Though China’s labour markets remain competitive, most know that the days of cheap, abundant labour are over and that, if seeking inexpensive labour is your primary goal, there are better alternatives to China. With rising wages, China is gradually shifting its economic growth priorities towards the growth of the consumer market. While the minimum wage plays some role in determining the cost of labour inputs, the market usually clears the price for unskilled labour somewhat higher than the minimum wage. The central government gives cities the autonomy to set minimum wage rules according to their local conditions. After rapid increases in China’s minimum wage growth since 2010, increases have slowed down considerably.
Policy Tradeoffs and the Minimum Wage
At the national level, China faces a tradeoff between wage growth and competitiveness. China has experienced the erosion of some of its production base as rising labour costs encourage factories to move elsewhere. In 2016, China’s labour ministry called for wage control to maintain competitiveness vis a vis other nations and sustain private investment.
However, China is also focused on upgrading its production base and move towards a service and knowledge-based economy which will make cheap labour much less important in driving growth. This shift will happen, in part, by reducing its reliance on the manufacturing of low-end products. Increasing automation may also boost the incentive to allow for wage increases, as the importance of labour will decline. Additionally, the central government is looking to increase the role of the consumer market in the economy and wage rises would help to aid this process.
The local governments, however, make the final decision on the minimum wage (apart from the requirement to increase it once every three years) and must handle a number of competing priorities. Keeping wage growth in check has a number of benefits for the local governments. It may encourage more construction, which is one of the primary ways that local governments earn revenue. It would also help keep unemployment low which may help ensure local stability. Rising minimum wages in China have increased unemployment, especially for low-skilled workers, women, and young adults. On the other hand, local governments are interested in minimum wage increases to assist the basic livelihood of the poorest residents.
Minimum Wage Adjustments
Studies have shown that minimum wages around the country have grown at an average of 11% since 2004. Prior to 2016, provinces were required to raise the minimum wage at least once every two years. The Ministry of Human Resources and Social Security adjusted its policy to allow provinces greater autonomy in determining minimum wage increases. Local governments are now required to raise the minimum wage at least once every three years. In addition to the relevant decision-making factors mentioned above, local governments now have greater autonomy to set wages based on local variables such as the cost of living, social insurance schemes, housing funds, and industrial trends.
The monthly minimum wage for full-time workers in Beijing is RMB 2,000 and for part-time workers is RMB22 hourly.
On April 1st, 2018, minimum wage increases were announced. Monthly wages for full-time workers were raised from RMB2,300 to RMB2,420. The hourly rate for part-time workers increased from RMB20 to RMB21. The pace of minimum wage growth remains steady, having grown the same amount in 2017. Shanghai has now surpassed Beijing’s statutory minimum wage and has the highest in the country. However, Shanghai’s minimum wage growth has slowed considerably compared to previous years. Between 2013 and 2015, the minimum wage grew at over 10%.
Minimum wages in Fujian province vary by city. In some county-level cities, the minimum wage is as low as RMB1,280 monthly or RMB13.6 hourly for part-time workers. The highest minimum wage in the province is in Xiamen with a minimum monthly wage of RMB 1,700 and an hourly wage of 18 for part-time workers.
Minimum wage growth has been considerably slower in Shenzhen by comparison to other high-income cities in China. In 2017, Shenzhen increased its minimum wage for the first time since 2015, raising the monthly minimum wage for full-time workers from RMB2,030 to RMB2,130 and the hourly wage for part-time workers from RMB18.5 to RMB19.5.
Shaanxi province raised its minimum wage for the first time since 2015. In Xi’an, the largest city and urban economy in the province, the minimum wage is RMB1,680 monthly for full-time workers and RMB 16.8 hourly for part-time workers.
Implications for Businesses
Businesses that are reliant on cheap labour but choose to keep production in China are looking to move production to western China or to smaller cities where the minimum wage is lower. According to 2016 data, the average minimum wage on the east coast was RMB 1,663 while in Western China was RMB 1503. Xinjiang, Yunnan, Sichuan, Jiangxi, and Hunan all have minimum wage well below RMB 1,500 per month outside of the largest city. Additionally, wage growth trends have been much less steep in western China, though this is likely to change as labour-intensive businesses move westward and construction continues in these areas. Nonetheless, in many cases, the market rate is considerably above the minimum wage.