Labor Market & Salary Report 2015/2016 - AHK Greater...

Labor Market & Salary Report

2015/2016

Labor Market and Salary Report 2015/16 - Limited public report -

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Key Developments

The continued economic slowdown is starting to affect

the labor market, resulting in a downward adjustment

of wage growth by German companies. According to

the results of a survey carried out by the German

Chamber of Commerce in China of its member

companies, German companies anticipate average

wage increases of 7.1% in 2016 for their 1.1 million

employees in China. Compared to 2015, this reflects a

decrease of 1 percentage point. This year’s survey was conducted between 17th August and 18th September

2015 with valid responses from 393 companies in China.

Wage Growth Development at German Companies in China

Results and key findings of the eighth annual wage survey:

Wage Adjustments

In line with a general slowdown of wage growth

indicators across China, German companies

expect wage increases of 7.1% amid a cooling

economy and low inflation environment

Lower wage increases reflected across all

regions and positions

Despite lower adjustments wage increases

continue to be a major business challenge

Wage increases outpacing productivity is an

issue for about one third of companies, but

overall German companies remain optimistic

regarding future productivity gains

HR Environment

Companies are generally satisfied with their

employees’ technical and professional

knowledge, but 56.3% report that high levels

of additional training is necessary

Retaining and recruiting qualified staff

remains a major business challenge despite

the cooling labor market

Recruitment of technical sales and

engineering positions are considered to be the

most difficult

The pressure to establish enterprise trade

unions has leveled off compared with previous

years

10.2%

8.9% 8.8%8.1%

7.1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

2012 2013 2014 2015 2016

Limited public report

The full report is available for members of the

regional chapters of the German Chamber of

Commerce in China. Please contact your regional

chamber representative for more information.

www.china.ahk.de


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Contents

I Labor Market Environment 1. Economic Conditions 3

2. Price Levels 5

3. Labor Market Structure 6

4. Labor Market Conditions 8

5. Trade Unions and Collective Bargaining 10

II Wages Developments in China 1. National Wage Developments 11

2. Provincial Wage Developments 11

Provincial Wage Levels 2013-2015 13

Minimum Wage Rates in China 2015 14

China Wage Map 2015 15

3. Wages Levels by Ownership and Industry 16

4. Productivity 18

5. Wage Developments in Asia 19

III Survey Results 1. Wage Developments at German Companies 2016 20

NOT AVAILABLE IN LIMITED REPORT 2. Wage Levels 22

3. Productivity 23

4. Wage Determination 24

5. Collective Action and Trade Unions 24

6. Supplementary HR Data 25

7. HR Challenges 26

8. Retention and Employee Skills 26

9. Recruitment 27

10. Foreigners 27

11. Profile of Responding Companies 29

12. About the Survey 30

IV Survey Data Wage levels and expected increases for 36 job categories can be found by the following break-down:

1. Regional: China, Shanghai, Beijing, Shenzhen/Guangzhou, other East, North, and South 31

2. Regional: Suzhou, Taicang/Kunshan, other Yangtze River Delta 37

3. Comparison by Level of Pay: highest, middle and lowest levels / 1st, 2nd and 3rd tier cities 43

4. Industry: Machinery, Automotive, Consulting, Plastics/Metal Products, Chemical, Electronics,

Consumer Goods 49

5. Number of employees: <50, 50-250, >250 54

Appendix- Definitions used Definitions for wages and wage increases, job experience, job positions 60


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I Labor Market Environment

Key Developments in Brief

Economic Conditions Economy will continue to face headwinds

GDP growth likely to further fall to around 6.8%

in 2016

German companies are increasingly affected by

slower economic growth

Inflation expected to remain a low levels

Labor Market Conditions Labor market remains relatively resilient due to

strong growth in service sector

Shortages of skilled workers persist

Vacancy rates have come down, with demand

for new employees easing slightly in Q2

Push in increased unionization and collective

agreements is easing

Wages Development Average national wage growth below 10% mark

Minimum wage adjustments and wage guideline

increases slowing

Wages at foreign companies continue to be

highest by ownership type

Maintaining productivity growth remains a key

concern

1. Economic Conditions

China’s economy is continuing its shift to lower levels of growth. After decades of rapid economic growth, GDP growth began to decelerate in 2010. The slowdown however has been anticipated, and at present the economy is managing to gradually shift onto a lower growth path, rather than experiencing an abrupt fall. China has already emerged as the world’s second largest economy. As a result lower growth rates today correspond to more growth in absolute terms than were achieved at the higher growth rates of the past. Despite already being the world’s second largest economy, growth potential continues to be high, as China’s 2014 GDP per capita at USD 7,575 remains at comparatively low levels. Although at present a hard landing seems unlikely, the risks of a potential growth crisis are increasing. However, the medium growth prospects continue to remain positive. Over the coming five years GDP should be able to maintain growth of between 6-7%.

In 2015 the economy has been able to maintain growth of 7.0% in the first half. The government has been implementing proactive fiscal and monetary policies in order to defend growth of 7.0% in 2015. A slowdown below 7% is expected in Q3 with a mild recovery in Q4. Even if overall growth can be maintained in 2015, GDP growth is prone to further decelerate in 2016, falling to around 6.8%. This should be interpreted as a natural development helping to readjust the economy onto a more sustainable development path. Excessive intervention propping up growth would only have short-term effects while also harming the transformation of China’s mid-term economic development.

