Category Comp, Salary & Benefit

People hope for higher pay next year

‘Will I get a pay rise?” This question is foremost on almost every wage earner’s mind as the year nears its end.

The question, however, got a positive response from the two-day Central Economic Work Conference, which concluded on Dec 16, as the new Chinese leadership made economic restructuring by boosting domestic consumption and improving people’s livelihood two of its six key tasks for next year. Increasing people’s income, no doubt, will play an important role in achieving the two goals.

Accomplishing the goals will not be an easy task, though.

The income distribution reform plan, scheduled for later this month, has been deferred again until at least next March. The repeated delays in the implementation of the plan show how difficult and complex economic reform in China is. The Chinese leadership, however, should be more determined now than ever to implement the reform because the wealth gap has widened alarmingly.

The yawning income gap has further pushed up China’s Gini coefficient – a widely recognized measure of wealth inequality, with anything above 0.4 being worrying. In a report published at the end of 2011, the National Bureau of Statistics said China’s Gini coefficient in 2010 was slightly higher than that in 2000, which it put at 0.412. A recent Southwestern University of Finance and Economics survey on China’s household financial conditions, however, put the country’s household Gini coefficient at 0.61 in 2010, compared with the world’s average of 0.44.

Though one or two surveys cannot reflect China’s true picture, the trend of widening income gap should be a warning to Chinese decision-makers.

Of course, the wealth gap cannot be narrowed by simply “robbing the rich to help the poor”, for it will not only create obstacles for the reform, but also lead to outsourcing of capital and even curbing economic growth. Nor can it be narrowed by forcing enterprises to raise the salaries of all their employees.

Maintaining growth is also a key task of the leadership next year. That means too heavy a burden should not be placed on enterprises. The impractical move of forcing enterprises to raise all their employees’ salaries will increase their human resources costs and deal a deadly blow to the smaller ones. Thus the government has to navigate through the difficult waters of income distribution reform to achieve the different and sometimes, more or less, paradoxical goals.

A recent report by Towers Watson, a global advisory services company, shows that Chinese enterprises remain cautious about pay rise in 2013, and the average increase is expected to be 9.3 percent, slightly lower than 9.6 percent in 2012. Such an increase is not disheartening. But more importance should be paid to narrowing the income gap between companies’ senior managers and ordinary workers.

Today, the income of China’s highest 10 percent earners is 23 times that of the lowest 10 percent, compared with 7.3 times in 1988. According to a report published by the Ministry of Human Resources and Social Security in October, the incomes of management personnel have increased much faster than that of ordinary workers over the past five years, with the yearly salary of senior management personnel of listed companies rising from 291,000 yuan ($46,648.6) in 2005 to 668,000 yuan in 2010, an average increase of 18.1 percent.

Enterprises’ salaries ‘to rise 9.3%

Chinese enterprises expect an average salary increase of 9.3 percent next year, consulting firm Towers Watson said in a report.

The growth rate is a bit lower than the 9.6 percent for 2012, the report said.

“As retaining talented staff is becoming increasingly difficult these days, most enterprises have been striving to offer staff a competitive salary, but the inflationary pressure should not be under estimated,” said Xu Wenzong, general manager of Towers Watson China.

Geographically, in high-tech areas such as Shenzhen and Dongguan, salary expectations hit 10 percent, higher than the national average.

Guangzhou’s salary ranks first in 26 cities

Non-private sector workers in Guangzhou enjoy the highest salaries among 26 provincial capitals and municipalities across China, according to data released by the local statistics bureau.

Guangzhou leads the list with a 57,473 yuan ($9,052) annual salary, while Beijing ranked second with an annual salary of 56,061 yuan. Nanjing ranked third with an annual salary of 54,713 yuan.

In 2011, the national average salary for non-private sector workers was 42,452 yuan.

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.”

Most companies in China to hike wages in ’11: Survey

About three quarters of companies operating in China expect to increase wages by over 5% in 2011, a survey by British recruitment firm showed on Wednesday.

The finding comes amid a boom in China’s middle class, a result of the country’s economic success, and highlights the high inflationary pressures in the pipeline as well as rising costs faced by many companies.

Most companies in China to hike wages in ’11: Survey

Chinese employees “are now in a stronger position than they were previously. They have a much better understanding of their worth in the market place and are aware of their bargaining power,” said Nigel Heap, managing director of Hays Asia Pacific.

The annual salary survey of more than 5,000 employers based in Shanghai and Beijing showed more than half expect to increase salaries between 6-10% over the next 12 months while a third intend to hike them by more than 10%.

Wage inflation is being propelled by fast economic growth in smaller or so-called tier-two cities, which has given hundreds of millions of migrant workers the option to return home where the cost of living is cheaper, Heap said.

Labour demand has risen significantly in tier-two cities following massive investments by the government in the past two years to develop inland areas, he said.

Rising wages put pressure on inflation although that is being compensated for by even faster gains in productivity for now. Data showed on Tuesday core inflation, stripped of volatile food prices, jumped to its highest in at least a decade in January.

Still, the Chinese government is encouraging wage hikes as it wants to boost consumer spending and reduce the economy’s reliance on exports.

In January, the city of Beijing raised the minimum wage by 21% while Shanghai’s mayor has said he plans to raise it by more than 10% this year given the fast pace of development and soaring food prices.

Guangdong province, the mainland’s manufacturing hub, will reportedly raise its minimum wage by an average 18.6% from March.

Multinationals operating in China such as Yum Brands Inc have already seen commodity-induced cost inflation eat into their profit margins.

The owner of the KFC, Pizza Hut and Taco Bell fast-food chains forecast this month rising 2011 labour and food costs in China and said that modestly raising prices in its top growth market would help mitigate that pressure.

