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China – Wages to rise as manufacturing gives way to services

07 January 2014

Wages in China are set to increase by +10% in 2014. Driving more low-cost manufacturers out of the country, reports the Chinese dailystar.net. The ruling Communist Party is seeking to introduce the pay increases in order to retain public support; and to accelerate the nation’s shift away from polluting and capital-intensive manufacturing to a more service-driven economy.

Increases in the regional minimum wage that have been announced so far for 2014 include a +13% rise in Shenzhen in Guangdong province and a +15.6% rise for those in Yangzhou in Jiangsu province.

Shen Jianguang, Chief Asia Economist for Mizuho Financial Group in Hong Kong, commented: “The trend of shifting low-end manufacturing bases to Southeast Asian countries will only accelerate.” He added that the strengthening currency and tougher controls on pollution in China are also contributing to factories relocating to other nations; such as Bangladesh, Vietnam, and Cambodia.

According to the central government’s five-year plan from 2011-2015, the minimum wage should increase by +13% per year with the level reaching at least 40% of the average urban salary by 2015.

China’s wage gains were slowing, with the average urban salary rising by +11.9% in 2012, down from +14.4% in 2011, according to data from the National Bureau of Statistics. 

Rising wages have already pushed some high profile companies, such as Nike, to seek lower labour costs in countries like Vietnam. The risk for China and President Xi Jinping is a deeper economic slowdown should the transition to higher-value manufacturing falter.  

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