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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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Wed, 01/26/2011 - 16:31 | 907110 Jason T
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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. 

Wed, 01/26/2011 - 17:26 | 907309 dlmaniac
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You can tell China will someday go down as well now that they start to adopt Western welfare junk such as minimum wages.

Wed, 01/26/2011 - 17:33 | 907338 EscapeKey
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What's the alternative over there? Riots?

Wed, 01/26/2011 - 18:01 | 907448 tmosley
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Sever the dollar peg.

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

Thu, 01/27/2011 - 00:34 | 908505 Popo
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Their economy is their exporters.

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

Wed, 01/26/2011 - 20:35 | 907854 zaphod
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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.

Wed, 01/26/2011 - 16:32 | 907113 Rogerwilco
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And as everyone knows, higher wages always lead to lower prices. The Mentos just fell into the bottle of soda.

Wed, 01/26/2011 - 16:33 | 907118 raya123
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This is one reason why QE will NOT result in higher equity prices for much longer.

Wed, 01/26/2011 - 16:40 | 907142 johnnymustardseed
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The FED is buying stocks, it will gone on till the FED is dead

Wed, 01/26/2011 - 16:42 | 907147 johnnymustardseed
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it will go on till the FED is dead

Wed, 01/26/2011 - 16:50 | 907175 raya123
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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.  

Wed, 01/26/2011 - 16:34 | 907123 dick cheneys ghost
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newby here, what happens to US when china crashes? thanks for your answer

Wed, 01/26/2011 - 16:43 | 907150 Dr. Porkchop
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Robo will post bullish charts.

Wed, 01/26/2011 - 16:44 | 907158 DonnieD
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and Harry will agree with his bullishness.

Wed, 01/26/2011 - 18:22 | 907520 Quinvarius
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And Nic Lenoir will call the tops in gold and the Euro for billionth time.

Wed, 01/26/2011 - 16:45 | 907160 Internet Tough Guy
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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.  

Wed, 01/26/2011 - 16:47 | 907165 Dr. Richard Head
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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? 

Wed, 01/26/2011 - 16:54 | 907194 DonnieD
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Investment theme for 2011, Life Insurance policies on FoxConn employees.

Wed, 01/26/2011 - 17:00 | 907218 sushi
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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.

Wed, 01/26/2011 - 17:09 | 907246 topcallingtroll
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China dies first. Food inflation harms most the countries where a higher percentage of family income is spent on food. Die china die.

Wed, 01/26/2011 - 17:41 | 907376 sushi
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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.

Wed, 01/26/2011 - 18:15 | 907496 SilverRhino
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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.

Thu, 01/27/2011 - 11:18 | 909296 AnAnonymous
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.

Wed, 01/26/2011 - 16:52 | 907186 raya123
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China started its downtrend several months ago, check the charts of their index.  We will be following shortly.

Wed, 01/26/2011 - 16:52 | 907187 Black Forest
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Recession, depression.

http://www.youtube.com/watch?v=gv7RXf9tMCI

 

Wed, 01/26/2011 - 16:36 | 907128 williambanzai7
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The great circle of Ponzi life

Wed, 01/26/2011 - 16:39 | 907137 Yen Cross
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.

Wed, 01/26/2011 - 16:39 | 907138 johnnymustardseed
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Unionize!!! That will help level the playing field

Wed, 01/26/2011 - 16:43 | 907145 Cognitive Dissonance
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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.

Wed, 01/26/2011 - 16:50 | 907176 tmosley
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They should have made us use a condom, clearly.

Wed, 01/26/2011 - 17:16 | 907268 EscapeKey
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Well, it's nothing in comparison so what will happen to the States when major countries start dropping the Dollar on a large scale.

Wed, 01/26/2011 - 16:43 | 907146 Spalding_Smailes
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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."................

 

http://www.chinalawblog.com/2011/01/china_inflation_and_your_business.ht...

 

Wed, 01/26/2011 - 16:43 | 907152 John McCloy
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  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.

Fri, 01/28/2011 - 07:55 | 912369 Dollar Bill Hiccup
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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.

Wed, 01/26/2011 - 16:54 | 907164 hambone
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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. 

Wed, 01/26/2011 - 16:58 | 907210 RKDS
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?

Wed, 01/26/2011 - 16:47 | 907166 Spalding_Smailes
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Wed, 01/26/2011 - 16:51 | 907183 Dr. Richard Head
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Wed, 01/26/2011 - 17:09 | 907247 MsCreant
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 Ω

Wed, 01/26/2011 - 17:17 | 907272 EscapeKey
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About the best post I've ever seen from you! :)

Wed, 01/26/2011 - 23:21 | 908368 Calmyourself
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Agreed, good stuff built a picture and illustrated it, nicely done, hambone..

Wed, 01/26/2011 - 16:50 | 907177 OptionsHedge
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Nice to know the poor of the world are getting raises.

Wed, 01/26/2011 - 16:57 | 907207 hambone
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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.

