Does China have a minimum wage?
The short answer is yes. But different regions of China have a different standard of living; therefore, the universal minimum wage in China does not exist. Instead, the local officials are responsible for setting the minimum wages for each province, region, or municipality according to the local living standards and conditions.
Minimum wages in China have grown over the past decades. The increase in labor costs and seemingly complex labor laws and regulations has caused international businesses to restrain from expanding to China.
The reason for that lies within the ever-changing, complex China’s regulation laws and rising costs, making opening a business in China quite process-intensive and vaguely risky. The lack of understanding has taken many companies back, resulting in an immense opportunity for their growth.
Laws and Regulations of Minimum Wages in China
There are two primary articles of China’s employment laws that any foreign investor should be familiar with before launching its business into China: ‘1995 Labor Law of the People’s Republic of China’ and the ‘2008 Labor Contract Law of the People’s Republic of China’. The need for executing another contract comes from the unemployment crisis at the end of the 1970s and the early 1980s.
This contract’s contribution signifies China’s labor policy’s most significant changes: replacing lifelong employment with contract-based employment and replacing government job assignments with the labor market. That had put forth the importance of establishing and protecting labor rights, thus improving the labor principles written in the 1995’s Labor Law contract.
To further protect and improve employee’s rights in China, there were also changes in China’s Minimum Wage Regulations in 2004, stating that regional governments should adjust the minimum wage once every two years. Considering that the minimum wage in China is determined upon local living costs, local wages, and the overall supply and demand for labor, it is by no surprise that there is a distinguished inequality in minimum wage between the rural areas in China and the urban.
While this law attempts to lessen the minimum wage gap, still wealthier cities like Shanghai, Beijing, Shenzhen, and Tianjin continue to top the charts.
Regional Distribution of Minimum Wages in China
Shanghai has the highest minimum wage in China at 2,480 RMB per month. The second one is Shenzhen, which has a minimum wage of 2,200 RMB per month, while Beijing also has a minimum wage of 2,200 RMB per month. On the other hand, Guangxi province has some of the lowest minimum wages in China, which start at 1,000 RMB per month. The image below shows Minimum wage levels in China by region (based on the highest monthly rate in each area) useful as of 1 January 2020.
In 2020, mostly due to the Covid-19 pandemic, most provinces had not adjusted the minimum wage. They remained unchanged at 2480 CNY/Month in 2020 from 2480 CNY/Month in 2019, shown in the graph below.
China is still among the world’s most unequal countries in terms of income inequality. However, the gap has decreased over the past decade. According to China’s National Bureau of Statistics, Gini Coefficient, which denotes wealth/income inequality dropped from 0.491 in 2008 to 0.465 in 2016, where a higher number means more income gap.
The Effect on the Labor Cost and Investment Environment
Dealing with China’s growing minimum wages and labor laws is inevitable for foreign companies looking forward to investing in China. However, the businesses should not be misguided into thinking that this trend makes China a less lucrative place to invest.
The logical consequence of rising salaries is the expansion of the consumer market. Local spendings have skyrocketed for the past few decades; China’s economic growth has lifted more than 30% of the population out of the poverty line. Those people have built a strong middle-class with powerful purchase-power and have ignited various industries’ growth, giving the international companies a huge opportunity to profit.
Other significant economic factors like labor efficiency, low transportation cost, continually improving infrastructure, and continuously increasing consumer market still make China the most cost-effective and efficient choice for foreign investors. However, it is a must to do in-depth research and make the right decisions when expanding to China.
Many Western companies that commerce in China gradually alternate their sales team to local Chinese employees instead of Westerns. That is because they acknowledge how important it is to share a cultural ground with their Chinese clients and how it provides better, more profitable results. In the new age of remote work, it is more comfortable and more conventional to hire employees from afar, and thus it is highly recommended to seek local talents.
Xinergy Global assures a swift, trouble-free entry to China’s market so that expanding your business in China would be an effortless thing. Following Xinergy Global’s well-executed services guarantees a smooth, cost-effective transition into China’s commerce. Contact us today for more information about our services, tailor-made solutions, and more.