Quarterly GDP Growth 2010-2015

Source: NBS / *German Chamber of Commerce in China analysis

0%1%2%3%4%5%6%7%8%9%

10%11%12%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3*Q4*

2010 2011 2012 2013 2014 2015


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Despite recent turmoil in the Chinese stock markets, the resulting effect on the economy remains limited. There had already been a noticeable slowdown of the economy prior to the increased volatility in the markets. Most key macroeconomic indicators dropped to lower levels in the beginning of 2015 and continued to fall over the following months. There were initial signs that the economy has bottomed out over the summer, but overall the stabilization remains unsteady and it is likely that GDP growth will decelerate below the 7.0% threshold during the last two quarters of the year. The data also suggests that retail has performed robustly with double digit growth. However, previous keystones of growth, such as manufacturing, investment or exports, have fallen to lower levels of growth.

Growth of Retail, Production and Investment 2014/15

Source: NBS / * fixed-asset investment data is cumulative for the year

This is part of the ongoing structural adjustments of the Chinese economy. Although still heavily dependent on investment and manufacturing, the importance of services is progressing steadily. In the first half of 2015 the tertiary sector expanded by 8.1%, outperforming the manufacturing sector, which was only able to expand by 6.1%. By the end of 2015 services are likely to account for 50% of GDP and will continue to expand steadily. As traditional growth drivers struggle, services including retail will become increasingly relevant for the development of the economy.

Business Sentiment in 2015

Source: Caixin/Markit Note: Purchasing Managers’ Index (PMI) values >50 indicate expanding business, values <50 indicate contraction. For clarification the Caixin/Markit PMI has a stronger focus on small and medium sized enterprises, while the NBS PMI has a stronger focus on state-owned enterprises. For better illustration only the Caixin/Markit PMI is used here.

The business sentiment measured by the Purchasing Managers’ Index (PMI) has also indicated that manufacturing companies are more pessimistic than companies engaged in services. The index for manufacturing has been below 50 for most of the year, indicating a monthly contraction. The service index has continued to be well above the 50 mark, but there has been increased volatility over the past few months, with figures slipping to just 50.5 in September.

While key industries for German companies in China remained fairly resilient in 2014, the overall slowdown has begun to affect them in 2015. A weaker economic environment has taken its toll on the machinery and automotive sector leading to German companies reevaluating their business outlook. Findings from the German Chamber’s annual Business Confidence Survey show that companies have adjusted their expectations downward compared with the previous year. Overall growth of German business is also beginning to shift to lower levels, though in general companies have retained their optimism about the long-term development potential of their relevant industry as well as of the Chinese economy in general.

After having been accustomed to prolonged periods of rapid expansion, the transition to lower levels of growth has created a more challenging economic environment to operate in. This environment is likely to persist in 2016. The economy is expected to encounter continued downward pressure before it begins to stabilize at lower growth levels.

-2%

3%

8%

13%

18%

Jan/Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan/Feb

Mar

Apr

May

Jun

Jul

Aug

2014 2015

Retail Fixed-asset investment*

Industrial production

45

46

47

48

49

50

51

52

53

54

55

Jan Feb Mar Apr May Jun Jul Aug Sep

Manufacturing Services


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2. Price Levels

The cooling economic environment has also affected price increases. Consumer inflation has remained well below the government’s 3% target. For most of the months so far in 2015 price increases were below 2%. Fueled by overcapacity in some industries, producer prices accelerated their downward slide. Producer prices have now been falling for 42 consecutive months. Risk of deflation has increased, but remains unlikely for the time being. In 2016, overall price levels are expected to remain at low levels of below 3%, with consumer prices slightly picking up over the coming months. The low inflation environment will provide the policy makers with more room to implement looser monetary and fiscal measures.

As for consumer inflation, food price increases remained the biggest driver for accelerating prices. However, food prices have also continued to fall in the last few months. The drop in transportation and communication costs is due in part to lower prices for oil. Increasing costs for housing have dropped to just 0.7%, reflecting a cooling in the country’s property market. It is noteworthy that housing prices in first-tier cities in general have been less affected by the weaker demand for housing.

Price Level Development 2014/15

Source: NBS

Breakdown of Consumer Price Development Jan-Aug 2015

Source: NBS

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

2014 2015

Consumer prices Producer prices

2.3%

1.3%

2.9%

1.1%

1.8%

-1.7%

1.5%

0.7%

-2%

-2%

-1%

-1%

0%

1%

1%

2%

2%

3%

3%

More Information Regarding the Business Environment in China

The German Chamber of Commerce in China publishes quarterly economic updates in German and English as well as monthly datasheets with key macroeconomic figures in German.

Detailed information on the business sentiment of German companies and an overview of Sino-German economic relations can be found in our German

Business in China 2015 report.

For more information please visit our website www.china.ahk.de or contact your chamber representative.


