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Chinese Profitability Squeezed Further By Third Year Of Double-Digit Wage Gains

Tyler Durden's picture




 

For the third year in a row (since the crisis) average pay at private companies in China surge by greater than double digits - far outstripping GDP growth. 2012 saw a 17.1% nominal rise in average wages for private companies to Yuan 28,752 per annum (still 9% after inflation) but dispersion remains high with "significant gap among regions, industries and specific jobs in some sectors." The continued rise in wages, as the Wall Street Journal notes, is likely to put further pressure on an already pinched manufacturing and construction sector (which accounts for over 41% of all Chinese employment) especially in low-end and labor-intensive positions. With slowing growth (demand) and rising costs (labor, energy), the profitability of Chinese companies is increasingly tenuous and only hindered by potential actions of the central bank.

3rd year in a row of strong double-digit wage growth... and while growth slowed in nominal terms, it rose in inflation-adjusted terms...

 

Via WSJ,

...

 

The increase moderated slightly from the previous year in nominal terms but was actually faster when inflation was taken into account.

 

Average wages for employees at non-private enterprises were up 11.9% from the year before in nominal terms, to 46,769 yuan ($7,543), the National Bureau of Statistics said in a statement Friday, compared with a 14.4% pace in 2011.

 

...

 

Slower economic growth has affected nominal salary increases, the statistics bureau said, but real salary growth - after inflation - accelerated in 2012 as "companies actively responded to rising competition [in the labor market] and tried to ease recruitment difficulties."

 

...

 

With inflation taken into account, wages of employees at nonprivate companies were up 9% in 2012 from a year earlier, exceeding 2011's 8.5% pace. Real wages in the private sector were up 14%, accelerating from 12.3% in 2011.

 

...

 

Nominal wages at nonprivate enterprises were up 13.6% in both the manufacturing and construction sectors, to 41,650 yuan and 36,483 yuan, respectively.

 

...

 

"China will continue to deepen its reforms of income distribution,...  to help middle and low income people,"

 

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Fri, 05/17/2013 - 09:46 | 3572634 Jason T
Jason T's picture

couple that their RMB is now 6.14 to the dollar.. was 8.12 back in 2005.  

They'll be very strong consumers this next generation of Chinese.  

 

Fri, 05/17/2013 - 09:47 | 3572638 pragmatic hobo
pragmatic hobo's picture

... double digit rise in wages yet lower than expected inflation ... interesting.

Fri, 05/17/2013 - 09:49 | 3572646 EmileLargo
EmileLargo's picture

So they have more money to buy gold? :D

Fri, 05/17/2013 - 09:59 | 3572678 Dr. Engali
Dr. Engali's picture

What do profits have to do with anything? BTFD

Fri, 05/17/2013 - 10:02 | 3572682 reader2010
reader2010's picture

that's the same playbook followed by the japs. 

Fri, 05/17/2013 - 10:02 | 3572683 firstdivision
firstdivision's picture

...and so it begins, Consumer Sentiment huge up from expecations, and LEI is all good and gravy.

Fri, 05/17/2013 - 10:03 | 3572687 Agent P
Agent P's picture

Speaking of Chinese things getting squeezed, what's up with the "Meet Chinese Singles" banner ad running on ZH lately with that petite little Chinese lady sporting some big fake American titties?  And more importantly, why isn't that showing up in this article, which is the only reason I clicked on the link?!?!?

Fri, 05/17/2013 - 10:08 | 3572691 Headbanger
Headbanger's picture

OT:  From Bloomberg.  Investors starting to flee funds in fear of Fed stimulus exit

http://www.bloomberg.com/news/2013-05-17/american-capital-fights-fed-exi...

Which supports the ZH post here yesterday that the rally is due to short covering

http://www.zerohedge.com/news/2013-05-16/morgan-stanley-most-buying-has-...

Fri, 05/17/2013 - 10:09 | 3572710 Yen Cross
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     China is rewary pusing tat intenral consumpshun meme.

Fri, 05/17/2013 - 10:09 | 3572713 Zola
Zola's picture

This is not bad, on the contrary it's good. Real wage gains. Real economic growth. The internal market is growing.

Fri, 05/17/2013 - 10:44 | 3572879 new game
new game's picture

at least their central planning achieves its goals.

until the earth pukes...

Fri, 05/17/2013 - 10:45 | 3572887 Handful of Dust
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The Chief of Ralph Lauren Asia interviewed few days ago siad moving 30-40% out of China b/c now too expansive there given the global recession no one wants to pay full price anymore......so only way to cut costs is to move to Bangladesh, etc.

Fri, 05/17/2013 - 11:00 | 3572946 ejmoosa
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When they start raising their prices to restore their profit margins, the American consumer is gonna fell the pain.

Fri, 05/17/2013 - 11:18 | 3573013 bitHedge
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More gold demand from China anyone?

Fri, 05/17/2013 - 11:37 | 3573069 dirtbagger
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We began our production exit from China over a year ago.   Besides the wage inflation discussed in the article and currency exchange rates mentioned by Jason T; ocean and intermodal transportation costs are up by 25% over the last 3 years.  In addition to increased Chinese fixed costs, there is a long list of admininistrative problems and costs associated with doing business in China.  

Production has been relocated to Monterrey Mexico.   When we achieve a greater sales volume and can keep automated equipment busy (CNC machinery is very expensive) we expect most of our production will be repatriated to US within about 5 years.  

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