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Riding the Labour Wave

Riding the Labour Wave
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In the past decade, real wages in China have grown nearly 17 per cent annually. According to one study by the Boston Consulting Group (BCG), contributing factors include rising inflation, government policies, a shortage of qualified workers and productivity gains attributed to higher literacy and education rates, as well as the rising value of the RMB. On 31 December 20011, Shenzhen and Beijing local governments announced increased minimum wage standards to take effect right after the Chinese New Year.

According to the new standards, Shenzhen’s minimum wage for full-time workers will be RMB 1,500, up from RMB 1,320 in 2011, and 13.3 RMB/hour, up from RMB 11.7 in 2011. With this latest increase of almost 14 per cent year-on-year, Shenzhen now has the highest minimum wage standards in the country. Beijing’s more modest adjustment has full-time workers earning RMB 1,260 (up from RMB 1,160 in 2011), and 14 RMB/hour (up from RMB 13 in 2011), representing an increase of eight per cent.
These policy changes show the Chinese government’s clear intention to close the increasing gap between rich and poor. Companies failing to comply with the new regulations will face severe penalties.

Coping with the Rise

Although higher wages are good for employees, they can be problematic for employers. But aside from raising salaries in line with minimum and average standards, there are a number of other ways employers can retain staff. Having a well-defined HR policy will reduce turnover and control labour costs. Most Chinese employees switch companies because they lack advancement opportunities with and/or are dissatisfied with management practices. Employers should offer more career opportunities within the company and build a strong organisational culture. Also important are longer vacations and flexible work hours, as well as annual performance-based bonuses paid right before the Chinese New Year. In addition, Chinese employees value training and education; managers should provide on-going support and feedback, remain aware of cultural differences, clearly communicate the organisation’s vision, goals, culture and values and ensure employees understand key business processes, policies and procedures.

When comparing wages, European companies planning on setting up manufacturing or other operations in China must adjust for productivity, which – although rising – is still relatively low when compared to Europe. In addition, wages differ greatly between industries and areas, being much higher in the coastal regions than in the west.
While the Boston Consulting Group expects net labour costs for manufacturing in China and the US to converge by around 2015, Western Europe will continue to rely on China’s relatively lower labour rates for the foreseeable future.

The HR & Training Department at the EU SME Centre provides SMEs from the EU with free information and advice on HR related issues. For more information please visit www.eusmecentre.org.cn

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