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3. Labor Market Structure

China’s population continues to undergo massive structural changes. With its birth rate falling to just 1.2, China’s population will soon have reached its maximum before it will begin to shrink. This process is accompanied by an aging society. While the share of the population younger than 15 has fallen from 22.9% to 16.2% between 2000 and 2015, the share older than 65 has increased from 7.0% to 10.0% during the same time period. Consequently this will also have future ramifications for the labor supply. The United Nations estimates that the working age population (16-59) will drop by an additional 24 million between 2015 and 2025.

Demographic Composition of Population 2010-2015

Source: NBS / *German Chamber of Commerce in China forecast

There has been continued discussion, but no progress on increasing the retirement age, which has remained unchanged since 1950. At present women may retire between 50 and 55, while retirement age for men stands at 60. It seems likely that an increase of the retirement age to 60 for women and 65 for men will take place in the coming years. Current information suggests that the retirement age will gradually be increased by a few months at a time starting 2017. This step is not only crucial in alleviating potential labor shortages, but also in order to finance China’s social security system, which remains weak.

The labor market is expected to undergo further reforms in the coming years. An important element pertaining to reforming the household registration (hukou) system, which restricts certain government services to the place of registration. Reforming the household registration system is a central component of progressing the

government’s ongoing urbanization efforts. The share of the urban population has been steadily increasing and will reach over 55% by end of 2015. Meanwhile, the number of people officially defined as the ‘floating population’ (referring to people living in places other than their household registration), has increased to 298 million.

The increased urbanization has also contributed to a bigger importance of the service sector in the Chinese labor market. Over the last few decades China has shifted from a rural based, agriculture dominated economy to an industrialized one. In the process, labor has shifted from agriculture (primary) to manufacturing (secondary) and services (tertiary). In recent years there has been a noticeably stronger emphasis on services as a source for employment. The share of the labor force engaged in manufacturing is likely to have peaked in 2012 when a total share of 30.3% was reached. The redistribution in the employed population will continue in the coming years as the service sector increases in importance. While employment in the manufacturing sector will only gradually decline, employment in agriculture will continue to fall at a faster rate.

Employment Distribution by Tier 2000-2015


In 2014 urban employment increased by 13.2 million. By the end of 2015 around 52% of the labor force will be working in urban areas. The shift within the employment structure however does not come without challenges. As well as an increased strain on urban infrastructure and social services, the government is under pressure to create adequate jobs for the rural population in the cities.

Migrant Workers

Migrant workers have long been an important component in the Chinese labor market, supplying mostly manual labor to the rapidly developing coastal regions. Most

22.9% 20.3% 16.6% 16.2%

70.1% 72.0% 74.5% 73.8%

7.0% 7.7% 8.9% 10.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2005 2010 2015*

0-14 age group 15-64 age group >65 age group

27.5% 31.4% 34.6% 40.2%

22.5%23.8%

28.7%29.5%

50.0% 44.8%36.7% 30.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2005 2010 2015*

Tertiary industry Secondary industry Primary industry


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migrants would move from western and central regions to the eastern regions in order to find employment with better pay, eventually returning to their province of origin. Overall, the number of migrant workers has continued to increase, reaching 273.9 million in 2014; an increase of 1.9% over 2013. Growth is expected to fall to just over 1% by 2016 as the supply of migrant workers is about to have reached its maximum.

There are already shifts within the structure of migrant workers. The percentage of migrant workers leaving their home province has already fallen sharply to just 1.3% in 2014. The percentage of migrant workers staying closer to their home province has also fallen, but has been expanding at a faster rate. By 2014 38.6% of migrant workers stayed within their home province and the figure is expected to increase to around 40% by 2016. The shift shows that gradually migrant workers have less of an incentive to work far away from their families and are increasingly finding adequate pay and employment in western and central regions. With the percentage of migrant workers in eastern regions having fallen to a tickle, the percentage of migrants in western regions has increased the fastest, expanding 3.1% compared to 2013.

Growth of Migrant Workers Moving Within and Outside their Home Province 2010-2014

Source: NBS / Note: outside province refers to migrant workers working in a province other than their household registration. Within province refers to workers working in the same province as their household registration.

Manufacturing and construction continue to remain the main sectors of employment, but the number of migrants working in the secondary sector is gradually declining while the share working in the tertiary industry is increasing. By 2014, 31.3% and 22.3% were employed in manufacturing and construction respectively, while 42.9% were working in different sectors of the service industry. The coming years will see further regional and sector shifts, but will also become affected by an increasingly

older age structure of migrant workers. By 2014, 17.1% were older than 50, while the share of workers below 30 has been falling over the last few years.

Development of Age Structure of Migrant Workers 2010-2014

Source: NBS / *German Chamber of Commerce in China analysis

5.2%

5.9%5.4%

3.6%

2.8%

5.5%

3.4%3.0%

1.7%1.3%

0%

1%

2%

3%

4%

5%

6%

2010 2011 2012 2013 2014

within province outside province

42.4% 39.0% 36.8% 35.5% 33.7%

44.7% 46.7% 48.1% 49.3% 49.2%

12.9% 14.3% 15.1% 15.2% 17.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

16-30 years 31-50 years >50 years


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4. Labor Market Conditions

Employment is a key concern for the government, as the economy shifts to lower levels of growth. To a large extent its tolerance for lower economic growth will depend on how the labor market is performing, which for the most part retained its resilience in 2015 with urban unemployment staying at around 4.1%. With another record number of university graduates (7.5 million) a total of 15 million young students will enter the labor market. An unemployment rate of 7.5% for university graduates is already far higher than the average, stressing that some segments of the labor force are facing challenging employment conditions.

