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How China Deals With Deflation: A 60% Pay Raise For 39 Million Public Workers
While the rest of the developed world, flooded with re-exported deflation as a result of now ubiquitous money printing, scrambles to print even more money in hopes of stimulating the economy when all it is doing is accelerating a closed deflationary loop (at least until the infamous monetary helicopter drop), China - which still has the most centrally-planned economy in the world even if the US is rapidly catching up - has a more novel way of dealing with the threat of deflation: a massive wage hike across the board for all public workers. Two days ago, at a press conference, the Chinese vice minister of human resources and social security Hu Xiaoyi said that China’s 39 million civil servants and public workers will get a pay raise of at least 60% of their base salaries as part of pension plan overhaul.
The hope is that just like in the US where the Federal government would love to be able to do just that and more, surging wages would stimulate the Chinese economy which over the past year has had to content with the double whammy of surging bad loans and the collapse of shadow banking, as well as the burst housing market.
The pay raise “will make sure that the overall incomes for most of these workers will not decrease after the reform, and some of them could actually earn a bit more,” Ziaoyi said, even if he did not provide details of the plan, which will cover civil servants and public workers, such as teachers and doctors.
According to Caixin, top civil servants, including President Xi Jinping and Premier Li Keqiang, will see their monthly base salaries rise to 11,385 yuan from 7,020 yuan (to $1,833 from $1,130), starting in October. Of course, both are billionaires with hidden money around the world, but the raise is all about optics and boosting confidence. The base salaries of the lowest civil servants would more than double to 1,320 yuan. It is unclear if the plans Caixin saw are final.
The impact of the pay raise will be dramatic: according to China's State Administration of Civil Service, China had nearly 7.2 million civil servants and more than 31.5 million public-sector workers employed by institutions such as schools and hospitals at the end of 2013. Those workers do not contribute to their pension fund, meaning taxpayers fund their retirements.
Caixin has more details on the parallel pension reform:
A reform announced on Jan. 14 by the State Council, China’s cabinet, will see civil servants and public workers start to contribute to the pension program in October. They will make contributions similar to those private-sectors workers, who have been paying in since the late 1990s.
Government agencies and public institutions will pay 20% of their workers’ base salaries to the pension fund on behalf of their employees. The employees will contribute 8% of their salary.
The reform plan says government agencies and public institutions should also introduce an income annuity program for employees. That change will see employers contribute 8% of their employees’ salaries to an annuity fund, while employees pay 4%. The annuity program will provide retirees with another monthly payment.
And while the pre-funding of pensions from current income will provide a small offset to the wage hikes, the net effect will still be one of significant increase in disposable Chinese income.
Hu Jiye, a professor at the Center for Law and Economics at the China University of Political Science and Law in Beijing, said the annuity program and pension scheme will ensure government employees and public workers enjoy the same level of benefits after the reform. That assurance will help the reform make smooth progress, Hu said.
Data from the China Statistical Yearbook show that in 2011 the average government pension paid 2,175 yuan a month per retiree. A private-sector pension paid 1,508 per month.
Pension reform is partly aimed at closing this gap. However, the version of the annuity program for private-sector employees will only cover 6% of them because it is not compulsory, Zhang Chewei, a labor economics expert at the Chinese Academy of Social Sciences, told the Oriental Morning Post.
Some analysts say that the gap will remain an issue in the near term, but over a longer period the authorities could narrow it by pushing more employers to join the annuity program.
What is left unsaid, is that while this wage boost is masked as part of pension reform, what it really is, is an under the radar stimulus for some 39 million Chinese, the bulk of whom will end up with a big net take home pay when all is said and done.
A far more important question is how this move will impact not only inflation in the coming months, but wages for the private sector, whose workers will likewise clamor for a comparable pay rise, and also what the consequences on internal labor migration will be in the near future, now that China's Lewis Point is assured to be hit far sooner than most had expected.
Last but not least, if China has decided to tackle the inflation, and thus growth, problem from the bottom up instead of top down via rate cuts, this may mean that all those sellside notes that even the smallest drop in the Shanghai Composite means an imminent RRR-rate cut, can be used for kindling.
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It's my understanding they're herding 1M peasants a day into those ghost cities.
Printing money to fund production and R&D. China is returning to it's rightful place as the center of human civilization.
The only thing remaining is periodic asset tax on the super rich to cancel excess money in the system so the printing for economic activity can continue indefinitely in equilibrium.
We are close to the utopian future, after the fall of the West during the Crisis of 2020.
that's it. The west doesn't have the political system where he could do it against the rich, which is his doom...China has.
2020? And till then??
Receive & Duplicate
missing sarc or smokin' good stuff tag
I'm against money printing, but if the government is going to print money, far better to give it to working people who actually need it and will spend it then give it to a tiny group of rich assholes.
LOL, you still think your hard work will bring rewards to yourself.
You missed the part where the raise goes to government workers, right?
I'm long Chinese farmer peasants...let the G-Workers eat their pencils! ;-)
Forget ECB QE. This is the REAL bomb.
I hope the impact of the pay raise will be to increase private sector pay as well. This is trickle up economics.
Trickle up stimulus has a better chance of increasing economic activity since the money is spent into the real economy.
Trickle down as practiced in the USSA, increased the value of stocks and bonds, but did not stimulate the real economy.
It's going to help their landlords, who will immediately up the rent from 6000 ¥ a month to 10,000 ¥. Of course, the price of an apartment for one of the landlord's to buy will be 80,000 ¥ instead of 60,000 ¥.
It's called "inflation," yep...
Oh yeah, and it NEVER WORKS...
*facepalm*
they have a huge housing bubble.
dude.
