China’s top tier cities are among the world’s most popular investment destinations.
In the first half of 2018, these cities - Shanghai, Shenzhen, Beijing, and Guangzhou - demonstrated gross domestic product (GDP) growth of more than 6% - with Shenzhen even hitting 8% - due to high levels of economic development, rapidly-growing innovation capabilities and a range of incentives for attracting foreign talent. But the fact that these cities have the highest demand for skilled workers in the country is also inevitably leading to wage inflation, with the entire Chinese labour market becoming more expensive overall.
In this article, we compare and contrast the relative salary structures of the country’s first-tier cities, using minimum, average and white-collar wages as the metrics for comparison. Such metrics are important for foreign investors to ensure their businesses are as cost-efficient as possible and, ultimately, that they remain viable.
Minimum wages
Minimum wages not only have an impact on GDP and GDP per capita but also on the growth of local economies and government policies.
Minimum wage increases have taken place less frequently in China over recent times, possibly as a result of local government structural reforms, the country’s recent economic downturn and a focus on lowering operational costs. Nonetheless, its highest minimum wages this year are to be found in Shanghai, Shenzhen, Beijing and Guangzhou, with all four cities having adjusted their rates within the last 12 months:
Shanghai
Shanghai has the highest monthly minimum wage in China. This year, the hourly and monthly minimum rates rose by 5% to RMB21 (US$3.1) and RMB2,420 (US$354) respectively. Over the last decade, the minimum wage here has increased by a factor of 1.7.
Shenzhen
Shenzhen came in second. It raised its monthly minimum wage by 3% to RMB 2,200 (US$322). The hourly rate for part-time workers also increased by 4% to RMB20.30 (US$3). The city’s incremental year-on-year wage increases are intended to double its per capita income between 2010 and 2020.
Beijing
Ranked in third place, Beijing’s hourly minimum wage is RMB24 (US$3.50), while its monthly minimum is RMB2,120 (US$310), an increase of 9% and 6% respectively over last year. Although, Beijing typically adjusts its minimum wage levels on an annual basis, this year’s increase was slightly higher than anticipated.
Guangzhou
Of the four first-tier cities, Guangzhou has the lowest monthly minimum wage. Both its monthly, and hourly minimum for part-time workers, have risen to RMB2,100 (US$307) and RMB20.30 (US$2.30) respectively, amounting to the province’s first minimum wage adjustment (excluding Shenzhen) since 2015.
In a bid to maintain its global competitiveness as China’s manufacturing hub and discourage manufacturers from moving to Southeast Asia, the local government laid out plans in 2017 to adjust its minimum wage every three years instead of every two as had been the case previously.
Average wages
In contrast to the minimum wage scenario, average wages often reflect a city’s strategy for stimulating industrial transformation.
Shanghai
In Shanghai, the monthly average wage in 2017 was RMB7,132 (US$1,056), a 9.7% increase over the previous year. Although the local government has not yet released 2017 statistics for monthly average wages for either private sector or non-private sector entities, which mostly consist of state-owned enterprises, the monthly average wage among non-private sector organisations was RMB9,994 (US$ 1,505) in 2016.
Shenzhen
In Shenzhen, the monthly average wage in 2017 for all types of businesses was RMB8,421 (US$1,247). The average wage for non-private sector organisations stood at RMB8,261 (US$1,224) and RMB 4,941(US$732) in the private sector. It was the fifth consecutive year that Shenzhen had the highest average wage in Guangdong.
Beijing
In Beijing, while the monthly average wage for all types of businesses was RMB8,467 (US$1,254), it was the first year that the city’s annual average wage exceeded RMB100,000 (US$14,468).
In urban areas, the monthly average wage for all types of non-private sector organisations was RMB10,975 (US$1,625), an increase of 9.8% over 2016. By way of contrast, the monthly average wage for foreign companies was considerably higher at RMB14,615 (US$2,165). Consistent with other first-tier cities, the average wage for private entities was also lower at RMB5,894 (US$873), a 7% rise on last year.
Beijing’s monthly average wage was almost 20% higher - at RMB1,335 (US$197) - than Shanghai’s. This situation is at least partly down to the fact that the headquarters of many financial institutions, state-owned enterprises and software companies are situated in the capital city.
Guangzhou
In Guangzhou, the average monthly wage in 2017 was RMB7,210 (US$1,068). But the average wage and growth rates of both private and non-private sector organisations were all above the national average.
Among non-private sector entities, the average monthly wage was slightly higher at RMB8,126 (US$203). Conversely, the monthly average wage among private sector organisations was lower at RMB5,103 (US$756), although both figures reflected a more than 8% increase over 2016.
Average wages also differed considerably based on type of business ownership. For example, while in foreign enterprises, they were RMB 8,373 (US$1,240) and in state-owned enterprises RMB8,310 (US$1,231), in private companies, they were RMB6,455 (US$956). Over recent years, the wage levels for workers in foreign-funded and state-owned enterprises have levelled out.