Urban job creation reached 7.2 million in the first six months, a 2.6% decline compared to the same period last year. However, new employment is once again on track to surpass the government’s target of 10 million for 2015. In order to maintain a steady growth of new jobs, the government has implemented a number of support measures. These include training programs, tax incentives, and support for university graduates. Most notably the government has encouraged entrepreneurships among the population by easing restrictions and providing financial support. As a result 2 million new start-ups were registered between January and June 2015, an increase of 19.4%.

New Urban Employment 2010-2015 (in millions)


While the ratio measuring the job vacancies to job seekers indicates that demand exceeds supply, the second quarter has seen a noticeable drop compared with the first quarter. Nationally the vacancy ratio fell from 1.12 in the first quarter 2015, to 1.06 in the second quarter. The ratio dropped to just 1.03 in eastern areas

of the country, but also central and western China recorded considerable downward adjustments.

Ratio of Job Vacancies by Region Q1 and Q2 2015

Source: MOHRSS

How to read these numbers: A value greater than 1 means the demand for labor is larger than demand (labor shortage): For example 1.2 means for 12 open positions, there are 10 job seekers. A value below 1 means there is an oversupply of labor. For example 0.8 means for 8 open positions, there are 10 job seekers. East: Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong and Hainan Central: Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei and Hunan West: Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang

Employment demand in the second quarter was strongest in logistics and transportation (36.3%), finance (17.5%) as well as IT (5.5%) compared with the same period last year. Strong demand in the logistics and IT sector suggest that booming online retail and services are likely to continue. In the wake of the recent turmoil in the Chinese stock markets, finance related jobs will take a hit in the coming months. There has been a decline in job demand in construction (-23.8%), agriculture (-16.8%) as well as retail (-9.8%). Demand in manufacturing related industries has fallen by 7.7%. Demand in manufacturing is expected to continue to remain weak throughout 2015 and 2016 while services will account for the majority of job growth. With real estate prices showing the first signs of a recovery and infrastructure spending likely to pick

11.712.2

12.7 13.1 13.2 13.0

0

2

4

6

8

10

12

14

2010 2011 2012 2013 2014 2015*

1.12

1.09

1.141.16

1.06

1.03

1.11

1.08

1

1.02

1.04

1.06

1.08

1.1

1.12

1.14

1.16

National East Central West

Q1 Q2

Factors Explaining Labor Market Resilience

Growth in service sector Retention of employees in industries with

overcapacity Boom in start-up companies Infrastructure projects


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up, demand for construction workers should also improve in the coming months.

German companies in China have also adjusted their employment intentions. Although the majority (45.3%) still plan to increase their headcount in 2015, the share of companies has been falling, while the share of companies planning to downsize has increased to 16.6%. The figures reflect the business sentiment of German companies up until May 2015 and are likely to have been revised further in the meantime as key industries including automotive and machinery have been affected by the cooling economy.

Employment Intentions at German Companies 2012-2015

Source: German Chamber of Commerce in China

The national demand for technical employees relaxed in the first six months of 2015 compared to the same period last year. Nonetheless official data from the National Bureau of Statistics suggests that demand is still bigger than supply of technicians and engineers. Therefore a skills mismatch in the labor market persists. The situation will remain unchanged in the near future, as China’s educational system struggles to match the demand for vocationally trained workers as well as adequately educated professional staff. Finding qualified staff in either field has been among the most pressing business challenges for German companies operating in China. Given the technological focus of their industries as well as the expansion of research and development activities, shortages of skilled employees will continue to be a major problem.

Top 3 Business Challenges for German Companies 2012-2015

Source: German Chamber of Commerce in China

Employee Attitudes

The expectations and preferences of the Chinese labor force are also undergoing changes. Salary remains the most important determinant for choosing a job, but non-monetary and long-term prospects have become more relevant. This includes job satisfaction, career prospects, or work-life balance. The recent boom in internet start-ups and general encouragement of entrepreneurism have affected expectations of younger generations as well. Large multinational companies have long been the most attractive employers for high potentials and university graduates, but in recent years they have lost some of their shine as private Chinese companies, which are increasingly going global have improved their appeal.

Various surveys further indicate that the first-tier cities (Beijing, Shanghai, Guangzhou, Shenzhen), that have

been the preferred choice for high potentials and workers alike for so long are now becoming less attractive. While the pay premium in these cities has been falling compared to secondary cities, unaffordable housing, high living costs, and congestion has been affecting their long standing attractiveness. Second-tier cities including Chengdu, Wuhan or Hangzhou meanwhile have been becoming more appealing for offering adequate job prospects and pay while the cost of living is more

affordable.

