Audit Reveals Wages in China Are On The Rise

Richard Cant

China’s role in global business is changing from a producer of goods to a consumer of goods, and it is doing so very quickly. Just look at how the costs of labor in the country are growing.

Already, Chinese labor costs companies on average more than it does in any other emerging Asian market except for Malaysia and Thailand. This growth is in part driven by new labor regulations Chinese lawmakers instituted in 2008 meant to prop up the country's middle class, which is experiencing explosive growth.

The other part of this story centers on the Chinese middle class, which on average is growing older. Twenty years ago, the average age of a Chinese worker was 23; today, it is 37. This aging demographic is becoming less content to commute long distances to toil away in factories in exchange for very low wages.

Because China’s minimum wage varies significantly on both a provincial and urban basis, Dezan Shira averaged the minimum-wage levels from each of China’s provinces and 40 cities, and then compared that measure with similar data from other Asian countries. The results show a wide disparity:

More importantly, during the next five years we predict China's minimum wage will double from where it is now, leaving the country's labor force second to only Malaysia and significantly more expensive than other Asian countries.

Human resources managers should consider this trend a preliminary signal of China's shift from a primary producer of goods to a primary consumer of goods. Labor in China will not be significantly cheaper than it is elsewhere for much longer. Companies can adapt to this shift in a number of ways:

  • Companies that sell goods and services primarily to U.S. consumers or businesses would be best served to consider moving manufacturing and production jobs elsewhere in Asia, or reverting them back to the United States.
  • Companies that can reliably sell products and services to China’s growing middle class should develop supply chains or manufacturing units in the country’s inland cities complemented by new facilities in other countries, such as India and Vietnam.

The bright spot for global companies is that these massive wage increases should drive a considerable rise in Chinese consumerism. Already, global companies, including Adidas and Bayer, have signaled an intention to focus more on Chinese consumers by establishing additional manufacturing facilities in the country’s inland cities. That brings forward another issue for human resources managers: How to best hire, train, and retain this new class of Chinese workers.

For now, the numbers reveal that China is no longer a safe haven for manufacturing cost savings when compared to other low-wage labor markets.