Wed, 01/26/2011 - 17:23 | 907299 Dollar Bill Hiccup
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Good digging Spalding!

Thanks for sharing.

Wed, 01/26/2011 - 16:55 | 907197 Temporalist
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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.

Wed, 01/26/2011 - 17:02 | 907225 hollywould
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 ...

Wed, 01/26/2011 - 17:04 | 907236 topcallingtroll
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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?

Wed, 01/26/2011 - 17:15 | 907263 hambone
hambone's picture

TCT,

this ain't just China - this is going on accross all of SE Asia (dollar peg or not).  To fucking say they have stolen our manufacturing base is a joke.  We gave it to them for free stuff.  We structured our corporations so they would have no allegiance or care for the host nations well being.  We structured it so the richest could overcome nations.  Now the weak West and Japan are at the mercy of the financiers, corporations, elite.  China did this to us?  No, no, no.  We fell asleep and gave away all our citizen rights and responsibilities to politicians and lobbyists.  We were too busy enjoying the fruits of our success to notice our success was an illusion. 

Blame the Chinese for our problems...pleazzzze.  They've got their own problems but they did not cause ours.  Look in the mirror America and you'll know who's responsible and who's also capable of fixing this.

Wed, 01/26/2011 - 17:35 | 907350 ThreeTrees
ThreeTrees's picture

+fucking1

Thu, 01/27/2011 - 04:48 | 908728 topcallingtroll
topcallingtroll's picture

Well, ok....fuck the financiers too and all the politicians who have ignored blatant chinese currency manipulation. There is plenty of blame to go around.

Thu, 01/27/2011 - 11:24 | 909316 AnAnonymous
AnAnonymous's picture

this is going on accross all of SE Asia (dollar peg or not).

 

Countries with no dollar peg, does it exist within the minds of the Peg war people?

I'd like a list of countries that are indeed pegged to the USD and therefore targeted by the US monetary policy.

Somebody came up with a country that was not dollar pegged. And the answer was that this country was very likely dollar pegged in the past and that their currency was never fully convertible to USD.

Washing hands, washing hands... Peg is the official excuse for the US monetary policy.

Wed, 01/26/2011 - 17:12 | 907255 chinaguy
chinaguy's picture

Minimum wages in China have been rising steadily for the past two years - over 100% in some places - food inflation in the past two years has also been over 100% on staples like pork & vegetables.

- It is getting increasingly expensive & a lot of manufactures are setting up shop in Thailand & Vietnam as a result.

Wed, 01/26/2011 - 17:20 | 907280 Spalding_Smailes
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Coach' announced ( yesterday ) they will be heading to India & Vietnam ...

 

 

..." Two articles in the China Daily today illustrate why wages must rise. In the first, the China Daily reports that housing prices in Shanghai are roughly the same as in Hong Kong. However, the average wage in Hong Kong is ten times higher than the average wage in Shanghai. This means the average person is simply shut out of the housing market. In a second story, the Daily interviewed a worker in a factory that assembles notebook computers. The worker stated that he will never purchase one of the computers he assembles because the retail price is equal to four months of his salary. The only real solution to these wage-price disparities is higher wages. In that same article, Zhang Yansheng, director of the Research Institute of Foreign Economic Relations at the NDRC is quoted as saying:


http://www.chinalawblog.com/images/blockquote.png); background-repeat: no-repeat; background-attachment: initial; -webkit-background-clip: initial; -webkit-background-origin: initial; background-color: #f3f3f3; background-position: 20px 23px; border: 1px solid #e0e0e0;">

China is now under pressure due to rising costs of labor, land, resources, energy and other factors of production, undermining the low-cost advantage of “Made-in-China” products. In about five to 10 years such low-cost advantages will be over for China.

The price/wage issue will not go away in China. It must become a central focus for all foreign companies who invest in China or who purchase product and services from China. The China Price will soon be resigned to the dustbin of history." ...................

http://www.chinalawblog.com/2011/01/china_inflation_and_your_business.ht...

 

Thu, 01/27/2011 - 11:27 | 909324 AnAnonymous
AnAnonymous's picture

 a lot of manufactures are setting up shop in Thailand & Vietnam as a result.

 

Kid me not. But I thought all this stuff was to bring jobs home, back in the US.

Are Thailand and Vietnam part of the US?

Wed, 01/26/2011 - 18:09 | 907256 chinaguy
chinaguy's picture

dbl pst

Wed, 01/26/2011 - 17:22 | 907290 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Identity crisis ... maybe it's time we ditch the "Consumer" moniker. Solves a lot of issues.

Gasp, arggh, oh no, lions and tigers and bears oh my!

What are we if not consumers?

 

Wed, 01/26/2011 - 17:28 | 907321 MsCreant
MsCreant's picture

Ben Bernanke to the World:

I am the Nightrider. I'm a ink injected printing suicide machine. I am the rocker, I am the roller, I am the out-of-controller!  

http://www.youtube.com/watch?v=UqzJkl1vV7I

In this version of the story of Ben, there are cops. In reality, not so much, just the crash.