58.0%

60.8%

50.2%

45.3%

33.5%31.5%

39.9%38.1%

8.6%7.7% 9.9%

16.6%

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015

increase similar decrease

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Retaining qualified staff Increasing labour costs

Finding qualified staff


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5. Trade Unions and Collective Bargaining

Following major advancements between 2008 and 2013 a push to promote trade unions in China appears to have leveled off. Official membership reached 274 million by the end of 2014, technically representing more than 1/3 of the workforce. Foreign companies in particular were under pressure to establish unions. All enterprise level trade unions remain under the All-China Federation of Trade Unions (ACFTU), which is closely associated with the Communist Party. Despite its large membership it has little representational power in industrial relations and its function for the most part is not identical with the western concepts of trade unions. Experiences of companies in China can however be very different depending on local conditions. For the majority however, the presence of an enterprise trade union has little effect, although a potential 2% fee on total wages comprises a significant financial burden.

By the end of 2014 collective bargaining provisions were published in Guangdong and pilot programs for greater independence from the government were announced in August 2015. The recent reforms are limited in scope and are not given high political priority. However, the initial push of recent years appears to have lost support under the current administration. Some experimentation with trade union reform and collective bargaining is likely to continue in 2016, but for the majority the status quo can be expected to persist.

Key Facts about Trade Unions

Every employee has the right to participate in a trade union

If there are more than 25 ACFTU members in a company, an enterprise level trade union may be established.

Alternatively the ACFTU may set up a trade union at an enterprise.

Management may not stop unionization efforts Once a trade union is established, 2% of total

wages must be paid to the ACFTU. This is often directly collected by the tax bureau. Technically, 1% should be transferred to be used directly in the company.

Trade unions may request collective bargaining

Key Facts about Collective Bargaining

Agreements are between the employer and union representatives

Typically deals are bargained and implemented at company level

Agreements can cover: wages, allowances, insurance and benefits, working hours, holidays and rest time, health and safety issues, as well as other items agreed upon.


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II Wage Developments in China

1. National Wage Developments

The period of double digit wage growth has come to an end. Average nominal wages increases dropped to 9.4% in 2014. Corresponding to a downward shift of GDP growth, wage increases started to ease towards lower levels in 2011. Despite the slowdown the government is on track to double the average income by 2017 based on the 2010 values, well ahead of the 2020 target. By 2017 it is expected to surpass the RMB 73,000 average annual income target. Having reached higher income levels, the absolute increase has been increasing despite slower wage growth. Average wage increases in the last five years fell by 3.4 points compared to five years earlier.

In absolute terms average wages between 2009 and 2014 increased from by RMB 4,819 RMB annually, up from RMB 3,265 (+ RMB 1,554) during the five year period before. The pressure for companies to deal with increasing labor costs therefore remains pressing. China is also on track to reach its second target, of increasing minimum wage rates by an average of 13% for a five year period ending 2015. This is likely to take some of the pressure off minimum wage increases in the future. While it is expected that future adjustments will be gradual, they will continue to outpace other indicators.

Average Wage and Wage Growth 2002-2016

Source: NBS / *German Chamber of Commerce in China forecast based on 6.9% GDP growth.

Along with national average wage growth, provincial level adjustments of the minimum wage and wage guidelines

have also moved towards lower levels of growth. As of September 2015, 21 provinces had announced minimum wage increases effective for the current year, while 16 also announced wage guidelines (see page 12). Average minimum wage adjustments fell to 12.4% and average wage guidelines fell to 10.2%. It has been noticeable in recent years that the wage growth indicators have begun to move within a narrower band.

Wage Growth Indicators 2012-2016

Source: NBS / German Chamber of Commerce in China research / *forecast Note: The number of provinces releasing adjustments for wage guidelines and minimum wages varies each year.

2. Provincial Wage Developments

Increases of average wages in poorer provinces typically have been outpacing those in more developed coastal provinces, but there are regional variations. For example wage growth in Henan and Tibet, some of the poorest regions in the country, achieved the lowest average wage increases. However, for the most part, wage increases in poorer regions have been outpacing those of richer regions. Provinces and municipalities with a heavy German presence around the Bohai economic rim, the Yangtze Delta and the Pearl River Delta tend to be in the lower half.

Despite achieving higher wage growth, poorer regions in central and western China have only been slowly closing the income gap with the three main economic centers. Looking at provincial data however will discount progress made in second-tier cities while giving too much weight to the rural hinterland. For example developments in Sichuan as a whole are slower than in booming Chengdu. Similar developments are noticeable in other high potential secondary cities.

0%2%4%6%8%10%12%14%16%18%20%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015*

2016*

Average wage (RMB) Wage growth (nominal)

11.9%

10.1% 9.4%9.2% 9.0%

20.2%

17.0%

13.1% 12.4%11.9%

14.0%13.6%

11.6%10.2% 9.8%

0%2%4%6%8%

10%12%14%16%18%20%22%

2012 2013 2014 2015 2016*

Average wage Minimum wage Wage guidelines


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Average Regional Wage Developments 2010-2014

Source: NBS / German Chamber of Commerce in China analysis

Development of Regional Wages 2012-2014

2012 2013 2014

National 11.9% 10.1% 9.4%

East 10.9% 9.6% 9.7%

West 13.1% 11.9% 9.0%

Central 12.3% 6.6% 9.4%

North East 12.8% 10.7% 7.1%

Source: NBS East: Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong and Hainan Central: Shanxi, Anhui, Jiangxi, Henan, Hubei and Hunan West: Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang North East: Jilin, Heilongjiang, Liaoning

