Bloomberg News

Shanghai Raises Minimum Wage 13% as China Seeks to Boost Demand

February 28, 2012

Traffic moves through the Pudong area in Shanghai, China. Shanghai has a population of 23 million. Photographer: Nelson Ching/Bloomberg

Traffic moves through the Pudong area in Shanghai, China. Shanghai has a population of 23 million. Photographer: Nelson Ching/Bloomberg

China’s financial hub of Shanghai joined Beijing and Shenzhen in boosting the minimum wage this year as policy makers seek to spur consumer spending and a shrinking labor surplus pushes up salaries.

The nation’s most affluent city will increase the wage by 13 percent to 1,450 yuan ($230) a month starting in April, the Shanghai human resources and social security bureau said in a statement on its website today. It’s the 19th adjustment since the city’s minimum wage rule was established in 1993, according to the statement.

Policy makers in the world’s second-biggest economy are trying both to keep inflation in check and shift the nation’s economic growth toward domestic demand. Promoting consumption by raising wages would facilitate such a transition, said Tim Condon, chief Asia economist at ING Financial Markets in Singapore.

Increased company profits over the past decade “means producers have the wherewithal to increase salaries,” Condon said.

In 2011, 24 provinces and municipalities raised minimum wages by an average of 22 percent, according to the Ministry of Human Resources and Social Security. Shanghai’s rose by 14 percent.

China plans to raise the level by an average of at least 13 percent annually from 2011 to 2015, according to the national 12th Five-Year Plan that covers those years. The government suspended increases in minimum wages in 2009 to help companies weather the global financial turmoil. Thirty provinces raised minimum wages in 2010 by an average of 22 percent.

Beijing, Shenzhen

Shanghai has a population of 23 million. Beijing, the nation’s capital with 19.6 million people, raised the minimum wage by 8.6 percent to 1,260 yuan a month on Jan. 1. Shenzhen, a manufacturing hub of 13 million people bordering Hong Kong, increased minimum payments by 13.6 percent in February. The southern region of Guangxi increased its wage by about 22 percent in January.

China’s economic expansion slowed last year as Europe’s debt woes curbed global growth and Premier Wen Jiabao’s campaign to cool gains in housing and consumer prices damped demand. Inflation unexpectedly rebounded to 4.5 percent in January from a year earlier, as spending during the weeklong-Chinese New Year holiday pushed up prices.

The nation created 12 million new jobs last year, 3 million more than the government’s target for 2011, according to the labor ministry. The urban registered jobless rate was 4.1 percent at the end of 2011, compared with the government target of keeping unemployment under 4.6 percent.

Labor Pool

China’s working-age population, which has expanded 2.5 percent a year over the past three decades, has almost stopped growing, according to Richard Jackson, director of the Global Aging Initiative at the Center for Strategic and International Studies in Washington.

“China has passed the demographic turning point, with little excess labor left,” saidZhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Plc. “I do expect wages to continue rising at a fast pace, mainly because the labor market is becoming tight structurally.”

Overseas orders are slumping and rising wages are making it tougher to do business in China, Stanley Lau, deputy chairman of the Federation of Hong Kong Industries, said last month. The group represents Hong Kong business people with factories in the Pearl River Delta area, which covers a region including southern Guangdong province. It has about 3,000 company members, mostly manufacturers selling goods overseas. “Many manufacturers are going to contract or close down,” Lau said.

--Zheng Lifei. With assistance from Sophie Leung in Hong Kong. Editors: Scott Lanman, Nerys Avery

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net.

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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