Wages and employment

Wages in China have increased steadily over the last decade to the point where the country is no longer considered by international business to be an abundant source of cheap labour. However hundreds of millions of Chinese workers are still struggling to make a living wage: The cost of living in China’s cities increases all the time and the gap between the rich and the poor shows no signs of closing. Moreover, as economic growth slows down to less than seven percent per year, lay-offs, wage arrears and unemployment are becoming increasingly serious problems for both China’s workers and the government.

This article will look beyond the headline figures for wage increases and unemployment rates and examine the complex and constantly changing patterns of wages and employment that exist in China today.

Contents

 

Honda workers on strike in Foshan, 31 May 2010. Photograph Reuters/Booby Yip

The end of cheap labour?

In the early 2010s, labour shortages combined with a series of strikes over low pay in the southern province of Guangdong helped to significantly boost wages in China’s “factory to the world.” In perhaps the best known strike of 2010 at Nanhai Honda in Foshan (see photo above), workers won a 35 percent (500 yuan per month) pay increase plus the promise of more effective union representation.

Regional governments across China were forced to increase their minimum wage in a bid to retain workers. In the financial capital of Shanghai, which has the highest minimum wage in China, the monthly rate increased from 1,120 yuan in 2010 to 2,190 yuan (US$327) in 2016. The minimum wage for most major cities and provincial capitals also doubled to around 1,600 yuan (US$239) per month in 2016, but in smaller cities and in poorer provinces, the monthly minimum wage rose to just 1,000 yuan.

As early as 2012, many commentators were announcing the end of cheap labour in China. However, increases in the minimum wage have slowed considerably since then and, in 2016, Guangdong announced that it would freeze its minimum wage for the next two years. Current central government policy was clearly stated by Vice Minister for Human Relations and Social Security, Xin Changxing, in July 2016 when he said that because: “Our advantage in labour costs is no longer as clear-cut as before; we should ease the frequency and scale of wage increases so as to preserve our competitive advantage.”

Many manufacturers, especially those in the garment, shoe and toy industries, have already relocated from China to smaller Asian countries such as Bangladesh, Cambodia and Vietnam, in many cases replicating the pay and working conditions seen in China a decade ago. Encouragingly, however, there are signs that workers in these countries will not tolerate appallingly low wages for long. Pressure by textile worker trade unions in Cambodia, for example, led to the minimum wage for garment and shoe factory workers more than doubling from US$61 in 2010 to US$140 per month in January 2016.

China is now in the mid-range of Asian countries in terms of cheap labour. See chart below. However, China clearly has a long way to go before it catches up with the minimum wage rates in the more developed Asian countries such as Japan and South Korea.

In countries where only hourly or daily rates are available, the equivalent monthly rates are calculated on the basis of a 160 hour working month. Exchange rates were calculated on 20 June 2016

Income inequality

China’s Minimum Wage Regulations implemented by the then Ministry of Labour and Social Security in March 2004, stipulate that each region should set its minimum wage at between 40 and 60 percent of the local average wage. However, very few cities have ever reached that target. In most cities, the minimum wage is around 30 percent of the average wage, while in the capital Beijing it is as low as 24 percent. See chart below.

Minimum wage workers can sometimes double their basic salary by working long periods of over-time but even then their take home pay is usually just enough to get by. Continual increases in the cost of living in China’s cities, especially accommodation costs, mean that most minimum wage workers have very little left over at the end of the month. 

The average take-home pay of migrant workers, who are among China’s lowest paid, is often less than half the overall average wage in China’s major cities. A 2015 survey of rural migrant workers showed that their average monthly wage was just 3,072 yuan. The highest-paid sectors for migrant workers were transport and logistics (3,553 yuan per month) and construction (3,508 yuan per month), while those employed in household services, sales, hotel and catering services were the lowest paid, earning just over 2,600 yuan per month.

Average wages in China usually increase by around ten percent a year, according to official figures, and as a result, the pay gap between many low-paid workers and those earning the average wage is actually widening in real terms. The growing disparity between low-paid manual labourers and managers and professionals has been particularly apparent in China’s state-owned enterprises (SOEs). As one veteran SOE employee in Chongqing explained: “We ordinary workers are doing much more work than the management and yet they can get paid almost ten times more than us, this is so unfair.” The average pay for ordinary workers at the enterprise was between 2,000 to 3,000 yuan per month while management usually got around 12,000 yuan a month, the worker said. At the top end of the scale, despite attempts by the government to rein in executive pay, senior SOE executives, particularly those in finance, can still earn in excess of a million yuan a year. In August 2014, the Chinese government capped salaries for top SOE executives at 600,000 yuan a year but many executives reportedly get around these restrictions with “guaranteed monthly bonuses” and other perks that are not included in their official salary.

