Wage Inflation Rampant In China As More Provinces Plan Minimum Salary Hikes

Tyler Durden's picture

Several days ago we highlighted that wage inflation in China spreading after Shanghai announced it would hike minimum salaries by 10%. Today, through Global Times we learn that this is just the beginning. Or the continuation rather: it seems that 30 provinces had already hiked minimum wages in 2010: "By the end of 2010, 30 provincial-level regions had raised the standard for the minimum wage, with an average increase of 22.8 percent year-on-year., Yin Chengji, spokesman for the Ministry of Human Resources and Social Security (MHRSS), said Tuesday. According to him, 29 provinces have issued the guideline for the minimum wages, and the benchmark line grew about 2 percent. In Shanghai, the local minimum wage was the highest nationwide, totaling 1,120 yuan ($170.2) per month." And 2011 will be even worse: " Also, according to a China Business News (CBN) report Tuesday, in 2011, many areas would continue to raise the standard. A Xinhua News Agency report Wednesday revealed that northern Chinese
city of Tianjin is considering raising the minimum working wage by 16
percent this year amid rising inflationary pressure and labor shortages." We are confident America's workers will be delighted to know that Bernanke's massively destructive monetary policies are finally resulting in higher salaries... In China. But wait: this also means US consumer purchasing power is about collapse as since very soon all imported Made in China trinkets are about to get far more expensive as already razor thin margined China producers scramble to raise costs to their primary export market.

From Global Times:

Ppreviously, Jiangsu, Guangdong provinces, Beijing and Chongqing had announced to raise the minimum wages this year. Guangdong's wage adjustment range even reached 18.6 percent, according to the report. Shanghai mayor Han Zheng also said recently that the city will raise the minimum wage by more than 10 percent this year.

Debates on whether the minimum wages should be raised have put the government in dilemma: to improve the life of low-income people or to maintain enterprises' economical profits and ensure employment.

A Boss from a Dongguan-based shoe manufacturer said that Guangdong's 18.6 percent adjustment was really high and posed risks to him. He added that although the wages in his factory are higher than the standard now, lifting the standard brings higher expectations from employees.

While according to Han Zhaozhou, head of the Education College of Jinan University,  enterprises that did not perform well should blame its own management and operation, not salaries; and the rises of the minimum wages is helpful to the transformation and upgrading of enterprises in the Pearl River Delta. He added that the current labor shortage is driving Guangdong to raise the minimum wages.

Some may remember the wage strikes that crippled Chinese auto manufacturers in late 2009 and early 2010. Many more of those are coming. But not in the US: where Americans are delighted just to have jobs. Even if it means getting a progressively smaller wage, and paying ever more for virtually everything. At least they can console themselves that Core CPI components, such as home prices which is most certainly dropping, are confirming to the Dictator that his policies are working out really well... for the bankers.

h/t Allen


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Jason T's picture

Americans slave labor wage made goods about to go up even more.. expect even more debasement in quality of products sold and your monopoly big box store located near you. 

dlmaniac's picture

You can tell China will someday go down as well now that they start to adopt Western welfare junk such as minimum wages.

EscapeKey's picture

What's the alternative over there? Riots?

tmosley's picture

Sever the dollar peg.

There is NO reason for them to cripple their economy for the sake of their exporters.  

Popo's picture

Their economy is their exporters.

And of they sever the peg, which way do you believe the yuan would go?

zaphod's picture

But the People's Daily last week during Hu's visit to Washington declared China to be the #1 power in the world which all other countries should bow down to.

That must mean that they plan to match the western world's minimum wage of around $15K, or 100x over their current minimum. Good luck with that Hu.

Rogerwilco's picture

And as everyone knows, higher wages always lead to lower prices. The Mentos just fell into the bottle of soda.

raya123's picture

This is one reason why QE will NOT result in higher equity prices for much longer.

johnnymustardseed's picture

The FED is buying stocks, it will gone on till the FED is dead

raya123's picture

The Fed is not buying stocks, the banks that receive the Fed's money are buying stocks.  When companies show reduced profit margins as a direct result of QE induced inflation, those banks will put their money elsewhere in a hurry.  

dick cheneys ghost's picture

newby here, what happens to US when china crashes? thanks for your answer

DonnieD's picture

and Harry will agree with his bullishness.

