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July and August 2014
China’s Rising Manufacturing
Costs: Challenges and
Opportunities
- by ChrisDevonshire-Ellis, MatthewZito and Eunice Ku, Dezan Shira andAssociates
The recent decades of China’s export-driven economic growth has come at the cost of severe pollution to the environment, which has in
turn posed a threat to the health of its inhabitants. The downturn in the global economy also led China to realize the vulnerability of its
economic model due to its dependance on the demands of its overseas markets. To transform and rebalance its economy, China has been
actively promoting the development of its service sector, high-tech industries and domestic consumption so as to ensure sustainable growth.
In this regard, the government has driven upminimumwages, allowed the yuan to appreciate, aggressively enforced labor and environmental
regulations, thus increasing the costs of manufacturing in China and driving out low-end businesses.
In China’s rush to wean itself from being an export-driven economy and into a consumer-based economy, it is State policy to place more
money in the hands of Chinese nationals. This means that China has a specific agenda of raising workers’ salary levels on an annual basis.
Annual increases in Chinese worker salaries and the increasing mandatory welfare costs associated with this are making some local
governments in China have to strike a fine balancing act between making companies happy (with no further raises to labor cost) and
workers demanding higher salaries -- which will attract more workers and increase local consumption.
Wage Increases in China
For some time now, rising labor costs in China have been setting off alarms among foreign investors. According to China’s Employment
Promotion Plan, the minimum wage in each jursidiction must be increased at least once every two years; meanwhile, the 2011-15 Five-
Year Plan stipulates an average increase of 13 percent per year. Based on 2014 figures, however, it looks like China’s wage increases have
begun to slow down, as the Central Government exerts pressure on maintaining economic growth targets.
Wage standards in China are set for individual cities, provinces and other administrative units by their respective local governments, rather
than on a nationwide basis. As of June of this year, wages had been hiked in a total of eleven areas--Beijing, Chongqing, Gansu, Guangdong
(Shenzhen), Qinghai, Shaanxi, Shandong, Shanxi, Shanghai, Tianjin and Yunnan--at an average of 11 percent for monthly minimum wage
increases. Most recently, an additional wage increase for Sichuan took effect on July 1, 2014. Based on the date of their last respective
updates, wages will also be increased in Hebei, Heilongjiang and Tibet before the year is up. If this trend continues through the remainder
of 2014, some 26 regions may be on track for increases to their minimum wage. This is slightly better news for foreign investors when
compared with last year’s total of increased wages in 27 provincial-level jursidictions at an average of 17 percent.
Comparison between China Wages with other Asian Countries
If you have questions about wages and employment in China,
please emai
Country
Annual MinimumWage
(US $)
Adjusted for Employer Social
Insurance Contributions (US $)
% Difference Against
China
China
2,472
3,337
100%
India
689
740
22%
Indonesia
1,087
1,187
36%
Malaysia
3,107
3,534
106%
Philippines
1,515
1,648
49%
Thailand
3,012
3,169
95%
Vietnam
1,296
1,581
47%