China bonuses outdo Hong Kong, Singapore

HONG KONG (MarketWatch) — Chinese companies plan to pay out larger discretionary 2010 year-end bonuses, as a percentage of base salary, than companies in Hong Kong or Singapore, according a quarterly survey released Thursday by recruitment firm Hudson. About 20% of China companies surveyed will pay bonuses equivalent to 20% or more of base salary, while only 16% of firms surveyed in Hong Kong, and 15% of Singaporean companies will be as generous. China companies also outpace their counterparts in terms of the percentage planning any sort of bonus packets, with 92% of companies to offer the payouts, compared to 87% in Singapore and 82% in Hong Kong, the report said.

China raises the compensation rate of work-related injury insurance

China has raised the compensation to be paid through work-related injury insurance during a regular meeting of the State Council chaired by Premier Wen Jiabao on Wednesday.

Regulation on Work-related Injury Insurance and the measures for the control of invoices were revised at the Wednesday meeting.

According to the revision, the compensation to families of those who die from work-related injuries has been raised to 20 times the per capita disposable annual income in urban areas. For work-related disability, the compensation rose by one to three months of salaries of the insured employee.

The revision has also widened applications of the regulation. Previously, only enterprises and small business employers were obliged to pay the premium, but now public institutions, social groups, non-profit grass-root organizations, foundations, law firms and accounting firms will also provide their employees with work-related injury insurance.

The revised measures on management of invoices calls for strict punishments to those engaged in producing, selling and using fake invoices.

China wages to rise as labor shortages grow

(Reuters) – The frustrations of companies in coastal China trying to hire enough workers may become a permanent headache, foreshadowing higher wages, according to a top labor economist.

CHINA

Labor shortages, especially in export hubs in China’s coastal provinces, have intensified since last month’s Lunar New Year holiday, when tens of millions of migrant workers headed back from coastal factories to their home villages.

Beijing regards the bottlenecks as a temporary, regional phenomenon. But Cai Fang, head of the Institute of Population and Labour Economics with the Chinese Academy of Social Sciences, disagreed.

“It’s certain that the migrant worker shortage is here to stay in China,” Cai told Reuters.

Factories are finding it tough to recruit even though China’s working-age population, in the 15-64 age bracket, will not peak until 2015.

Cai said wages for China’s 150 million or so migrant workers increased 19 percent in 2008 and 16 percent in 2009, even though exporters were hit hard by the global financial crisis and more than 20 million migrants lost their jobs.

The manager of a shoe factory in the eastern city of Wenzhou said he had been unable to hire 300 workers despite adding 200-300 yuan per month to last year’s average salary of 1,500 yuan ($220).

“This year we have a lot of orders, but the problem is we don’t have enough workers,” he said. Raising prices was not an option because of competition from newly opened factories, so profits were being squeezed, the businessman added.

SHIFT INLAND

“There is little doubt about the long-term trend of rising wages in China,” said Cai, a standing member of the National People’s Congress, China’s largely ceremonial parliament.

Economists at China International Capital Corp agreed that the end of China’s demographic dividend would help increase labor’s share of national income, driving up consumption.

“Judging from the experiences of Japan and Korea, we are particularly positive about urban consumption of such goods as vehicles, travel services, healthcare, culture and entertainment, as well as the fast growth of rural appliance sales in China over the next few years,” they said in a report.

Labor typically accounts for less than 10 percent of manufacturing costs in China, but businesses, many working on thin margins, also face the risk of a rise in the yuan.

Businesses have been able to absorb higher costs by increasing productivity. More and more companies have also been shifting production inland, where labor costs are lower — a trend that Cai expects to gather momentum.

“A monthly salary of 1,500 yuan in Guangdong may be too low to attract workers; but if that pay is on offer in an inland city, people are willing to take the job,” he said.

Cost pressures will also force companies to climb the value ladder — a key objective of the government’s economic policies.

“Sweatshops in coastal areas with low wages, poor working conditions and narrow profit margins are set to go bust,” Cai said. “The process of industrial upgrading will speed up.”

And as workers become harder to attract, local governments will have to shift from being “pro-capital” to “pro-labor,” for instance by raising minimum wages and making it easier for migrants to settle in cities with their families, Cai said.

In Guangdong, which accounts for about 30 percent of the country’s exports, the local government plans to raise its minimum wage by more than 20 percent.

China’s efforts to create more jobs pay off: minister

China’s proactive employment policies and measures in the wake of the financial crisis have generated positive results, Yin Weimin, Minister of Human Resources and Social Security, said on Saturday.

China is expected to create over 11 million jobs in 2009, well above the target set in March this year, Yin said.

In a most important measure taken since the beginning of this year, millions of enterprises nationwide had been allowed to delay the payment of enterprise-contributed social security funds for up to six months, said Yin.

China’s social security system is made up of five parts — pension insurance, medical insurance, work injury insurance, unemployment insurance and maternity insurance.

The measure also temporarily lowered the insurance rates for medical, work injury, unemployment and maternity. In the meantime, the government offered subsidies over the payment of social security funds for enterprises which were in financial difficulties.

Yin told Xinhua that this measure alone had eased corporate burden by nearly 33.9 billion yuan ($5 billion) in the first 10 months this year and more than 1.6 million enterprises had benefited from this measure.

According to Yin, China had generated 10.13 million new jobs in urban areas in the first eleven months, exceeding the government’s target of 9 million new jobs for the entire year.

The urban unemployment rate would likely stand at 4.3 percent by the end of this year, which also met the target of below 4.6 percent set in March, he said.

In 2008, China’s urban unemployment rate was 4.2 percent.