Wed, 01/26/2011 - 18:05 | 907465 quasimodo
quasimodo's picture

To sum it up: No ticky no laundry bossman

Wed, 01/26/2011 - 18:35 | 907567 silver surfer
silver surfer's picture

The law of one price is gaining momentum globally, watch out for big adjustments in the coming years!

http://eh.net/encyclopedia/article/persson.LOOP

Wed, 01/26/2011 - 18:49 | 907611 OptionsHedge
OptionsHedge's picture

Yes, its true the nature of inflation in the emerging markets is more severe than here. That's why I like it when some of that inflation is offset by wage increase. Imagine their world if they get no raises and anyway they have to face raging inflation. My wages here though have stood still for the past decade when I dial in inflation.

Wed, 01/26/2011 - 19:28 | 907681 midtowng
midtowng's picture

But are these minimum wage laws even enforced?

Wed, 01/26/2011 - 19:34 | 907695 bingocat
bingocat's picture

The actual value add left in China from all those 'Made in China' trinkets we like to talk so much about is minimal. Chinese wage inflation is not going to make your iPhone cost more. Or your socks. The real 'manufacturing miracle' of China is not that the costs are lower than they are in Sri Lanka, Bangladesh, Laos, or anywhere else. It is that there is an infrastructure to get it all made and brought out, and that so little 'value add' is actually left on the spot, and because so little is left over, and the 'outsourcing of manufacturing' is in such demand, workers will jump ship to a new place quite quickly, but still manufacturing companies manage to find new people to fill the forever emptying seats, with no fewer iPads, Christmas toys, 'white goods', or clothes in western stores to show for it.

Wed, 01/26/2011 - 19:45 | 907720 Segestan
Segestan's picture

See what Nixon did opening the trade doors?  Should have never gave China technology now they will suffer higher wages and endure better living standards.. American Bastards!!

Wed, 01/26/2011 - 19:58 | 907756 stev3e
stev3e's picture

>>He added that the current labor shortage is driving Guangdong to raise the minimum wages.<<

I thought there was something like 1 billion rural poor in China, an endless sea of cheap labor???

Wed, 01/26/2011 - 23:08 | 908341 Common_Cents22
Common_Cents22's picture

Yeah why would they have any upward pressure on wages if they have millions of reserves in rural area?   Just to cover cost of rising food prices etc..? 

Thu, 01/27/2011 - 11:30 | 909332 AnAnonymous
AnAnonymous's picture

Migration is regulated in China.

Labour shortage in Guangdong means labour shortage in Guangdong, not China.

Sat, 01/29/2011 - 11:03 | 914901 stev3e
stev3e's picture

The gov't can make a policy change in no time - what's the problem?

Wed, 01/26/2011 - 21:26 | 908058 Buck Johnson
Buck Johnson's picture

The one guy and news agency article saying that this is the result of not only inflationary pressure but labor shortages also is full of it.  It's all inflationary, many people want and need work but they can't work at the salaries they where being offered especially with inflation rampant.  so they have to raise salaries to get workers who need the money to pay for goods and services that are going up in prices.  China is going through an inflationary spiral that will lead to hyperinflation.

 

http://www.johndclare.net/Weimar_hyperinflation.htm

Thu, 01/27/2011 - 02:12 | 908638 Moonrajah
Moonrajah's picture

I am sure Bernanke will proclaim this as a win for fleeced Americans. The logic is pretty simple, really. Since wages are rising in China, they are becoming less competitive than US. It could be the beginning of massive labour re-offshoring back to the States, for all we know.

FED FTW! /s off

Thu, 01/27/2011 - 13:42 | 909726 jmc8888
jmc8888's picture

Outsourcing only yields a temporary price decline.  Everything we outsourced, eventually becomes higher priced than when we outsourced it.

One time benefit, for a forever loss.  That's monetarism baby.

Of course, this time it doesn't have to do with regular idiotic free trade, it has to do with Xerox Bernanke.   *although if ben wasn't doing the keynesian dance, the trend was always the same anyways...higher prices on imports that used to be made here.*

Personally I don't see how Walmart doesn't realize they're fucked.  They're about to be either

a) raise prices as Chinese wages skyrocket (not to growth) but inflation...towards hyperinflation

b) when we right the ship glass-steagall, American Credit System (no Barack Paul monetarism), high tariffs will be there, and thus everything at China*Mart will be expensive. Something they should of seen coming for 40 years fwiw so don't cry for them.

Import More.  Lobby for Lower Tariffs (it's not freedom).  Save a penny.  That's Wal*Mart.

A penny saved is surely worth the job lost to save it...this time...next time it'll cost more...or be packaged in a smaller container...or both....but the job is still lost.  The unamerican profits made? Besides being fiat, was probably invested in toxic crap we'll eventually bail out again. 

The Question is monetarism

The Answer is Glass-Steagall

 

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