Guangzhou wage increase
January 3, 2010 by Jules
Stirrings in South China
Unlike many countries and because of wide economic development variations between regions, China regulates its minimum wage at the provincial level.
Guangzhou in South China, one of the earlier sites of China's economic revolution, has always been cheaper than its neighbour and rival Shenzhen. Shenzhen borders Hong Kong, was the first of the now normalised Special Economic Zones in China, and has the highest minimum wage among the former economic zones.
Local reports point to a 16% increase of the minimum wage on Guangzhou this year, to RMB 1000 (approximately USD 150), from RMB 860 currently. The move would put Guangzhou's minimum wage at the level of Shenzhen's. Shenzhen has moved up the value chain in recent years compared to Guangzhou, which continues to host basic assembly industries such as toys, shoes, garments, etc). There are reports that Shenzhen will leave it minimum wage untouched in 2010.
The news put things in perspective:
- China remains one of the poorest countries in the world, and its population of migrant workers remains low paid. By law migrant workers are fed and housed in dormitories on the factory site. Most save their income to send it back to their family, pay for children education, etc.
- As we reported back then, when the crisis hit 15 months ago 30+ million migrant workers lost their jobs and headed back home. the Chinese New Year started early with most factories vacant.
- Paradoxically this has increased labour shortages, as anecdotal evidence confirms that a high number of migrant workers who went back to the farms in the inner provinces last year decided to stay home rather than spend money to go back to the coastal regions but risk finding no factory or construction employment.
- In this light Guangzhou's move is significant as it promises to increases inland consumption and may also be a (paradoxical) tool of the central government to re-kick the exports machine by providing incentives for the workforce to return.
- The government had done its bit for exporters last year by re-establishing (where reduced or abolished) or increasing the VAT rebates on available to a wide range of industries. For background information on this, see our articles on Chinese VAT and rebates announcements.
Back to Guangzhou's minimum wage, below is commentary found in the SCMP:
"[...] Federation of Hong Kong Industries chairman Cliff Sun Kai-lit warned the central government not to withdraw too early measures designed to help factory owners, such as the freezing of administrative charges and corporate contributions to social welfare funds.
"The global financial crisis has not yet bottomed out," Sun said. "Exporters are still recuperating from the export slump."
He said Shenzhen municipal government officials had reached "an internal consensus" to keep the minimum wage unchanged for another year.
The minimum wage was frozen last year to help manufacturers battered by the downturn following a directive by the Ministry of Human Resources and Social Security in November 2008.
Nelson Siu Nai-sun, the president of the Hong Kong Professionals and Executives Association, a human resources body with 2,500 corporate members in Hong Kong and the mainland, said a rise in the minimum wage in Guangdong was necessary because of rising living standards and looming inflation.
"There is a genuine need to raise it, otherwise workers can't catch up with rapidly rising living standards," Siu said. "It will also be an incentive to lure migrant workers back to the south."
He anticipates Guangdong's minimum wage could jump between 10 per cent and 20 per cent a year for the next few years. The last rise was in 2008, when the rate rose 12.9 per cent.
Siu said labour shortages had worsened in Guangdong since October after a larger than expected number of orders caught factories off guard."
In: Market News