Minimum wages in China continue to grow, with Fujian, Qinghai, and Guangxi provinces all having raised theirs so far in 2020. While the provinces of Qinghai and Fujian had announced their 2020 minimum wage increase last year, Guangxi is the only province to announce and implement an increase to its statutory wage after the coronavirus outbreak.
Last year, seven regions (Chongqing, Shaanxi, Shanghai, Beijing, Hebei, Fujian, and Qinghai) in China announced an increase in their minimum wage. In 2018, 15 out of the 31 regions in mainland China increased their minimum wages, while 20 provinces did so in 2017.
Local governments in China are required to update their minimum wages at least every few years but have the flexibility to adjust wages according to local conditions. Most provinces set different classes of minimum wage levels for different areas depending on the given region’s level of development and cost of living. For example, a higher minimum wage class for the provincial capital and the most developed cities, and a lower class for smaller cities and rural areas.
A complete guide to China’s minimum wages can be found below.
China’s minimum wage: Understanding regional variation:
Hunan, Gansu, Guizhou, Tianjin, and Zhejiang are among the regions likely to adjust their minimum wages in mid to late 2020, given that they have not done so in the past two years.
Chinese regions often opt to increase minimum wages to keep pace with the cost of living increases, so other regions may also adjust their wage standards later this year.
That being said, 2020 might see fewer wage increases than usual given the coronavirus pandemic, which has shifted the need to reduce the financial burden on enterprise and job stabilisation to the forefront. The reorientation of priorities are also set against the backdrop of an ongoing US-China trade war and an economic slowdown.
Regions may opt to freeze local wages in order to maintain their economic competitiveness amid the uncertainty.
Currently, the highest minimum wages are in parts of Guangdong, Jiangsu, and Zhejiang provinces, which have all surpassed the RMB 2,000 (US$289) mark, as well as in the municipalities of Beijing, Shanghai, Shenzhen, and Tianjin.
Shanghai continues to have the highest minimum wage in China, at RMB 2,480 (US$358) per month, followed by Shenzhen and Beijing, both at RMB 2,200 (US$318) per month.
At the lowest end, the minimum wage in certain rural areas of Liaoning (RMB 1,120/US$162), Hunan (RMB 1,130/US$163), and Anhui (RMB 1,150/US$166) slightly higher.
However, while China is still among the most unequal countries in the world in terms of income inequality, it has made some progress over the past decade.
According to China’s National Bureau of Statistics, the country’s Gini Coefficient dropped from 0.491 in 2008 to 0.465 in 2016, where a higher number denotes greater inequality.
Impact on China’s labour costs
Minimum wages only tell part of the story of labour costs in China. As China’s economy moves up the value chain and transitions to innovation and services, most workers employed by foreign-invested enterprises earn above the minimum wage. For example, workers in Shanghai made an average of RMB 9,723 (US$1,405) per month through the first quarter of 2019 – over four times the local minimum wage.
Moreover, employer social insurance and housing fund obligations add an additional 37.25 percent to an employee’s salary on average. China’s rapidly rising wages are partly explained by the country’s labor pool which, while enormous, is gradually shrinking.
In 2018, China’s employed population declined for the first time ever, falling by 540,000 to a total of 776 million. This trend is exacerbated in China’s wealthy coastal regions – a traditional hotbed of foreign investment and manufacturing – which migrant workers are leaving in favour of inland China.
According to the National Bureau of Statistics, in 2016 the migrant worker population in coastal provinces fell by 0.3 percent, while that of Western provinces grew by 5.3 percent.
For foreign investors, rising wages are an unavoidable feature of doing business in China. Nevertheless, when other factors like productivity, infrastructure, transportation costs and access to a massive domestic market are considered, China may still emerge as the more cost-efficient option compared to countries with lower statutory labour costs.
When comparing locations for foreign investment into China, minimum wages are a helpful barometer to gauge labour costs across different regions.
From there, identifying industry-specific wage levels, availability of talent, and access to regional incentives offer a more nuanced view of ultimate labour costs within a given region.
This article was first published by China Briefing