Quinvarius's picture

And Nic Lenoir will call the tops in gold and the Euro for billionth time.

Internet Tough Guy's picture

Ponzi is dying; if china raises prices Americans can't buy stuff. If American consumers spend all their money on commodities they also can't buy Chinese stuff. No cheap stuff, no dollar recycling.  

Dr. Richard Head's picture

With China imposing wage and price controls I assume we can see shortages of vital goods needed by the Chinese people, that is if history repeats in the face of wage and price controls.  Secondly, Chinese minimum wages are being forced higher which should result in margin squeezes of the Chinese producers.  Sooner or later those higher input costs will translate to high prices of Chinese exports.  Americans will see this show up in the cost of good bought from China.  It's not that China will crash, it is that their currency is, just like the US, being inflated to make up for government expenditures that could not possibly be covered by taxes. 

We are experiencing the race to the bottom in currencies.  The question is then which country has their respective currency crisis first? 

DonnieD's picture

Investment theme for 2011, Life Insurance policies on FoxConn employees.

sushi's picture

It is hard to get good data but what I have seen is that Chinese value added is around 5% of final selling price of the good in the USA.

I agree that the Chinese producer margins will get squeezed if they are unable to pass costs through. But I think we will also see US margin squeeze due to higher input costs, higher transport and the cost of labour. THe US workers who still retain thier jobs are likely the higher priced marketing, legal, logistics, and design functions and they will start demanding they be made whole on their increased cost of energy, transport and food.


I doubt there is much room for further removal of labour costs. US firms all slimmed down over a year ago and this is what is giving rise to the "green shoots" qrtly reporting. But by 2H I think we start to see serious cost push inflation in US. I eagerly await seeing what "Bubbles" Bernanke does during his 15 minutes devoted to redressing the problems created over the past 20 years.

topcallingtroll's picture

China dies first. Food inflation harms most the countries where a higher percentage of family income is spent on food. Die china die.

sushi's picture

And if your family income is food stamps?

I think there are 47 million Americans who would like to correct your understanding of global inequities.

SilverRhino's picture

There's a difference in being on food stamps and spending 60% of your income for cold raw foods like grains, meat and other completely unprocessed products.  

And the bottom 13-15% of the US population is going to get hammered anyway.  (~47 million)

Not saying that QE is right, but we're definitely in a hot economic war at this point with China and the rest of the currency pegged nations.

AnAnonymous's picture

the rest of the currency pegged nations.


Could a list of these countries be provided?

Because it looks like very a posteriori. A country has issues, that is because it has a pegged currency.

Providing a list before any event would work better.

raya123's picture

China started its downtrend several months ago, check the charts of their index.  We will be following shortly.

williambanzai7's picture

The great circle of Ponzi life

Yen Cross's picture

Hey they gotta sell all that GHOST property. Remember the GDP based on to some extent the QE PACKAGE THAT pboc PUT IN PLACE. Speculation=empty cities. 1.6 billion and growing.

johnnymustardseed's picture

Unionize!!! That will help level the playing field

Cognitive Dissonance's picture

We are confident America's workers will be delighted to know that Bernanke's massively destructive monetary policies are finally resulting in higher salaries... In China.

Typical of the USA.

America comes down with a raging case of VD and everyone else suffers before America does.

tmosley's picture

They should have made us use a condom, clearly.

EscapeKey's picture

Well, it's nothing in comparison so what will happen to the States when major countries start dropping the Dollar on a large scale.

Spalding_Smailes's picture


China Inflation And The Impact On Your Business

By:  Steve Dickinson - China Law Blog

There are two related economic issues that are of primary importance to ordinary Chinese people. The first is the inflation in prices of basic necessities such as housing and food. The second is the lack of wage growth in the manufacturing and service sectors. Today’s China Daily (January 4, 2011) featured five separate articles dealing with these issues.


