Just How Quickly Have Chinese Wages Grown?

The author is ANZ’s senior economist Raymond Yeung

As an important element to re-balance the economy and promote consumption, China has vowed to double 2010’s GDP and per capita income for both rural and urban residents by 2020.

The 3rd Plenary Session of the 18th CCP Congress also decided to establish an "orderly fair income distribution condition" for China, aiming to lift the wage rates along with labor productivity as well as the share of wages in GDP.

We try to provide an overview of current wage conditions in China.

In nominal terms, average wages in China have grown from RMB12,373 per year in 2002 to RMB46,769 in 2012. This represents a 10-year CAGR of 14% but the growth rate lags behind nominal GDP growth (15.7%) in the same period.

For foreign investors, the wage profile of the private sector matters more than the national average. On average, foreign-funded entities needed to pay 15% premium to their staff.

Average annual wages paid by foreign firms was RMB55,888 in 2012, compared with RMB48,357 of state-owned enterprises.

However, in terms of wage growth, the state-owned sector reports a CAGR of 14.3% in the 10-year period of 2003-2012, higher than the pace of 11.5% for foreign-funded enterprises. The wage profile of SOEs has been catching up.

There is evidence that the less affluent provinces witnessed strong rate wage from their lower base. In terms of private enterprises, the wage in Gansu saw a 25% increase in 2012, followed by Shanxi, Gaungxi, Fujian and Shaanxi.

An annual increment of 20% to 25% was seen in these provinces. This is in line with many anecdotes that some coastal provinces have had difficulties in retaining and attracting labor in recent years.

China also lifted minimum wage in order to bridge the income gap. The headline policy is for local provinces to set their minimum wage to 40% of the local average wage.

Jiangxi saw the highest rise in minimum wage of 41% in 2013. Shenzhen and Shanghai topped the league in terms of minimum wage, although the level of RMB1,500 per month can barely cover the cost of living in those cities.

(The article has been edited for clarity)

China Expert network