Probably the most important factor in wealth inequality in China today is the urban-rural divide: Not simply because of the substantial income gap between rural and urban households but also because nearly all of China’s best healthcare, education, cultural and social services are located in urban areas. Whereas urban residents have reasonably unfettered access to such services, rural residents often have to pay excessive fees on top of the cost of travelling to and staying in the city that provides the services. Although smaller and, to some extent, medium-sized cities have begun to relax their administrative barriers to rural migration, making these cities a more viable option for migrant workers, there are no signs that major cities like Beijing, Shanghai and Guangzhou will make it easier for migrants to gain access to their jealously guarded social welfare, healthcare and education systems.

Working hours and payment of wages

China has well-established legal provisions on working hours and the payment of wages.

  • The standard workweek in China is 40 hours (eight hours per day, five days per week).
  • Overtime shall be paid for any work exceeding standard working hours and overtime shall not exceed three hours a day or 36 hours per month (Labour Law Article 41).
  • Overtime pay should not be less than 150 percent of an employee’s wages during normal work days; 200 percent on rest days, and 300 percent on national holidays, such as the Lunar New Year (Labour Law Article 44).
  • Wages shall be paid in legal tender to the workers in person on a monthly basis. No deduction of wages for personal gain may be made from wages due to workers. The payment of wages may not be delayed without reason (Labour Law Article 50).
  • An employer shall pay wages to workers during their statutory holidays, marriage or funeral leave (Labour Law Article 51).

Despite these safeguards, many workers are forced to work excessive overtime, are not fully compensated for overtime worked, and are not paid in full or on a regular basis. Disregard of the law is particularly rampant in the construction industry, where the vast majority of workers do not have a formal employment contract, do not get paid overtime or holidays, and are only paid in full when the project is completed or just prior to the Lunar New Year. Workers in the non-formal economy; day labourers, individual service providers and the self-employed, likewise, have little protection against excessive working hours or being cheated out their wages. There is a danger that the standard working hours system outlined above will be further eroded as the service sector gradually becomes the dominant force in the labour market. In July 2016, the American retail giant Walmart replaced the standard working hours system with a “comprehensive working hours system” that would significantly cut employees’ overtime payments. The move was met by a series of strikes at Walmart stores across China.

Walmart workers on strike in Chengdu, Sichuan: 4 July 2016

As mentioned above, the delayed or non-payment of wages has been endemic in the construction industry for decades. However, with the slowdown in the economy, wage arrears have become increasingly common in manufacturing, mining, iron and steel, as well as in many new service industries and tech companies that are proving to be unsustainable. Wage arrears are by far the biggest single source of collective labour disputes in China today. In the 18 months from January 2015 to June 2016, wage arrears featured in 3,175 of the 4,228 incidents (about 75 percent) recorded on China Labour Bulletin’s Strike Map. In some, extreme cases, workers went without pay for six months or even a year.

Unemployment

In February 2016, the Chinese government announced plans to lay off 1.8 million workers in the coal mining and iron and steel industry as part of efforts to reduce industrial overcapacity. Later reports suggested China would actually lay off around six million workers from its ailing state-owned industries. These redundancies, combined with the millions of private sector workers in the manufacturing and construction industries who had already been laid off during the economic slowdown, triggered renewed fears of mass unemployment and social unrest.

Those worst affected by the lay-offs are likely to be older low-skilled workers. Age discrimination is deeply ingrained in the workplace in China and unskilled and low-skilled workers in particular find it increasingly difficult to secure employment after the age of 40. As their physical strength, stamina and alertness declines, older workers are often excluded from relatively higher paying jobs on the factory production line, and other labour intensive positions because employers think they will slow other employees down and reduce productivity. Many older workers can only get low paid and irregular jobs in small family workshops or as security guards, sanitation workers, hospital porters etc. One exception to this rule however is the construction industry which, because of the hazardous nature of the job, is struggling to recruit younger workers and is forced to hang on to an increasingly elderly workforce.

China’s official unemployment rate is largely irrelevant in assessing the actual the state of the employment market. The official rate has hovered persistently at or just above four percent for the last five years: In 2015, it was at 4.05 percent, slightly down from 4.09 percent in 2014. This rigidity stems from the very narrow base the statistics are drawn from. Only workers with an urban household registration (about half the total workforce) are included in the data, and the unemployment rate only refers to the proportion of officially registered urban job-seekers to the total number of employed urban workers. It ignores all rural workers and rural migrant workers, foreign workers, as well as those in insecure, part-time or casual work. The only real use of the official unemployment data is as a propaganda tool, which can at least give the illusion of stability in the employment market.

 

Finding the right job

Although the labour market in China is without doubt a lot tighter than it was at the start of decade, there is no indication that mass unemployment is an imminent danger. Jobs are being lost but fewer young people are entering the job market and new employment opportunities are constantly being created, particularly in the service sector. The problem is that many of these new jobs are poorly paid, insecure and require employees to work long hours in often dangerous conditions. The vast army of couriers delivering packages from online shopping networks are an obvious example of the new employment opportunities and problems in China. One courier described how they “worked 12 hours each day, delivering more than 300 items per day.”