White-collar average wages
According to Zhaopin’s ‘2018 Report on Chinese Employers’ Demand and the Supply of White-Collar Talent in Summer’, the top three wage rates for white-collar workers can be found in Beijing, Shanghai, and Shenzhen, with monthly averages amounting to RMB10,531 (US$1,543), RMB9,796 (US$1,435), and RMB9,309 (US$1,364) respectively. Guangzhou came in fifth at RMB8,019 (US$1,175), just behind Hangzhou at RMB8,585 (US$1258).
Shanghai
The industries with the highest monthly average wages here consisted of investment or securities funds at RMB12,809 (US$1,877), intermediary services at RMB12,783 (US$1,873), and professional services at RMB12,518 (US$1,834).
Shenzhen
Cross-disciplinary operations across all white-collar sectors in Shenzhen benefitted from the highest monthly average wages at RMB12,260 (US$1,797). At RMB14,646 (US $2,146), the average monthly salary in the city’s financial sector was far higher than that of others in the region. Similar wage benefits were evident in other key industries, such as information technology (IT), energy, minerals and the mining industry.
Beijing
In Beijing, the following industries saw the highest monthly average wages in 2017: Finance at RMB12,079 (US$1,770), IT at RMB10,367 (US$1,519) and real estate at RMB6,905 (US$1,012).
Guangzhou
The sector paying the highest monthly average wage in Guangzhou at RMB12,489 (US$1,830) was the intermediary services industry, followed by trust, guarantee, auctions and pawning at RMB10,976 (US$1,608) and the professional services and consulting industry at RMB10,932 (US$1,602).
Implications for foreign-invested enterprises
In China, average wages tend to be highest in listed companies and joint ventures. Moreover, the larger the size of the business, the higher the average wage level is likely to be.
Due to high levels of demand for white-collar workers in certain industries, average wage rates in such sectors tend to be fairly similar from city to city. But despite local government efforts to cap minimum wage level, earnings are continuing to increase annually. The concern here is that, if left unchecked, the income inequality gap could increase dramatically though.
As a result, foreign-invested enterprises in China need to ensure they keep on top of labour trends and make sound decisions relating to office location and salary package structures on this basis.
By I-Ting Shelly Lin
This article was first published on China Briefing.
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 us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.
OTHER ARTICLES THAT MAY INTEREST YOU
China pilots entrepreneurs' visa in Shanghai
China to raise income tax threshold
How to structure salary packages in China
China’s top tier cities are among the world’s most popular investment destinations.
In the first half of 2018, these cities - Shanghai, Shenzhen, Beijing, and Guangzhou - demonstrated gross domestic product (GDP) growth of more than 6% - with Shenzhen even hitting 8% - due to high levels of economic development, rapidly-growing innovation capabilities and a range of incentives for attracting foreign talent. But the fact that these cities have the highest demand for skilled workers in the country is also inevitably leading to wage inflation, with the entire Chinese labour market becoming more expensive overall.
In this article, we compare and contrast the relative salary structures of the country’s first-tier cities, using minimum, average and white-collar wages as the metrics for comparison. Such metrics are important for foreign investors to ensure their businesses are as cost-efficient as possible and, ultimately, that they remain viable.
Minimum wages
Minimum wages not only have an impact on GDP and GDP per capita but also on the growth of local economies and government policies.
Minimum wage increases have taken place less frequently in China over recent times, possibly as a result of local government structural reforms, the country’s recent economic downturn and a focus on lowering operational costs. Nonetheless, its highest minimum wages this year are to be found in Shanghai, Shenzhen, Beijing and Guangzhou, with all four cities having adjusted their rates within the last 12 months:
Shanghai
Shanghai has the highest monthly minimum wage in China. This year, the hourly and monthly minimum rates rose by 5% to RMB21 (US$3.1) and RMB2,420 (US$354) respectively. Over the last decade, the minimum wage here has increased by a factor of 1.7.
Shenzhen
Shenzhen came in second. It raised its monthly minimum wage by 3% to RMB 2,200 (US$322). The hourly rate for part-time workers also increased by 4% to RMB20.30 (US$3). The city’s incremental year-on-year wage increases are intended to double its per capita income between 2010 and 2020.
Beijing
Ranked in third place, Beijing’s hourly minimum wage is RMB24 (US$3.50), while its monthly minimum is RMB2,120 (US$310), an increase of 9% and 6% respectively over last year. Although, Beijing typically adjusts its minimum wage levels on an annual basis, this year’s increase was slightly higher than anticipated.
Guangzhou
Of the four first-tier cities, Guangzhou has the lowest monthly minimum wage. Both its monthly, and hourly minimum for part-time workers, have risen to RMB2,100 (US$307) and RMB20.30 (US$2.30) respectively, amounting to the province’s first minimum wage adjustment (excluding Shenzhen) since 2015.