Regional Wage Guidelines 2015

Minimum Average Maximum

Beijing 3.5% 10.5% 16.0%

Shaanxi 5.0% 10.0% 15.0%

Shandong 4.0% 10.0% 18.0%

Shanxi 4.0% 10.0% 18.0%

Tianjin 3.0% 10.0% 18.0%

Henan 3.0% 12.0% 18.0%

Xinjiang 3.0% 12.0% 15.0%

Sichuan 4.0% 11.0% 17.0%

Liaoning 3.0% 8.0% 12.0%

Fujian 2.0% 10.0% 15.0%

Hebei 4.0% 11.0% 18.0%

Guangxi 3.0% 10.0% 16.0%

Inner Mongolia 3.0% 10.1% 14.5%

Yunnan 3.0% 10.0% 17.0%

Shanghai 4.0% 10.0% 16.0%

Qinghai 4.0% 9.0% 16.0%

Average 2015 3.5% 10.2% 16.2%

Average 2014 4.0% 11.6% 17.3%

Average 2013 5.8% 13.6% 19.2%

Source: German Chamber of Commerce in China research and analysis. Note: Averages calculated on basis of regional adjustments identified.

5.6%9.5%

9.9%10.8%10.8%10.9%11.0%11.0%11.2%11.3%11.4%

11.8%12.1%12.4%

12.7%12.8%12.8%12.9%13.0%13.3%13.3%13.4%13.4%

13.7%14.2%14.4%14.5%14.6%14.8%

15.6%15.7%

0.0% 5.0% 10.0% 15.0%

TibetHenan

GuangdongBeijing

GuangxiLiaoningZhejiangNingxiaTianjinQinghai

HebeiShanghai

HunanShandong

GansuYunnanJiangsuShanxi

JilinShaanxi

AnhuiHeilongjiang

ChonqqingFujian

SichuanInner Mongolia

HubeiGuizhouXinjiangJiangxiHainan

0%1%2%3%4%5%6%7%8%9%

10%11%12%13%14%

2012 2013 2014

National East West Central North East

What are Wage Guidelines?

Issued annually by some local governments Non-binding recommendations Wage information for specific industries and job

positions Take into account regional economic growth, price

levels, unemployment levels, enterprise profits Influence wage developments at SOEs Expected to act as a guide for future collective

bargaining

Different adjustment types: Maximum increase: for companies experiencing good

growth (above average) Average increase: for companies experiencing

normal growth (average) Minimum increase: for companies experiencing poor

growth (below average)


13 | P a g e

Provincial Wages Levels 2013-2015

Region Average Monthly Wages Factor of National Average

2013 2014* 2015* 2014

Beijing 7,751 8,367 9,019 1.78

Shanghai

Tianjin Not available in limited report

Jiangsu

Zhejiang

Tibet

Guangdong

Qinghai

Ningxia

Chongqing

Inner Mongolia

Fujian

Xinjiang

Anhui

Sichuan

Shandong

Guizhou

Shaanxi

Shanxi

Hainan

Hubei

Liaoning

Hunan

Jiangxi

Gansu

Yunnan

Jilin

Hebei

Guangxi

Heilongjiang

Henan Source: German Chamber of Commerce in China analysis based on 2013 NBS data. *2014 and 2015 are estimates based on GDP growth, inflation and previous wage increases. Note: wages reflect total direct remuneration including basic wage, bonus, cash benefits and allowances, overtime pay. All wages are pre-tax. Monthly wages are based on 12 months.


