Minimum wages in China continue to grow.
So far, in 2021, the provinces of Jiangxi, Heilongjiang, Shaanxi, Xinjiang, and Tibet as well as the cities of Beijing and Tianjin have raised their minimum wage standards. Meanwhile, the province of Jilin and the city of Chengdu stated they would adjust their minimum wages this year.
Currently, Shanghai has the highest monthly minimum wage among 31 provinces (RMB 2,590/US$400 per month) and Beijing has the highest hourly minimum wage (RMB 25.3/US$3.9 per hour). Six regions – Shanghai, Guangdong, Beijing, Tianjin, Jiangsu, and Zhejiang – surpassed the RMB 2,000 (US$308) mark in their monthly minimum wage standards.
Last year, due to the COVID-19 pandemic, most regions postponed their minimum wage adjustment plans. Only three provinces – Fujian, Qinghai, and Guangxi – raised minimum wages.
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.
China’s minimum wage: Understanding regional variation
Hunan, Gansu, Guizhou, and Zhejiang are among the regions most likely to adjust their minimum wages in mid to late 2021, given that they have not done so in the past three years.
Chinese regions often opt to increase minimum wages to keep pace with the cost of living increases, so other regions may also adjust their wage standards later this year.
That said, 2021 might not see many wage increases rolled out due to the coronavirus pandemic, as reducing the financial burden on enterprises and job stabilization will be prioritized. The reorientation of priorities are also set against the backdrop of an ongoing US-China trade war and an economic slowdown.
Regions may opt to freeze local wages in order to maintain their economic competitiveness amid the uncertainty.
As stated earlier, Shanghai continues to have the highest minimum wage in China, followed by Beijing (RMB 2,320/US$358 per month) and Shenzhen (RMB 2,200/US$339 per month).
At the lowest end, the minimum wage in Hunan (RMB 1,130/US$174 per month) and Anhui (RMB 1,150/US$177 per month) is slightly higher than Liaoning’s (RMB 1,120/US$172 per month).
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 2019, 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 9,580 (US$1,475) per month through 2019 – nearly 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 2019, the migrant worker population in coastal provinces fell by 0.7 percent, while that of Western provinces grew by 3.0 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.