Wage rates are on the rise in the PRC. In contrast with European and US labor rates, stagnant for years, compensation for Chinese workers has been increasing above the inflation rate, which likewise is higher than European and US minimalist inflation rates. The Chinese floor is low, and millions of workers will continue to flock from farm to city. In a Milton Friedman world, one would project many years of meager increases in wages. But China is not a theoretical construct.

It is difficult to get reliable figures on actual compensation in China. Government statistics are available, but they fail to capture the full story. Two things are clear from what is known: wage rates are rising, and there are substantial regional differences in what workers earn. This is confirmed by recent increases in the statutory minimum wage throughout China.

As of August 2010, only 3 of China’s 27 provinces and only 1 of China’s self-governing cities had failed to raise the statutory minimum wage in 2010. China Daily, Aug. 19, 2010, p. 5. These four exceptions were reported to be about to announce upward changes. The increases as of September 2010 average 28.8% countrywide. This is far beyond the underlying inflation rate. It reflects both a catch-up, since biennial required adjustments were suspended in November 2008 because of the global economic crisis, and a governmental recognition that the benefits of China’s growth must be shared broadly.

Substantial regional differences are apparent. Unlike the US and European countries, which almost universally have national minimum wage rules, China permits differences among provinces and self-governing cities. The highest minimum monthly wage is for the City of Shanghai – 1,120 yuan (about USD 675). The lowest provincial monthly wage is 710 yuan (about USD) in the central province of Ningxia. In general, areas of existing strong manufacturing have much higher minimums than western and central China areas, although relatively low minimums can be found in Anhui and Jingxi provinces in the east. See table below.

The rise in minimums does not mean wages will suddenly jolt upwards. Most manufacturing employees get higher wages than the statutory floor. But the upward adjustment in required figures reveals several points about the Chinese economy. First, even the lowest ranking job will require a higher amount than before, indicating an upward trend in consumer buying power. Second, the higher rates mean very low-income employees will be able (and required) to put more into “endowment insurance,” a rough equivalent to the US Social Security system, meaning the strengthening of the government’s retirement system. Third, the increases confirm what has been seen in manufacturing sectors unaffected by the statutory minimum – that Chinese wage rates are in fact climbing well ahead of the underlying Chinese inflation rate.

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