..... The headline article of today’s China Daily reports that the PRC All China Federation of Trade Unions (ACFTU) is pushing for legislation that will establish the formal rules for mandatory collective wage bargaining in China. While China mandates that all businesses permit the formation of unions, there is no corresponding set of national laws or regulations concerning mandatory collective bargaining. However, a number of local governments have adopted local rules and “guidance” concerning mandatory wage agreements. The ACFTU assert that where collective bargaining has been used over the past 10 years under these local programs, worker’s wages are 15% higher on average than wages for workers in the same sector without collective bargaining. In a related article, the China Daily reports that the Beijing Municipal Federation of Trade Unions has adopted a three year plan to establish collective wage bargaining in 80 percent of the city’s unionized enterprises. Once Beijing takes the lead, other local governments are certain to follow, even without any national legislation on the issue."................




John McCloy's picture

  The plan to make items for cents on the dollar and sell them to American debt cattle works wonderfully until China realizes that nobody else can compete with their costs so they raise them to stave off domestic unrest and grow wealthier because we are in a box. 

    This plus rising commodity costs make it inevitable for the eventual attempt to pass on costs to American consumers. Ben's window to print to prosperity is closing at a quicker rate every single day.

Dollar Bill Hiccup's picture

The "Consumer" is dead. Long live the Consumer!

The question is, what will replace him. Gary Cohn of Goldman Sachs tells the FT that hedge funds are dangerous because they will not be regulated and the logic I suppose is that Goldman Sachs, the hedge fund, should be allowed to expand in its masquerade as Goldman Sachs the Bank, unfettered by the burden of having to explain God's work to anyone except regulators who are on the payroll. The recent news out of God's Bank is the elevation of a new head of Emerging Markets, which again the FT explains is where the Divine Bankers wish to convert the heathen into true, god fearing .... consumers!

Stop buying crap and break the chains. Cold Turkey on the addiction to Stuff. Then the Celestial Minions over at Goldamn can go ... stuff it.

hambone's picture

This is what we (corporations doing biz in China) have been seeing now for 6-9 months...but it is still picking up pace and same story accross Thailand, Vietnam, Indo...the inflation coming our way has to go full circle from our dollar printing to periphery inflation to periphery labor hikes back into the pipeline of product...but takes anywhere from 3, 6, 18 months till the full pricing impacts hit the commodities, then the suppliers, then the factories, and finally hit the corporations contracting out their manufactuing in Asia.

That's where we are now squarely, corporations left with the choice of maintaining top line or bottom line.  Margin or volume.  Can't have both in the US, EU, Japanese stagflationary markets (it is possible in the BRIC's and other emerging nations where there is true inflation).  If you raise price, you lower your volume.  Maintain retail price and margins are squeezed.  This is going to get real ugly cause corps have already off shored, outsourced, downsized, reduced capex (except in the service of the previous).  Now the trend of not just down sizing but moving all together may come on the table for HQ's currently in EU, US, etc. 

RKDS's picture

Sorry, but how about we just let the vapid pin-striped theives run away and cry to mommy commie like the little bitches they are?

EscapeKey's picture

About the best post I've ever seen from you! :)

Calmyourself's picture

Agreed, good stuff built a picture and illustrated it, nicely done, hambone..

OptionsHedge's picture

Nice to know the poor of the world are getting raises.

hambone's picture

They are losing pace even faster than we - they have true inflation of food, energy, etc. and wage increases are nowhere near to keeping up.  Talk to Chinese here and when in China and they'll tell you the real story.  Average $6000 wages in GZ or SH but food costs are comparable w/ US food prices.  Not likely to see many fat Chinese, Vietnamese, or Thai's anytime soon.

Temporalist's picture

I am waiting for Steve Liesman to explain how increased Chinese wages are beneficial for U.S. consumers by using props to show that when jaws drop from product price increases more air is inhaled thus making people lighter, happier and healthier, as well as the benefit from losing weight as they can afford less food.  Also since Walmart is being sued for price manipulation all the uber-wealthy customers that visit will be happy that isles are empty of the poor that normally would be shopping there.

hollywould's picture

i certainly wouldn't mind seeing some air let out of the sails of the chinese economy ... higher rates, higher wages, lower margins, increasing yuan, lower exports from increasing prices (whatever it takes) -- even if it only slows their gdp to 5 or 7%, markets worldwide initially get dinged, but US would recover from lower commidty costs ...

topcallingtroll's picture

Fuck those chinese peggers..they can stop the inflation at any time by floating the yuan...stealing our industrial base with currency manipulation and mercantilists policies is no longer pain free is it you chicoms?