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Mounting Concerns about the Impact of the Economic Slowdown on Wage Growth

In mid-July, China’s National Bureau of Statistics issued a report warning that sustaining economic and wage growth will be a challenge in the second half of 2016. In particular, the report cited industrial overcapacity in the state-owned coal and steel sectors, and declining agricultural prices as contributing factors. In the first half of this year, inflation-adjusted disposable household income rose 6.5 percent, barely keeping pace with economic growth at 6.7 percent. However, in anticipation of slowing economic growth, the Chinese government has taken measures to moderate wage growth. The deputy director of China’s Bureau of Social Security and Human Resources, Xin Changxing, maintains that if Chinese companies are to remain competitive, the frequency and scale of wage adjustment should be slowed. In the first half of 2016, only six regions in China increased their local minimum wage, compared to thirteen regions in 2015. The average minimum wage increase is also slower: only eleven percent compared to 13.5 percent in the previous year. Mirroring the minimum wage adjustment, local governments’ annual guidelines for workplace salaries similarly propose slower wage growth. In addition, in August, the powerful National Development and Reform Commission released a document that described the relatively large amounts provided by the social insurance scheme as undermining the competitiveness of China’s manufacturing industry. This comes after sixteen provinces slightly reduced the percentage of social insurance contributions in the first half of 2016 in an effort to drive down labour costs.

(Sources: Caixin, Jinghua Shibao, The South China Morning Post, Zhongguo Jingji Zhoukan, 21 Shiji Jingji Baodao)

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