Wage Inflation in China?

According to Xinhua news agency, inflationary trends in China have been recorded for grain, cooking oil, meat, eggs and fodder. Now this situation is hardly surprising. In the first place the acreage in cultivation for the three principal crops has been steadily declining, and productivity has not been keeping pace with this reduction. Secondly farmers, faced with low margins on the staples , have been moving up the value chain into areas like peanuts and cotton. At the same time global production of the crops has been falling: down this year by 63.3 million tons to 2.03 billion tons. With China having to import increasing quantities, short term there only seems to be one direction for the global grain markets to go:up.

The inflationary impact this may have is not as straightforward as it may seem. The increase in the prices of staples will hit the poorest countries and the poorest areas of China hardest. But in some areas at least, wages are on the rise in China. According to a new report by Mercer Human Resource Consulting, Chinese employees are projected to see an average 3.9% growth in annual base pay over inflation in 2004. ( Now before everyone starts jumping up and down on their seats, it is very, very important to note that this survey was very selective: restricting itself exclusively to workers in multi-national enterprises). However this selective improvement does mean for some groups a move away from the monoculture diet. Ironically these groups will notice this impact much less than the others. Generalised wage inflation in China is however a long, long way off: which is one of the reasons the 'Chinese growth spurt' could be a rather long one.

In 2004, Chinese employees are projected to see an average 3.9% growth in annual base pay over inflation, according to a new report by Mercer Human Resource Consulting. This growth rate ranks sixth worldwide.

Average annual base pay in China is projected by Mercer to grow 5.3% next year. However, during the same period, inflation in China is expected to be approximately 1.4%. Thus, Chinese workers are forecast to see an actual base pay rise of 3.9%.

Data used by Mercer for projecting pay increases were compiled from a survey of multinational companies, while inflation data was largely collected from the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD). Project growths in base pay were calculated based on salary figures for employees working as operational staff, clerical staff, technical staff, managers and senior executives.

Indonesia ranked as the country forecast to have the greatest growth in base pay next year, with a 6.5% rise after inflation. Bulgaria, Lithuania, South Korea, and Taiwan rounded out the top five with respective growth rates of 5.1%, 5.1%, 4.5%, and 3.9% after inflation. Venezuela ranked last, with workers in the country expected to earn 7.7% less in 2004, after inflation, than they did this year.

Despite this projected increase in earnings potential however, China remains marred by high unemployment rates. According to a new survey conducted by the Institute of Population and Labor Economics, a branch of China's Academy of Science, unemployment rates in some Chinese cities are as high as 14%. Most labor experts believe that China's overall unemployment rate ranges from 10-15%.
Source: Interfax
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