14 | P a g e

Minimum Wage Rates in China 2015

Region Category Valid since Last increase

A B C D E F

Shenzhen 2,030 - - - - - 1. Mar 2015 12.3%

Shanghai 2,020 - - - - - 1. Apr 2015 11.0%

Guangdong 1,895 1,650 1,510 1,350 1,210 - 1. May 2015 20.6%

Tianjin 1,850 - - - - - 1. Apr 2015 10.1%

Beijing 1,720 - - - - - 1. Apr 2015 10.3%

Jiangsu 1,680 1,630 1,460 1,270 - - 1. Nov 2014 13.3%

Zhejiang 1,650 1,470 1,350 1,220 - - 1. Aug 2014 12.5%

Inner Mongolia 1,640 1,540 1,440 1,340 - - 1. Jul 2015 10.4%

Shanxi 1,620 1,520 1,420 1,320 - - 1. May 2015 13.2%

Shandong 1,600 1,450 1,300 - - - 1. Mar 2015 7.5%

Henan 1,600 1,450 1,300 - - - 1. Jul 2015 16.2%

Yunnan 1,570 1,400 1,180 - - - 1. Sep 2015 10.4%

Xinjiang 1,520 1,320 1,240 1,160 - - 1. Jun 2013 13.4%

Fujian 1,500 1,350 1,230 1,130 - - 1. Jul 2015 16.3%

Sichuan 1,500 1,380 1,260 - - - 1. Jul 2015 10.7%

Hubei 1,500 1,320 1,225 1,100 - - 1. Sep 2015 24.7%

Hebei 1,480 1,420 1,310 1,210 - - 1. Dec 2014 13.8%

Shaanxi 1,480 1,370 1,260 1,190 - - 1. May 2015 18.6%

Gansu 1,470 1,420 1,370 1,320 - - 1. Apr 2015 9.4%

Tibet 1,400 - - - - - 1. Jan 2015 19.2%

Guangxi 1,400 1,210 1,085 1,000 - - 1. Apr 2015 17.2%

Jiangxi 1,390 1,300 1,210 1,060 - 1. Jul 2014 11.8%

Hunan 1,390 1,250 1,130 1,030 - - 1. Jan 2015 9.3%

Jilin 1,350 1,220 1,120 - - - 17. Jun 2013 14.8%

Ningxia 1,300 1,220 1,150 - - - 25. Mar 2013 18.2%

Liaoning 1,300 1,050 900 - - - 1. Jul 2013 18.2%

Qinghai 1,270 1,260 1,250 - - - 1. May 2014 18.9%

Hainan 1,270 1,170 1,120 - - - 1. Jan 2015 14.5%

Anhui 1,260 1,040 930 860 720 680 1. Jul 2013 24.7%

Chongqing 1,250 1,150 - - - - 1. Jan 2014 20.1%

Guizhou 1,250 1,100 1,000 - - - 1. Jul 2014 18.3%

Heilongjiang 1,160 1,050 900 850 - - 1. Dec 2012 14.2%

Source: Provincial Human Resources and Social Security Bureaus / German Chamber of Commerce in China analysis Note: Increases reflect the average increases for adjustments for all categories in the province. Categories refer to different regional jurisdictions within a province. With the exception of Shenzhen only provinces and province-level municipalities set minimum wage levels.


15 | P a g e

Chin

a W

age M

ap 2

015


16 | P a g e

3. Wages by Ownership and Industry

Foreign-owned companies have retained the highest paying average wages in China, with average pay being around 20% above the national average. This is about on a par with average wages paid at Chinese shareholding companies and well ahead of other forms of ownership. In part the higher average wages paid by foreign companies can also be explained by a higher likelihood that foreign companies are located in coastal areas with corresponding higher wage levels. At present foreign companies employ around 5% of the urban workforce.

State-owned enterprises (SOE) are currently undergoing a series of reforms, which have also affected compensation. Domestic limited liability companies (LLC) remain at the bottom, but have been experiencing faster growth in recent years, slowly closing the gap to SOEs and Hong Kong, Macau and Taiwan owned companies. Companies from Hong Kong, Macau and Taiwan are heavily engaged in export oriented manufacturing and tend to react to weak export figures as is currently the case.

Average Annual Wage in RMB by Form of Ownership 2010-2016

Source: NBS / *German Chamber of Commerce forecast

Average Wage Levels by Ownership in Relation to Foreign Companies (foreign companies = 100%)

Source: German Chamber of Commerce analysis based on NBS data / * forecast

Employees in finance, IT and the technical services sectors are paid the highest average wages of the 19 separate industries tracked by the National Bureau of Statistics. Next to a demand for professionals and technical staff, these industries have also been showing a strong performance in 2015. At the lower end are industries requiring unskilled and moderately skilled worker.

The rankings of the various industries covered have remained stable and are unlikely to undergo any significant changes in the coming years. The different industries will mostly be affected by the subsequent industry performance as well as the supply of adequate skilled labor. In 2016, finance is likely to see a slight slowdown in wage growth, while IT and logistics related industries will experience higher than average wage increases due to the ongoing surge in e-commerce. On the flip side, wages in retail will be affected as competition from online retailers increases. An expected slight recovery in construction should see wage increases pick up in this segment, while manufacturing wages will remain unchanged.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2010 2011 2012 2013 2014 2015* 2016*

Foreign SOEs LLC Shareholding Hong Kong/Macau/Taiwan

0%

20%

40%

60%

80%

100%

120%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015*

2016*

SOEs LLC

Shareholding Hong Kong/Macau/Taiwan


17 | P a g e

Wage Developments by Industry 2013-2014

2013 2014

Annual Monthly Annual Monthly Growth Factor of National Average

Finance 99,653 8,304 108,273 9,023 8.7% 1.92

IT 90,915 7,576 100,797 8,400 10.9% 1.79

Technical services 76,602 6,384 82,220 6,852 7.3% 1.46

Utilities 67,085 5,590 73,339 6,112 9.3% 1.30

Business services 62,538 5,212 66,475 5,540 6.3% 1.18

Culture 59,336 4,945 64,150 5,346 8.1% 1.14

Transport and logistics 57,993 4,833 63,416 5,285 9.4% 1.13

Healthcare 57,979 4,832 63,267 5,272 9.1% 1.12

Mining 60,138 5,012 61,677 5,140 2.6% 1.09

Education 51,950 4,329 56,580 4,715 8.9% 1.00

National 51,483 4,290 56,339 4,695 9.4% 1.00

Wholesale/retail 50,308 4,192 55,820 4,652 11.0% 0.99

Real estate 51,048 4,254 55,554 4,630 8.8% 0.99

Manufacturing 46,431 3,869 51,369 4,281 10.6% 0.91

Construction 42,072 3,506 45,804 3,817 8.9% 0.81

Residential services 38,429 3,202 41,882 3,490 9.0% 0.74

Water and environment 36,123 3,010 39,198 3,267 8.5% 0.70

Hotel/restaurant 34,044 2,837 37,264 3,105 9.5% 0.66

Agriculture 25,820 2,152 28,356 2,363 9.8% 0.50

Source: NBS / German Chamber of Commerce in China analysis Note: figures presented are pre-tax. Wages includes salary, performance bonus, allowances and subsidies


18 | P a g e

4. Productivity

Over the past few decades China has greatly increased its productivity as it transformed its economy by shifting unproductive labor from agriculture to manufacturing and services boosting aggregate output and income levels. The initial productivity gains however were comparatively easy to achieve as rural workers shifted to low skilled manufacturing and services. China is now in need of upgrading its manufacturing ability as the rising production costs have been affecting its competitiveness with other countries.

