China Plans to Continue Working on Increasing Wage Levels
Under its latest 12th Five-Year Plan on Employment Improvement Plan, China says it will continue working on increasing wage levels and controlling unemployment rates. Base on these new targets, enterprises operating in China may face the challenge of increasing operational costs. Minimum wage and social welfare based on the new plan shows the average annual growth rate of China’s minimum wage levels will be over 13 percent between 2011 and 2015. The minimum wage standards in most areas will not be lower than 40 percent of the local average wage level.
For a long time now, China has garnered a global reputation as a country boasting cheap, plentiful labor and low overheads. In recent years, however, this perception is beginning to lose its veracity as employment costs continue to rise at a rapid pace year-in and year-out. Between 2005 and 2010, the minimum wage standards in the country increased by an average of 12.5 percent every year and now currently range from RMB1,500 in the southern trade base of Shenzhen to RMB870 in the southwestern municipality of Chongqing.
Furthermore, the protection of labor rights is set to be strengthened, which will likely force employers to offer greater benefits to their workers. Labor contract signing rates will reach 90 percent between 2011 and 2015, compared to the rate of 65 percent between 2005 and 2010. Also, regulations on working hours, annual leave and sick leave, national holidays, and protection of female employees will be further toughened. The minimum wage level is often used as an example of China’s shrinking cost advantage. However, for a rapidly-developing country like China, increases in labor compensation are almost inevitable.
While the new plan says there is a significant surplus of labor force in both urban and rural areas, many manufacturing plants especially those in China’s eastern and southern coastal areas have been complaining about labor shortages for years. What this means is that many migrant workers prefer to settle somewhere else rather than receive a salary in metropolitan areas that would not be enough to survive on. When companies don’t have enough workers working for them to satisfy their orders, profits will shrink anyway.