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Wages in China
Wage levels in China have increased continually over the last two decades as the economy has developed and the private sector has created new employment opportunities. However, disparities among geographic regions, industrial sectors and between top executives and ordinary workers have also increased significantly, widening the rich-poor gap. Moreover, wage increases for China’s lowest paid workers have often been eroded by higher costs of living, and the issue of wage arrears remains a serious and unresolved problem throughout the country.
Legal provisions on working hours and wages
- The standard workweek in China is 40 hours (eight hours per day, five days per week).
- The 1994 Labour Law stipulates that overtime shall be paid for any work exceeding standard working hours and that overtime shall not exceed three hours a day or 36 hours per month (Article 41).
- Overtime pay should not be less than 150 percent of an employee’s wages during normal working days; 200 percent on rest days, and 300 percent on national holidays, such as the Lunar New Year (Article 44).
- Wages shall be paid to the workers themselves in legal tender and on a monthly basis. Deduction of wages or delay in payment of wages is strictly prohibited (Article 50).
- An employer shall pay wages to workers during their statutory holidays, marriage or funeral leave (Article 51).
The minimum wage
Article 48 of the Labour Law stipulates that the statutory minimum wage should be set at a level sufficient to support the daily needs of employees. It was not until March 2004 however, when the then Ministry of Labour and Social Security implemented its Minimum Wage Regulations, that guidelines were put in place to establish a framework calculating and adjusting the minimum wage.
The Regulations state that regional governments should determine and adjust the monthly minimum wage for full-time workers by referring to:
- Minimum living costs of local employees and their dependents
- The consumer price index for urban residents
- Social security and housing fund contributions paid by individual employees
- The average wage of employees in the locality
- Level of economic development and the supply and demand of labour in the locality.
Because calculations are based on local conditions, there is a substantial range of minimum wage levels across the country. In general, the highest minimum wages are in the economically developed coastal regions and the lowest wages in the less developed central and western provinces. However, governments in remote areas such Tibet and Xinjiang have set relatively high minimum wage levels in a bid to attract migrant workers. As of 1 May 2013, the highest monthly minimum wage was in Shanghai (1,620 yuan), closely followed by Shenzhen (1,600 yuan). The lowest minimum wage was in the central province of Anhui (1,010 yuan). See map below.
China's Minimum Wage Levels (per month) by Region
The above map shows only the highest minimum wage levels within each province or region. Each region may have four to five minimum wage levels for individual counties and urban districts, and the gap between the highest and lowest levels can be quite considerable. In Guangdong, for instance, the minimum wage in the provincial capital Guangzhou is 1,550 yuan per month but the minimum wage in largely rural Maoming is just 1,010 yuan. In other words the minimum wage in Maoming is about two thirds of that in Guangzhou and the same level as in Hefei, capital of Anhui province.
The Regulations recommend that the minimum wages should be set at between 40 to 60 percent of the average monthly wage and that local governments should undertake an adjustment review at least once every two years (Article 10). However, in 2008, the central government in Beijing announced a freeze on all minimum wage increases in the wake of the global economic crisis. In early 2010, individual provinces started to raise their minimum wages again, and since then just about every region has increased its minimum wage several times, with an average annual increase of around 22 percent between 2010 and 2012. In 2012, a total of 25 provinces increased their minimum wage by an average of 20.2 percent, according to the Ministry of Human Resources and Social Security (MOHRSS).
Under China’s current Five-Year-Plan (2011-15), the minimum wage is slated to increase at an average rate of 13 percent a year and eventually reach 40 percent of the average wage in each region, as suggested by the 2004 Regulations. Currently, the minimum wage level in many cities is well below the 40 percent benchmark. The minimum wage in Shanghai in 2012 was 1,450 yuan, about 31 percent of the 4,692 yuan average monthly wage, as calculated by the municipal bureau of human resources and social security. In Beijing, the minimum wage in 2011 was 1,160 yuan per month, or 25 percent of the 4,672 yuan average wage. And in the south-western city of Chongqing, the 2011 minimum wage of 870 yuan per month was equal to 26 percent of the 3,337 yuan average wage that year.