We sort several tons of packages, even the lightest loads are around seven or eight kilograms. Every day I cover more than 40 kilometres and climb over 46 flights of stairs, and all the time my phone must be on 24 hours a day. I need to pay for all my calls myself. My average monthly wage is around 3, 400 yuan.

The key issue for Chinese government officials and economic planners is clearly not how many jobs are created or how many jobs are lost during a set period of time: More important is the extent to which employers can provide employees with decent, reasonably-paid jobs with the opportunity for career advancement, and the extent to which the labour market can provide employers with the well-trained workers they need.

Young job seekers examine their options in Shenzhen’s Longhua factory district

The mismatch between the needs of job seekers and employers has been highlighted on numerous occasions over the last few years, especially whenever new college graduates enter the job market. In 2016, about 7.7 million graduates entered the job market with high expectations but little chance of finding a suitable position. China’s academic, examination-orientated college system routinely fails to prepare students for the demands of the employment market. Vocational schools have likewise long been criticized for failing to produce the skilled or semi-skilled workers businesses need but so far attempts by the government to make the system more effective by promoting greater privatization and encouraging greater corporate involvement have yet to yield any positive results.

Another major problem is the fact that many businesses are reluctant to invest any time or resources in training, and expect new staff to have all the skills they need to perform their jobs straight away. The view of many business owners is that providing training to their own staff will only encourage them to look for a better paying job elsewhere. This short-sighted view will have to change if China is to bridge the skills gap that is preventing the move away from a low-wage to a skills-based economy.

Some manufacturers and logistics businesses are looking to resolve their staff recruitment and training problems by turning to automation. However, despite the boom in robotics manufacturing, finding positions that robots can do instead of people has proved more difficult than expected. Even, Foxconn, the best-known proponent of robot workers, has scaled back its automation plans. The company’s enigmatic boss Terry Gou wanted to have one million robots in place by 2013 but in 2015, the general manager of Foxconn’s automation technology development committee, Day Chia-Peng, revealled that the company had only about 50,000 fully operational industrial robots installed in its Chinese factories. He said the company plans to add at least another 10,000 robots a year for the next five years to its facilities in China, replacing staff in the so-called “3D” jobs – positions that are dirty, dangerous and dull. The company’s much revised and much more realistic target is now to achieve 30 percent automation in its Chinese factories by 2020.

Analysis and conclusion

A superficial look at China’s major cities seems to show a reasonably affluent society: young, hard-working middle class families, determined to make a better life for themselves. Look beneath the surface however and you soon realize that the goods, services and lifestyle products that these middle class families aspire to are all produced, marketed, and delivered to their homes by an army of over-worked and under-paid working class labourers (see photo below).

Express delivery workers in Anhui: Photograph. Xinhua/Xie Chen

For several hundred million low-paid workers, there is next to no chance they can own their own home, send their children to a decent school or anyway attain the much vaunted “China Dream” of President Xi Jinping. Wages have certainly increased over the last decade but so has the cost of living, and the gap between middle class professionals and the low wage earners who support them just continues to grow.

One of the key reasons why low-wage earners have not been able to earn a decent income and bridge the gap to the middle class is because they lack the institutional means to collectively bargain for better pay and working conditions. Workers have clearly demonstrated that they have the means and the ability or organize collectively, stage strikes and protests in response to specific labour rights violations. What they do not have however is a trade union that can represent them in collective bargaining with employers.

China’s sole legally mandated trade union, the All-China Federation of Trade Unions (ACFTU) has a titular presence in many workplaces but the union representatives are largely under the sway of management and have no real connection to ordinary workers. Trade union officials currently have neither the will nor the ability to effectively represent their members in wage negotiations with management. In many cases, they will actually side with management against the workers.

Even at Nanhai Honda, which was supposed to get a more responsive trade union after the strike in 2010, workers complain that trade union officials remain distant and have failed to secure a decent wage that compensates them for rapid increases in the cost of living in Foshan. In their trade union elections, Nanhai Honda’s workers can only vote for the leader of their own small group of about 20 to 30 employees. These leaders then elect union delegates, and only the delegates get to vote for the union chairman. As one worker said:

The way workers vote actually turns the union into management’s twin brother. Workers only vote for their group leaders, and group leaders only vote for their managers. Usually, people don’t even know who the candidates are or how they become candidates in the first place.

There is an increasing urgent need for China’s workers to assert control over the union and make it more representative and effective. The need for an effective trade union is particularly strong in the service sector which is now the main engine for job creation in China. Many of the new jobs are poorly paid and insecure but in many new businesses there is not even a nominal trade union presence to represent the employees.

Trade union reform will be a long, difficult process: The ACFTU is a huge bureaucracy that is determined to defend its own vested interests. Nevertheless, reform is unavoidable and essential if China’s low-paid workers are to realize decent pay for decent work and China’s government is to maintain social and political stability.

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