Beijing Looks to Hike Average Wages

July 26, 2011 Posted by China Briefing Reading Time: 2 minutes

Jul. 26 – Beijing’s municipal government is set to release a new plan aimed at increasing average wages for the capital city’s citizens. Zhang Gong, director of the Beijing Municipal Commission of Development and Reform, said that the average wages of the city’s urban population increased 4.4 percent (after deducting price factors) in the first half of 2011, while the average wages of the city’s rural population increased 6.5 percent. The local government’s goal was 7 percent. The report said the municipal government will raise wages at the same time to curb inflation. It proposed a policy with details and will announce these shortly.

The proposal differs from previous mandatory wage increase proposals, which have been based on the minimum wage. China has already long indicated its desire to raise the welfare of the poor within its social strata, and is embarking on a national program that will see the minimum wage double from 2010 to 2014. This also raises the amount of mandatory welfare payments due on behalf of employers, in part a move to provide better security and financing for China’s increasingly grey population and their pension requirements.

This new move increases the mean average of wage increases as it does so from a higher salary base. The danger in doing so, however, is twofold. Linking wage rises to ”average” salary levels does not necessarily recognize professional distinctions, and tends to promote the lazy or incompetent to the same income level as more talented or hard working individuals. This can lead to dissatisfaction within the workplace and inter-company unrest, resulting in additional increases for more talented staff. This can create a never ending cycle of wage increases until the viability of the enterprise becomes threatened.

In aligning wage increases to inflationary pressures, the proposal would also effectively create a government-backed policy of raising set wage levels to combat inflation. That can be self-defeating, as wage levels are a contributing factor to inflation as goods cost more. If successful in getting this proposal passed, the Beijing government would be passing an increased financial burden onto commercial businesses while actually contributing to, rather than alleviating inflation. The recent habit of China’s government in doing so, and the assumption that commerce can be squeezed indefinitely, is now starting to impact negatively on the health of businesses operating in the country. Businesses also suffer from inflationary pressures, and adding to salary costs – one of the main overheads of a company – with no other anti-inflationary measures in place for the commercial marketplace is not sustainable.

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