Employers in China must stay up to date on the current rules on minimum wages in China, which are constantly evolving. The minimum wages in China are continuing to grow at a rapid rate. It is important that employers understand how increases in minimum wages affect the overall labor cost as well as understand the nuances of regional variations related to minimum wages.
Horizons can provide strategic consulting in China regarding labor cost estimates and offer guidance on complying with these laws.
Recent Changes in Minimum Wages
For the first half of 2020, four regions increased their minimum wages:
In 2018, 15 out of 31 mainland China regions increased minimum wages. 20 of the regions increased minimum wages in 2017.
China labor law requires local governments to update their minimum wage every few years, at a minimum. Because they have not adjusted their minimum wages in over two years, Fujian, Gansu, Guizhou, Hunan, Qinghai, Tianjin, and Zhejiang are expected to adjust their minimum wages later this year. However, China’s law provides greater flexibility to provinces, allowing them to adjust their wages based on local conditions.
Most of the provinces identify different classes of minimum wage levels for different geographic areas. These wages are based on the relative degree of development in the area as well as the cost of living. As such, there is a higher minimum wage class for the provincial capital and most developed cities in China. In contrast, there is a lower class for rural areas and smaller cities.
Many Chinese regions often choose to increase their minimum wage to keep pace with the increase in the cost of living.
Given the U.S.-China trade war and the economic slowdown in China, some regions may elect to freeze local wages to remain competitive during a time of uncertainty. 2019 may be a year where fewer wage increases are observed
Overview of Minimum Wages in China
The requirements for minimum wages in China for 2020 are detailed for many of the major areas below:
Understanding Regional Variations in China’s Minimum Wage Laws
China is known for its wide economic disparity across its vast nation. It is one of the countries with the largest disparity of income. The highest minimum wages in China are in the Guangdong, Jiangsu and Zhejiang provinces, which all have a monthly minimum wage of 2,000 RMB or above.
Some of the cities with the highest minimum wages in China are Beijing, Shanghai, Shenzhen, and Tianjin. Shanghai has the highest minimum wage in China at 2,480 RMB per month. Next is Shenzhen, which has a minimum wage of 2,200 RMP per month. Beijing also has a minimum wage of 2,200 RMB per month.
In contrast, the Guangxi province has some of the lowest minimum wages in China, especially in certain areas, which start at 1,000 RMB per month. Liaoning has a minimum wage of 1,120 RMB per month, Hunan has a minimum wage of 1130 RMB per month and Anhui has a monthly minimum wage of 1,150 RMB. Although wage disparity is an issue in China, this gap has gotten slightly smaller during the last decade.
Certain provinces set minimum wage standards at the county or district level, so there is an additional disparity in these areas.
It is also worth noting that the Hunan province allows each city to decide which minimum wage level to apply.
Labor Trends in China
As China’s economy grows and focuses on innovation and services, most domestic workers employed by foreign-invested enterprises earn well above the minimum wage. Shanghai workers earned an average of 9,723 RMB per month during the first half of 2019, a sum that is more than four times the local minimum wage. Employer social insurance and housing fund obligations increase employee salary an average of 37.25%.
The increased minimum wages in China may be due to the shrinking labor pool in China. In 2018, the employed population fell by 540,000 people. Many foreign investment dollars are flooded to the country’s coastal regions, but migrant workers are leaving these areas in favor of inland China. The migrant worker population in coastal provinces fell by 0.3% while western provinces grew by 5.3%, according to the National Bureau of Statistics.
Many foreign investors factor in rising wages when considering the true cost of doing business in China.
Effect of China’s Minimum Wage Changes on Labor Costs
The minimum wage can have an effect on the overall labor costs. Companies that want to stay competitive may increase wages for workers if the minimum wage catches up to their current wage so that they still have an advantage over minimum wage workers.
However, increased minimum wages in China also mean that production will cost more. If an employer was paying minimum wage to have a job performed and must now pay more for that same job, this will increase the cost of doing business. However, China is still often found to be the most cost-efficient option when compared to countries with lower labor costs due to factors such as:
- Transportation costs
- Access to a large domestic market
When considering locations to make inject foreign investments, minimum wages in China are one helpful gauge when comparing different areas in the country. Furthermore, to determine the true labor cost, it is important that investors consider industry-specific wage levels, access to incentives and availability of the right talent.