages across China.
Minimum wages are typically updated in the first half of the year (if at all), but by early June 2017 only five regions had done so. Furthermore, major provinces such as Guangdong and Sichuan actually froze wages in an effort to maintain their economic competitiveness.
But the delay in upgrading minimum wages could partially be attributed to the fact that the politically important 19th Chinese Communist Party Congress was held in October last year. Here the Party’s top leadership convenes to announce any changes in policy and leadership.
On this occasion, President Xi Jinping reaffirmed his pledge to eradicate rural poverty by 2020 and made the campaign a central pillar of his tenure as president. The late increases in minimum wages, combined with other policies such as tax cuts for small and micro businesses, could help him to earn the support of a key political constituency at a sensitive point in time.
But whatever the impetus, China’s wages are expected to continue rising going forward. For many foreign employers though, such hikes are more likely to be the result of market demand rather than statutory wage increases.
According to a recent survey published by the German Chamber of Commerce, 86.4% of German companies in China cited rising labour costs as a major challenge to doing business in the country, but only 11.8% considered minimum wage increases to be very important influencers on wage levels.
Rise in labour costs
This growth in labour costs is largely due to the Chinese economy’s transition away from low-value, labour-intensive manufacturing towards higher-value manufacturing and services. But it is also a result of the country’s rapidly ageing workforce.
What it means though is employers that rely on paying low wages are increasingly looking to alternative locations in India and Southeast Asia to base their operations. Much of China’s appeal these days lies in its growing ability to undertake higher value activities, while also offering access to a large domestic consumer market.
These factors mean that, for many foreign businesses, market considerations are now more important in determining salaries than prescribed minimum wage levels. In China’s flourishing tech sector, for example, average salaries are around five times higher than the local minimum wage and much higher for positions that require greater levels of skills and qualifications.
These rising wages are resulting in many foreign businesses looking west towards inland China in order to access lower labour costs, special incentives and growing markets. Other companies though are continuing to make the most of China’s affluent coastal regions where the infrastructure is more developed and talent more readily available.
As a result, when investing in China, there is no one-size-fits-all and the best advice is not necessarily to chase the lowest wages but consider how your business plans best match local conditions.
By Alexander Chipman Koty and Zhou Qian, editors, Dezan Shira & Associates.
First published by China Briefing.
Dezan Shira & Associates Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email usat info@dezshira.com. Further information about the firm can be found at: www.dezshira.com.
