Financial Times: Chinese province raises wages 13%

China Labour Bulletin appears in the following article. Copyright remains with the original publisher.

By Tom Mitchell in Hong Kong and Geoff Dyer in Beijing

7 February 2010

A decision by the province that is China’s second-biggest exporter to raise minimum wage rates has heightened expectations that other provinces and cities will soon follow, just as the central government’s attention is shifting from economic stimulus to rising inflation.

Eastern Jiangsu province, which exports more than Brazil and South Africa combined, raised its monthly minimum wage rate 13 per cent to Rmb960 ($140) last week. It was the first time the rate had been adjusted in two years.

The potential round of minimum wage increases comes amid signs that inflationary pressures are picking up in the Chinese economy after a rapid recovery in the second half of 2009, fuelled by a huge government stimulus programme. Government officials are debating whether to slow the pace of new loans and begin appreciating the currency to dampen inflationary expectations.

“This could be a red flag about wage inflation,” says Arthur Kroeber, editor of China Economic Quarterly. “Inflation in China is becoming systemic because of rising wages caused by a tighter labour market.”

In the immediate aftermath of the global financial crisis last year, local governments were reluctant to raise wage rates and put extra strain on already struggling factories. But now that officials are confident the worst is over for China’s export sector, they are more willing to address workers’ concerns.

“The economy is picking up again,” said Geoffrey Crothall, of the Hong Kong-based China Labour Bulletin. “Inflation and basic cost of living are increasing. It’s clearly in local governments’ interests to make some accommodation.”

Jiangsu’s adjustment of the highly symbolic minimum wage also reflects growing competition among different regions to attract migrant workers after the Chinese new year holiday, next week. Neighbouring Shanghai is expected to raise its rate by double-digits on April 1.

Beijing and cities in southern Guangdong province, the country’s biggest exporter, are considering adjustments. Deputies to Guangdong’s people’s congress have even suggested linking minimum wage levels to the consumer price index.

The consumer price index rose from 0.7 per cent in November to 1.9 per cent in December, which some economists believe is the start of a concerted rise in inflation. However, some analysts said the sharp jump in inflation could have been the temporary result of severe winter weather on vegetable prices and that inflation for January, which will be announced this week, will have moderated.

An estimated 20m migrants did not have jobs to return to after the country’s biggest holiday last year, as overseas retailers ran down their stockpiles and factories closed. But after orders began to recover during the summer, most migrants seeking work in coastal manufacturing zones were able to find jobs and local officials began to fret about incipient labour “shortages”.

“We have trouble getting staff because other factories keep popping up and offering workers as many hours as they want,” said one manager, whose Guangdong factories supply Walmart and other brand-name retailers. “Workers don’t want to waste time sitting on their butts when they could be making more money at another factory.”

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