Internationally, China’s minimum wage (in coastal cities at least) is now in the mid-range of Asian countries. See table below. Although wage levels are still far below those in Japan, South Korea and Singapore (all of which import labour from China), wages for Chinese factory workers are now significantly higher than for factory workers in Bangladesh, Vietnam and Cambodia. This has led to a large-scale transfer of low cost, labour intensive industries such as garment, toy and shoe manufacturing to these cheaper production bases. However, China remains, for the time being, the largest manufacturing economy in Asia, and probably the world.
Minimum Wage Levels in Asia (US$)
The average monthly wage for workers in China has increased every year over the past decade, according to official statistics. However, these figures mask substantial differences between different groups of workers, industrial sectors and geographical regions.
The wages of migrant workers, in particular, have lagged far behind the national average. A survey conducted by the National Bureau of Statistics estimated that the average monthly wage for migrant workers in 2012 was just 2,290 yuan, which represented an 11.8 percent increase over 2011. The overall average wage in 2011 was 3,500 yuan, roughly 75 percent higher than the migrant workers’ average wage that year of 2.049 yuan per month. See graph below.
Average Monthly Wages (Yuan)
Source: National Bureau of Statistics, China Statistical Yearbook 2012
Substantial wage gaps have also emerged between different sectors, with average salaries in finance now being more than double those in manufacturing and three times higher than for catering and hotel workers. See chart below.
Average Monthly Wages of Different Sectors in 2010 and 2011
Moreover, there are substantial gaps between the highest and lowest paid employees in each sector. It is difficult to obtain reliable and comprehensive data on the range of wages in each sector but one academic study published in 2012 showed that pay for top executives was about ten times the average wage in China. The median pay for the chief executive officers sampled was 355,150 yuan per annum in 2010, or 9.7 times higher than the average wage that year. Moreover, the gap between CEO compensation and average wages has increased significantly over the last ten years, from 4.4 times higher in 2001 to 9.1 times higher in 2005. In major state-owned enterprises, top executive pay is now reportedly around 700,000 yuan a year, or about 16 times the average wage of SOE employees in 2011.
It is important to note here that wage increases for the lowest paid workers in China have not always translated into better living conditions. For many low income families, wage increases are quickly eroded by increases in the cost of living and workers still end up spending a substantial portion of their salaries on basic necessities such as food, housing, transport, clothing and telecommunications.
Average wage increases over the last decade have been around ten percentage points higher than the headline rate of inflation but often only around five percent higher than the inflation rate for food. See graph below.
Average Wage Increase and Inflation Rates
Source: China Statistical Yearbook 2012
Official figures from the last five years show that China’s low income urban families consistently spend around 46 per cent of their overall budget on food. And the expenditure on food in mid-income households is significantly lower, with the national average expenditure level at about 36 percent over the five years. See graph below.
Source: China Statistical Yearbook 2008, 2009, 2010, 2011, 2012
A new generation demands more
The wage increases of the last few years have been driven to an important extent by a new generation of migrant workers which is no longer willing to tolerate the low pay and harsh working conditions the parent generation had to endure.
These younger workers are often better educated than their parents, have higher expectations and aspirations, and are much more aware of their rights as employees. In addition, they now have the confidence, the means and the ability to push for higher wages. Nearly all young workers have mobile internet access and many are active on social media. This makes it possible for them to post real time updates of their labour disputes, their demands and their actions in support of those demands. This in turn can create publicity and put pressure on both management and local government to resolve the dispute as quickly as possible.
An important factor to note here is that, as the birth rate in China declines due to the one child policy, there are fewer and fewer young workers entering the workforce. Whereas in the past, there seemed to be an almost inexhaustible supply of young migrant workers looking for employment in the factories of the south, today supply has fallen well below demand, and employers are having to offer higher wages if they want to both recruit new staff and retain existing employees.
