Written by Alexander Chipman Koty and Qian Zhou, Asia Briefing, Dezan Shira & Associates
Minimum wages in China continue to grow. Through the first six months of 2019, four regions have increased their minimum wages: Beijing, Chongqing, Shaanxi, and Shanghai.
Last year, 15 out of the 31 regions in mainland China increased their minimum wages, while 20 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 in the attached infographic.
China’s minimum wage: Understanding regional variation
Fujian, Hunan, Gansu, Guizhou, Tianjin, Qinghai, and Zhejiang are among the regions likely to adjust their minimum wages later in 2019, given that they have not done so in the past two years.
Chinese regions often opt to increase minimum wages to keep pace with cost of living increases, so other regions may also adjust their wage standards later this year.
That being said, 2019 might see fewer wage increases than usual given the ongoing US-China trade war and China’s 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 areas of Guangxi province is RMB 1,000 (US$145), with rural areas in 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 larger inequality.
Impact on China’s labor costs
Minimum wages only tell part of the story of labor 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 for a total of 776 million.
This trend is exacerbated in China’s wealthy coastal regions – the traditional hotbed for foreign investment and manufacturing – which migrant workers are leaving in favor 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 labor costs.
When comparing locations for foreign investment into China, minimum wages are a helpful barometer to gauge labor 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 labor costs within a given region.
The latest version of this article was published on June 13, 2019.
This article was first published by China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write info@dezshira.com for more support.