Archives December 2012

Salary growth slows in China

Consumption growth is expected to slow as salaries rise less than before. This could affect Beijing’s efforts to be less dependent on exports

Mainland wage gains have moderated on weaker corporate profits, capping consumer demand as the government seeks to sustain a rebound after a seven-quarter economic slowdown.

Average urban salaries rose 12 per cent in the first nine months from a year earlier without adjusting for inflation, slowing from 14.4 per cent for all of last year and 13.3 per cent in 2010, government data shows. Restaurant operator Yum Brands reports smaller pay increases, and labour ministry data shows the same for minimum wages.

Deeper declines in wage growth would undermine efforts by the new leadership under Xi Jinping to boost consumer spending and shift the world’s second-biggest economy away from dependence on investment and exports.

Overcapacity in manufacturing is weighing on profits, with the latest reading due today when the statistics bureau releases industrial companies’ net income for the year to October.

“Given the poor profit picture, wage growth is bound to slow down in the coming quarters and this is set to reduce the robustness of consumption,” said Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong, who formerly worked at the World Bank in Beijing.

“The expected slowdown will impact the rebalancing in the sense that it will reduce the relative role of consumption in the short term.”

Li Keqiang, the second-highest ranked official in the new Communist Party leadership and set to take over from Wen Jiabao as premier in March, said last week that household spending is key to boosting local demand. Minimum wages rose an average 19.4 per cent in 18 provinces this year up to September 30, government data shows.

That follows nine-month gains of 21.7 per cent in 21 provinces last year and 24 per cent in 30 provinces in 2010. China has targeted an annual average increase of 13 per cent for 2011-15.

Consumption, which includes government and household spending, fell to 49.1 per cent of gross domestic product in 2011 from 59.6 per cent in 2002, when Hu Jintao began his decade as Communist Party chief.

Last year’s figure was close to the lowest contribution since China’s reform and opening up policy started in 1978, government data shows.

“Changing this model has become of paramount importance if China is to avoid a disruptive bust in investment in the next one to two years and lapse into a middle-income trap in the medium term,” George Magnus, senior economic adviser at UBS wrote last week, referring to growth slowdowns in developing nations after incomes rise.

In his last major speech as Communist Party chief this month, Hu vowed to double per capita income by 2020 from 2010, a target that HSBC estimates would signal real growth of about 7 per cent a year.

China’s economy expanded 7.4 per cent in the third quarter from a year earlier, the slowest pace in three years. Analysts forecast a rebound in the October-December period to 7.7 per cent, based on the median estimate in a survey this month.

Growth in investment growth has outpaced consumption for years, posing dangers including higher bad debts, overcapacity, lower profitability, environmental degradation, social instability and external imbalances, according to the World Bank and International Monetary Fund.

The global financial crisis exposed the risks to China’s economy from its dependence on exports as shipments fell for 13 months and about 20 million migrant workers lost their jobs.

Yum Brands, the US-based operator of KFC and Pizza Hut restaurants which has about 5,000 outlets in China, had a smaller increase in labour cost of 8 per cent in the last quarter for the third quarter running.

“Food inflation is falling, so there is less need to help minimum-wage workers,” said Alaistair Chan, a Sydney-based economist for Moody’s Analytics. “Median wage growth will naturally slow as it gets higher, because productivity gains slow” and diminishing returns to capital and labour set in, Chan said.

Consumer prices increased 1.7 per cent in October from a year earlier, down from a three-year high of 6.5 per cent in July 2011. Food costs rose 1.8 per cent last month, down from an 11.9 per cent gain a year earlier.

Government goes to public in search for 3 school chiefs

The Ministry of Education has launched a recruitment campaign as it seeks high-end talent to fill the top positions of three domestic universities.

From Dec 4 to 23, interested candidates can check the official website of the ministry at www.moe.edu.cn and apply for the positions of president at one of three universities – the University of Science and Technology Beijing, Beijing University of Chinese Medicine, and China Pharmaceutical University, in Nanjing, Jiangsu province.

This is the second time the Ministry of Education has publicly recruited top leaders for its affiliated universities.

The previous round, which began in December 2011, included openings for two university presidents and six university chief accountants, and had multiple layers of screening that ended in March.

In this round of recruitment, the ministry adapted requirements for candidates that focused on two things: the candidates must have rich experience in management of high-level universities and possess administrative skills, and they have to guarantee their complete immersion in university management once they are selected.

Currently, China has 76 universities affiliated with the Ministry of Education. Presidents and deans in these universities have administrative rankings corresponding to official levels in the ministry. And almost all university presidents were designated by the ministry or by the Organization Department of the Communist Party of China Central Committee.

“The new requirement means that once they are selected as university presidents, they have to quit their own scientific research, and dedicate themselves to university affairs full time,” said Xiong Bingqi, deputy director of the 21st Century Education Research Institute.

“The new requirements reflect the ministry’s purpose in recruiting the university presidents publicly – the ministry officials want our universities to have professional presidents who are impervious to the influence of administrative power,” he said.

The power of bureaucrats in China’s universities has been widely criticized since 2007, when Zhang Ming, a professor of Renmin University of China, showed on the Internet how deans abuse their administrative power to influence academic research.

In the following years, many universities in China have tried various attempts to break administrative power. One of the most famous cases is that of Zhu Qingshi, principal of the South University of Science and Technology, who tried to start a university from scratch so that the university could stand independently, apart from bureaucracy.

Zhang Zongyi, who was selected president of the Southwestern University of Finance and Economics, said the ministry’s public selection was tough.

“When I applied for the president position, I did not expect it to be so difficult. I actually thought it would just be some interviews,” Zhang said in an interview with the Beijing News on Tuesday.

When Zhang gave his campaign speech, he found that students, professors and staff and even retired university staff and alumni of the Southwestern University of Finance and Economics were sitting in the hall listening to his speech.

“To ensure fair competition, all the candidates handed out our cell phones in the interviews,” he was quoted in a report by the newspaper.

However, Xiong Bingqi, the education expert, said the effect of the public selection is “rather limited”.

“First, although any candidates who meet the requirement can participate in the public selection, the expert committee who decide the result are from the ministry rather than any independent college councils,” he said.

“Second, the selection included public opinion evaluation on the candidates, but the ministry did not disclose the results to the public.

“To make some real progress on reducing the administrative power in universities, the ministry will still have to improve the public selection.”