Minimum Wages go up in Pearl River Delta, but not fast enough

Posted: April 1, 2011 in China, Economic Development
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Image by IK's World Trip via Flickr

Today, 1 April, the minimum wage in China’s Guangdong province increases from 1100 to 1320 yuan per month (about 200 USD).

That is a 20% wage increase (on top of a similar increase last year) which, to Western ears, probably sounds generous. Moreover there have been reports elsewhere of foreign companies deciding that China is no longer so attractive as a low-cost manufacturing centre, and deciding to invest elsewhere.

It might sound like the game is up; Chinese workers have attained higher wages and fair wage campaigners can move their focus elsewhere. However those seemingly generous figures mask the reality that runaway growth is accompanied by runaway price increases and a 20% pay increase may still not be enough to keep pace.

I recently spoke with Geoffrey Crothall of China Labour Bulletin who explained that cost of living expenses in the Pearl River Delta are increasing faster than the minimum wage:

  • Housing costs in the region are rising fast with small one-bedroom apartments renting at about 500-700 yuan a month; over half the minimum wage. The alternative is to live in employer-provided dormitories.
  • Food is vulnerable to unpredictable cost spikes and has been for some time. Garlic for example recently increased tenfold in price, although it did later return to a more reasonable level. To use a slightly tacky but perhaps surprising example, the cost of a Big Mac will increase by 70% this year. Overall, food price increases of 10-20% are not unusual.
  • Transport costs are also increasing.

Workers in the manufacturing sector are less affected as their wages currently average 2000-3000 yuan a month. It is those in the white collar service industries who are being hit hardest, e.g. teachers are only paid the minimum wage. Why the difference? Manufacturing workers are currently in a stronger bargaining position and have been able to negotiate wage increases higher than the minimum wage. White collar workers are not organised and suffer as a result.

Also the factories of the PRD were built in the first stage of China’s economic boom, 20 years ago. If you were a manufacturing worker, wouldn’t you rather work in a more modern factory such as the ones in Shanghai’s hinterland? Raising wages is a good step but the best thing Guangdong can do to improve its labour shortage problem is improve its working conditions.

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Comments
  1. Over the next few years government policy is to encourage movement of industrialisation into the interior, it’s already well understood that PRD wages are causing people to stay home after spring break and there’s been an annual exodus for the last 3 years leaving the region very short on labour.

    Low cost manufacturing is moving to places like Bangladesh and Thailand, one of the big challenges facing China now is to move to a more high-tech production base whilst still increasing the overall employment numbers.

    • Thanks for your insight Nick. So an impending boom in Chinese technical education. I wonder who will pay for it: the state, employers, students’ families or students themselves?

      • Usually here individuals are expected to pay for their own education – with very minor subsidies for universities and schools (which while very cheap by Western standards are bank breakingly expensive by local ones). In fact the worse the university, the more you have to pay – so every year when exams come up, parents (like my wife) pray that their children will score highly enough to get into at least a tier 2 university because almost no-one can afford to pay for a tier 3.

        Having said that, this is “China’s Year of Quality” a government sponsored measure designed to kick start the move towards better production etc. so there may be a little more subsidy from the government than usual and employers may be “encouraged” to cough up some cash too.

        What worries me is that there’s a certain inflexible attitude in the Chinese workforce as a whole and whether that can be remedied through education is a big question. The whole system here encourages conformity, but to move to high-tech high-quality you require far more independence of thought than the current social structures could ever allow for.

  2. […] Minimum Wages go up in Pearl River Delta, but not fast enough […]

  3. […] would rise and processes would be improved. Today that’s no longer how it works. As the wages of the workers of Guangdong increase, the companies sourcing their products are simply moving on to lower cost countries, or even lower […]

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