China’s Birth Rate (%)
Source: China Statistical Yearbook 2012
In 2012, the total number of working-age people in China declined for the first time since records began, marking the start of a trend that is expected to accelerate in the next two decades. The National Bureau of Statistics announced in January 2012 that the number of people aged between 15 and 59 stood at 937.27 million at the end of 2012, a drop of 3.45 million from 2011.
Even though workers in many sectors have managed to push wages higher, illegal non-payment, delayed payment and partial payment of wages remain commonplace, even routine, particularly in the construction and manufacturing industries. Protests by workers against wage arrears occur just about every day across the country but especially in the weeks during the run-up to the Lunar New Year when migrant workers prepare to go home to visit their families. Protests are often quite dramatic, with workers threatening to jump off tall buildings and bridges, and staging mass demonstrations in front of government buildings. With the rise of social media, many protests have gone viral, such as that of the construction workers from Yunnan who staged a protest with their children in 2012 demanding the payment 20 million yuan in wage arrears. And in January 2013, a group of unpaid construction workers even resorted to dancing Gangnam Style outside the nightclub they had built in order to gain attention for their plight.
The MOHRSS reported a total of 218,000 wage arrears cases in 2012, a 7.5 percent increase over the previous year. About 80 percent of all cases occur in the construction industry, and about nearly all the victims are migrant workers.
In response to this long-standing problem, many local and regional governments have introduced a system of contingency funds and implemented various mechanisms to ensure that wages are paid on time or at least repaid to workers eventually. These policies are colloquially known in China as the “two funds and three mechanisms” (两金三制). In 2011, local governments claimed to have helped 6.2 million workers recover around two billion yuan in wage arrears. Also in 2011, China’s Criminal Law was amended to make malicious non-payment of wages a criminal offence. By the end of 2012, a total of 152 criminal cases had been initiated, 134 had been concluded and 120 defendants sentenced. Most cases have so far involved wage arrears in excess of one million yuan but in May 2013, the High Court of Henan announced that any employer with wage arrears in excess of 8,000 yuan or more than three months will face sanction.
However, the systemic causes of wage arrears; credit controls, cash flow bottlenecks, and multiple layers of sub-contracting remain stubbornly in place. As soon as bank credit in China becomes tight, overleveraged property developers struggle to pay construction companies, construction companies do not pay labour contractors and the contractors cannot pay the workers. Likewise, if there is a decline in demand for manufactured goods, customers routinely delay or default on payment, manufacturers cannot get credit from the bank and so start to delay payment of wages.
In really serious cases, factory owners will start selling off assets, including factory equipment, before suddenly closing the business down and absconding, leaving the workers little or no option but to petition the local government for assistance. In most such cases, however, workers would be lucky if they got one third to half the money they were owed.
China no longer has an inexhaustible supply of young workers from the countryside willing to work endless hours on production lines for mere subsistence wages. Labour shortages combined with a new determination and ability of workers to organize collectively has meant that manufacturers have been forced to pay higher wages or alternatively, in some cases, close down and relocate to lower cost areas such as Bangladesh and Cambodia.
But while wages for factory employees and other low income workers have certainly increased, the rate of increase has not kept pace with that of higher income earners, leading to greater income disparity in China. Moreover, the higher cost of living has meant that low income earners still spend a disproportionately high percentage of their take home pay on daily necessities such as food, housing and transport.
Tackling the widening gap between the rich and the poor in China is now one of the top priorities of the new leadership in Beijing. In February 2013, the State Council issued a wide-range of policies, including boosting the wages of low income earners and capping SOE executive pay, but these measures are unlikely to really get to the root of the problem. One crucial issue that remains unresolved, for example, is the lack of an effective social and medical welfare safety net that would allow low income earners to spend more freely on goods and services rather than having to save a high proportion of their income, as is currently the case.
Ultimately however, for wages to rise to a decent level, China will have to develop a system of enterprise-level collective bargaining that will allow managers and workers to negotiate reasonable pay and conditions, based on company profitability, worker productivity and the local cost of living.