The recent period of economic uncertainty has meant some Chinese local governments have started changing the way they adjust the minimum wage. In some instances, local authorities have started to look at reducing the rate of increase by either, adjusting the minimum wage in smaller increments, or, increasing the period of update from two to three years.
The ‘Provision on Minimum Wage’ law, implemented on May 1, 2004, requires that the minimum wage, either monthly or hourly, should be updated every two years. In recent years, this has led to local minimum wage levels increasing steadily, and in some cases the adjustments have even taken place on an annual basis. However, the current downward pressure being exerted on the Chinese economy and a reduction in the profitability of businesses, has meant a slowing down of this trend.
According to data from the National Bureau of Statistics (NBS) and the Ministry of Human Resource and Social Security, in 2016 only 9 provinces adjusting their minimum wage, with an average increase of 11.2%. This figure contrasts sharply with the 27 regions that increased their minimum wage levels in 2015, with an average increase of 14.6%. The lower percentage increase in 2016, is not only lower than 2015, it is also lower than any increase in recent years.
Some provinces are now looking at introducing measures to slow growth and make it more sustainable. For example, on February 29, 2016, Guangdong province issued “Action Plan on Supply Side Structural Reform and Cost Reduction in Guangdong 2016-2018”. This document proposes alternations to the minimum wage mechanism to include a provision taking into account the level of economic development. This will allow Guangdong to suspend increasing the minimum wage in this year and next year.
Across China the rate of minimum wage is very variable, with those of Shanghai being highest, with a monthly minimum wage of RMB 2190, and Qinghai being the lowest, with a minimum wage of RMB1270. Stakeholders should be aware, however, that these increases do not always represent like-for-like, with, for example, the minimum wages of Shanghai and Beijing representing ‘net income’, meaning after a deduction for social insurance and housing. In order to remain compliant with each company’s social responsibility objectives, stakeholders are advised to work with global auditing experts in order to check labor standards, business integrity and environmental compliance along their entire supply chain.
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