Rapid wage increases of the past decades were mostly matched with even faster productivity growth. In recent years there have been indicators that this arrangement is no longer functioning. Overall productivity in China is slowing and is expected to increase by around 6% in the coming years, down from double digit growth in the first half of the century. Achieving steady productivity growth in the future will be crucial in order to further advance the Chinese economy. Programs by the government have been launched to improve vocational training as well as assisting increased automation in manufacturing. The biggest driver for productivity however will be in the ongoing structural shift and increasing importance of services. Huge productivity gains are in the still highly agricultural sector which still employs around 1/3 of the working population while only contributing around 9% to GDP.

GDP per Employed Person 2000-2015

Source: NBS / * German Chamber of Commerce in China forecast

In terms of productivity China has rapidly caught up with other countries over the last few decades. By 2015 it is expected to have reached comparable levels to Malaysia. Chinese productivity is well ahead of Vietnam,

Indonesia or the Philippines. If China manages to keep up its productivity growth it will soon be at similar levels to European countries such as Hungary or Bulgaria.

International Productivity 2000-2012 (in GDP per person employed, constant 1990 USD)

Source: World Bank

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015*

Total Primary Secondary Tertiary

0

10,000

20,000

30,000

40,000

50,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Bulgaria China Hungary

Malaysia Philippines Vietnam

Indonesia Germany


19 | P a g e

5. Wage Developments in Asia

China can no longer be considered a low cost investment destination. Rapid wage increases over the last few decades have propelled labor costs ahead of most of the emerging and developing countries in Asia. The highest minimum wage in China (Shenzhen) is only surpassed by developed economies in Asia and 28% above the highest prevailing minimum wage in Thailand. China’s lowest minimum wage rate (Heilongjiang) is already nearly 90% of the highest minimum wage in Malaysia. Average adjustments for minimum wages in Asia also count China among the highest, only being surpassed by Cambodia and Vietnam.

Minimum Wages in Asia 2015

Source: German Chamber of Commerce in China research Note: Other than China, the highest prevailing minimum wage is reflected.

Minimum Wage Adjustments across Asia 2015 (as

of September 2015)

Source: German Chamber of Commerce in China research

End of limited report

Data collected from the wage survey among German companies in China is only available to members of the regional chapters of the German Chamber of Commerce in China.

For more information please contact your regional chamber representative.

www.china.ahk.de

6,6546,409

3,906

2,030

1,584 1,4901,4761,3221,160 1,080 930 819 468 434

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

23.0%

14.8%12.4%

10.6%8.3%

7.1%

3.8% 3.2%

0.0% 0.0% 0.0%0%

5%

10%

15%

20%

25%

The German Chamber of Commerce in China

The German Chamber of Commerce in China supports German

companies in their act ivit ies in China. Divided into the

regional centers of Beijing, Shanghai and South & South-

West China, it assists all together more than 2,600 companies.

It is thereby one of the largest foreign chambers in China.

The Chamber offers a broad range of seminars, workshops

and events to German companies, in addition to access to an

enormous network end assistance with matters in relation to

the local and regional government offices.

The Delegation of German Industry & Commerce

(AHK) Greater China

The Delegation of German Industry & Commerce Greater China

is the key representative body for German economic interests in

China, working on behalf of the German Federal Government.

With offices in Beijing, Shanghai, Guangzhou, Hong-Kong

and Taipei, the AHK represents German corporate interests in

Greater China and supports the expansion of German-Chinese

economic relations. The AHK is part of a network of more than

130 German economic representations worldwide, which has

been active abroad for more than 150 years. The first office in

the Greater China region was opened in 1981 in Taipei.

www.china.ahk.de

Labor Market and

Salary Report 2015/2016

Contact Person

Mr. Max J. Zenglein

Economic Analyst China

Survey Design and Analysis

German Chamber of Commerce

inChina•NorthChina

Tel. +86 10 6539 6665

[email protected]


inChina•NorthChina

Landmark Tower 2, Unit 0818

8NorthDongsanhuanRoad,

Chaoyang District, Bejing 100004

Tel. +86 10 6539 6688

[email protected]


inChina•Shanghai

25 F, China Fortune Tower

1568 Century Avenue

Pudong District, Shanghai 200122

Tel. +86 21 5081 2266

[email protected]


inChina•South&SouthwestChina

Room1903,LeatopPlaza

32ZhuJiangEastRoad

Tianhe District, Guangzhou 510620

Tel. +86 20 8755 2353

[email protected]

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