The ghost cities are not that different from war production. It gets money into the hands of workers, who can then spend it. In the path it creates wealth not destruction.
If the cities were built with debt money, which then has a debt instrument holding the population into servitude, then that is a different story. Some of China's land speculation is with private banker credit, other spending is from the State Banks.
So, the ghost cities will have to be deconvoluted to determine the money type. Most American's cannot think outside of the debt paradigm, so they automatically point at the cities and think of it with their own faulty pre-conceived notions.
Goverment has a role. It should be constrained to its role. It should be kept in its box. But, this notion that all government is bad only enables the rent seeking monopolists in our population. High costs most certianly exist in private enterprise. The term "privateer" would not exist if it weren't so.
Correction, people under government payroll dont have to pay for their houses. If the rich old fat officials with a little higher position have a young teenage lover as common practice, the landlords could raise her rent which of course the officials are paying for.
Correction again, the official most likely already bought her a well located but smaller size apartment. 1-2 million is not much for these guys now that they got their raise..
As i remember a chick told me about this guy who works for government, i think he was police. He got 3000rmb salary per month but drove a 300.000++rmb audi A6. How can he afford it? Well.. .....eh ......... he dont pay for it ...
Yea, this trickle up economics is working great under Obama sarc/
Physics 101 needs to be your future
NOW we're talkin' some REAL economics ...not that Steve Liesman socialism but some REAL Central jizz
wait till you see their next steps, you aint seen nuttin yet.
Giving money to the people instead of to billionaires and big banks - what an absurd idea!!!! /sarc off
Unfortunately, the public workers (.gov) in this country ARE the rich fucking assholes.
39 million -- the Chinese really are catching up with the US.
cannot believe I turned down a public job in 2001,..thinking only loserz work in the public sector.
now have been unemployed basically with the occasional odd stint...for 14 years.
:(
Dont worry comrade! The shadow of crisis has passed!
One less dick fucking me up the ass. Thank you.
When I graduated high school in 1996, my parents encouraged me to get a government job. I thought they were fucking nuts.
I've done quite well for myself in the private sector, but I have a tremendous amount of fear about my future financial stability.
Looking back, the peace of mind of a pension would probably have made that the better choice.
at least your conscience is intact though
(Scratching Head) If Governments create nothing, make nothing and distribute taxes confiscated, where the Hell is this massive amount of money coming from? Oh Dear I think I'm Mad
Why cares about money? I don't eat that stuff, do you?
MONEY IS JUST 0s AND 1s IN A COMPUTER! It barely exists!
So... Now Chinese Public Worker make 5X Chinese Peasant..
It's pretty clear they are getting ready to stop selling (or relying on) exports.
"Helicopter Money Drop" with Chinese characteristics?
Everyone can keep pounding China, but the fact remains, China has surpassed the United States in gross GDP, and has quarterly GDP print 2x the United States.
We sold our selves out in the 70's.
congrats, you got it. And in the 80s you could have noticed when Chile and NZ went down.
GDP is over rated.
Nope.
US GDP about 16 trillion. Chinese GDP about 9 trillion. And China has 3 times the population of the U.S.
GDP... "an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).
(America) You did not make that !
However , now I have thought it through. Something is terribly wrong on a World stage for this pay rise to occur. Did China get tapped on the shoulder by the others. The Inflation black swan just settled in. As someone said above Forget the ECB this is the the real deal..... Megaton Bomb like.
While in the “greatest “ country on earth people are struggling to get 0.25¢ rise on their salaries.
Wow! The average worker will get a raise from $120 about $200. Now that some progress! What did that Target CEO make again?
This pension reform is probably not a bad idea. The only big problem with pension funds is the that they can be looted. That has happened in Sweden both as regards pension funds controlled by the government (SEK 258 billion) and a pension fund for salaried employees controlled jointly by trade unions and an organization for employers (the employers thought that the fund had earned too much when stock prices peaked and seized some of the money before the stock prices plunged).
The Chinese should probably also have introduced more generous compensation packages for members of the government and high-ranking party officials long ago. If their pay had been something similar to what CEO:s and top executives in the biggest American corporations get I reckon there would have been better incentives for loyalty to China. Especially if they had established a pension fund for these people that would have invested in the Chinese stock market I assume that would have created loyalty to China among Chinese leaders. If it had been possible to inherit shares in these pension funds I guess that the loyalty factor would have been improved even further.
To print money and give it to the general public as shares in venture capital funds would probably have been a better idea than to build ghost towns. The general public would have benefited more and the result would have been more sustainable growth. If private equity firms would have been given most of the money in these venture capital funds I guess that most people would have called this capitalism. (When the government gave capitalists in Russia oil companies for free in the 1990s that was capitalism.) With little or no free money to private equity firms I guess that many would have labelled this as socialism. And since the Chinese Communist party claims that it is at least socialist I guess that they could have tried the latter alternative.
What many seem to miss is that all this will do is increase demand. Deflation is a sympton of over supply and so raising demand should stabilise prices. As the retirees in China have also seen a 900% rise in pensions in 13 years this is a policy that is being widely applied. Since China owns its central bank it can do this without creating interest bearing debt, something that the west cannot do because the banksters own our central banks. Should be interesting
It's a better idea than throwing money at bankers and "expecting" it to trickle down. Fuck the trickle, go right to the source; if you want money spent in a economy, give it to the people who will fucking actually spend it...."ewww, it's communism, we would much rather give it to bankers and the one percent". WTF?
Deflation gets a bad wrap from the same people who have repeatedly fucked up the economy for decades.
Everything is upside-down and backwards.
The yuan is pegged to the dollar so this is great news for Chinese workers.
Just wait till they offer a 4000 dollar us gold price. Pay me bitches !!!