In a bid to maintain its global competitiveness as China’s manufacturing hub and discourage manufacturers from moving to Southeast Asia, the local government laid out plans in 2017 to adjust its minimum wage every three years instead of every two as had been the case previously.
Average wages
In contrast to the minimum wage scenario, average wages often reflect a city’s strategy for stimulating industrial transformation.
Shanghai
In Shanghai, the monthly average wage in 2017 was RMB7,132 (US$1,056), a 9.7% increase over the previous year. Although the local government has not yet released 2017 statistics for monthly average wages for either private sector or non-private sector entities, which mostly consist of state-owned enterprises, the monthly average wage among non-private sector organisations was RMB9,994 (US$ 1,505) in 2016.
Shenzhen
In Shenzhen, the monthly average wage in 2017 for all types of businesses was RMB8,421 (US$1,247). The average wage for non-private sector organisations stood at RMB8,261 (US$1,224) and RMB 4,941(US$732) in the private sector. It was the fifth consecutive year that Shenzhen had the highest average wage in Guangdong.
Beijing
In Beijing, while the monthly average wage for all types of businesses was RMB8,467 (US$1,254), it was the first year that the city’s annual average wage exceeded RMB100,000 (US$14,468).
In urban areas, the monthly average wage for all types of non-private sector organisations was RMB10,975 (US$1,625), an increase of 9.8% over 2016. By way of contrast, the monthly average wage for foreign companies was considerably higher at RMB14,615 (US$2,165). Consistent with other first-tier cities, the average wage for private entities was also lower at RMB5,894 (US$873), a 7% rise on last year.
Beijing’s monthly average wage was almost 20% higher - at RMB1,335 (US$197) - than Shanghai’s. This situation is at least partly down to the fact that the headquarters of many financial institutions, state-owned enterprises and software companies are situated in the capital city.
Guangzhou
In Guangzhou, the average monthly wage in 2017 was RMB7,210 (US$1,068). But the average wage and growth rates of both private and non-private sector organisations were all above the national average.
Among non-private sector entities, the average monthly wage was slightly higher at RMB8,126 (US$203). Conversely, the monthly average wage among private sector organisations was lower at RMB5,103 (US$756), although both figures reflected a more than 8% increase over 2016.
Average wages also differed considerably based on type of business ownership. For example, while in foreign enterprises, they were RMB 8,373 (US$1,240) and in state-owned enterprises RMB8,310 (US$1,231), in private companies, they were RMB6,455 (US$956). Over recent years, the wage levels for workers in foreign-funded and state-owned enterprises have levelled out.
White-collar average wages
According to Zhaopin’s ‘2018 Report on Chinese Employers’ Demand and the Supply of White-Collar Talent in Summer’, the top three wage rates for white-collar workers can be found in Beijing, Shanghai, and Shenzhen, with monthly averages amounting to RMB10,531 (US$1,543), RMB9,796 (US$1,435), and RMB9,309 (US$1,364) respectively. Guangzhou came in fifth at RMB8,019 (US$1,175), just behind Hangzhou at RMB8,585 (US$1258).
Shanghai
The industries with the highest monthly average wages here consisted of investment or securities funds at RMB12,809 (US$1,877), intermediary services at RMB12,783 (US$1,873), and professional services at RMB12,518 (US$1,834).
Shenzhen
Cross-disciplinary operations across all white-collar sectors in Shenzhen benefitted from the highest monthly average wages at RMB12,260 (US$1,797). At RMB14,646 (US $2,146), the average monthly salary in the city’s financial sector was far higher than that of others in the region. Similar wage benefits were evident in other key industries, such as information technology (IT), energy, minerals and the mining industry.
Beijing
In Beijing, the following industries saw the highest monthly average wages in 2017: Finance at RMB12,079 (US$1,770), IT at RMB10,367 (US$1,519) and real estate at RMB6,905 (US$1,012).
Guangzhou
The sector paying the highest monthly average wage in Guangzhou at RMB12,489 (US$1,830) was the intermediary services industry, followed by trust, guarantee, auctions and pawning at RMB10,976 (US$1,608) and the professional services and consulting industry at RMB10,932 (US$1,602).
Implications for foreign-invested enterprises
In China, average wages tend to be highest in listed companies and joint ventures. Moreover, the larger the size of the business, the higher the average wage level is likely to be.
Due to high levels of demand for white-collar workers in certain industries, average wage rates in such sectors tend to be fairly similar from city to city. But despite local government efforts to cap minimum wage level, earnings are continuing to increase annually. The concern here is that, if left unchecked, the income inequality gap could increase dramatically though.
As a result, foreign-invested enterprises in China need to ensure they keep on top of labour trends and make sound decisions relating to office location and salary package structures on this basis.
By I-Ting Shelly Lin
This article was first published on China Briefing.
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 us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.
OTHER ARTICLES THAT MAY INTEREST YOU
China pilots entrepreneurs' visa in Shanghai
China to raise income tax threshold
How to structure salary packages in China
