By Rainy Yao and Edoardo Rosettani
China Briefing releases an update of minimum wage levels across the People’s Republic of China every year, with the view of helping foreign investors understand the current state of the China market.?Wages have an important bearing on production costs, and play a key role for foreign investors deciding ?where to set up or expand operations. As we shall see, minimum wage trends are also indicative of the developments in?China’s consumer base.
Minimum wages in China?are set at the local level and updated throughout the year.?This is done?to account for the different standards of living across the country. Local governments will?take into consideration:
- Minimum cost of living?
- Economic development and labor dynamics in the area
- Average wages
- Average consumer prices in the area
- Social security and housing fund contributions paid by individual employees
In addition, the minimum wage should fall between 40 and 60 percent of the area’s?average monthly wage. The local government has to revise this at least once every two years. The figures published feature a monthly minimum wage for full-time employees, and an hourly minimum for part-time workers.
Minimum wages have risen?rapidly over the past decade in China, averaging an approximate?13 percent increase every year. This is mainly due to the central government’s decision to peg minimum wages to average wages. While the pace of wage increases has slowed down, rising labor costs have driven much?of the lower-end manufacturing to countries with cheaper labor. India, Vietnam and Cambodia?are all good examples.
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Comparing this year’s minimum wages to the previous year, the most striking changes are the monthly wage hikes in Shaanxi and Tibet (16 and 17 percent respectively) and the 22 percent raise of the hourly minimum wage in Guangzhou city.?
Given the factors that the minimum wage is pegged to, minimum wage developments offer an interesting view on regional economic growth in China, often down to the city level. For example, it is interesting to note that in 2015, the minimum wage reached RMB 2,000 for the first time – in both Shanghai and Shenzhen. Also, where Shanghai (RMB 2020) traditionally led Chinese cities in minimum wage levels, Shenzhen (RMB 2030) overtook China’s most populous city in 2015. This is a narrow margin, to be sure, but a telling sign nonetheless.?
This article was first published on China Briefing.
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