Labor Market and Salary Developments 2015/16 - China Presentation of results of GCC Wage Survey Max J. Zenglein Economic Analyst China Hong Kong, October 27th, 2015 NORTH CHINA SHANGHAI SOUTH & SOUTHWEST CHINA
About the Survey Survey conducted from August 27 th to September 18 th 2015 Total of 393 valid responses were collected from companies in Mainland China Responses from main economic centers Industrial distribution dominated by machinery and automotive sector Regional distribution of responses Heilongjiang Jilin Tibet Xinjiang Qinghai Gansu Sichuan Inner Mongolia Ningxia Shaanxi Chongqing Guizhou Shanxi Henan Hubei Hunan Beijing Hebei Anhui Jiangxi Tianjin Shandong Liaoning Fujian Jiangsu Zhejiang Shanghai Bohai and North East 20.7% Yangtze River Delta 65.1% Yunnan Guangxi Hainan Guangdong Pearl River Delta 14.2% Page 2 27. October 2015
About the Survey Survey conducted from August 27 th to September 18 th 2015 Total of 393 valid responses were collected Responses from main economic centers Industrial distribution dominated by machinery and automotive sector Industrial distribution Machinery/Industrial Equipment 30.5% Automotive 16.8% Electronics Consulting Plastics/Metal Products Consumer Goods Chemical 7.6% 7.4% 7.4% 6.8% 6.6% Other 16.8% 5% 1 15% 2 25% 3 35% Page 3 27. October 2015
Agenda 1 National Wage Developments 2 Regional Focus 3 Evaluation of Wage Increases 4 Labor Market Environment 5 Economic Outlook Page 4 27. October 2015 Beijing, October 09 th, 2012
National Wage Developments Average wage growth at German companies continues to fall After years of relative stability, significant downward adjustment Wage forecast of 8.1% for 2015 confirmed Wage developments of GCC surveys 11% 10.2% 1 8.9% 8.8% 9% 8.1% 8% 7.1% 7% 6% 5% 4% 3% 2% 1% 2012 2013 2014 2015 2016 Page 5 27. October 2015
National Wage Developments Average wage growth in China has fallen below 1 since 2014 In 2015 average wages were 1.7 times higher compared to 2010 levels Government target doubling 2010 level income by 2020 well on track Minimum wage growth target of 13% for the five year period ending 2015 achieved National Annual Wage Developments in RMB 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*2016* 2 18% 16% 14% 12% 1 8% 6% 4% 2% Source:NBS / GCC /* forecast Average wage (RMB) Wage growth (nominal) Page 6 27. October 2015
National Wage Developments Upward pressure on wages from government targets easing Growth of all main wage indicators is slowing Wage indicators moving in similar manner within a more narrow band Expected wages increases at German companies at lower end of forecasts Wage developments Source:NBS / GCC /* forecast 22% 2 18% 16% 14% 12% 1 8% 6% 4% 2% 2012 2013 2014 2015 2016* National wage growth Wage guidelines Minimum wage German companies Page 7 27. October 2015
Agenda 1 National Wage Developments 2 Regional Focus 3 Evaluation of Wage Increases 4 Labor Market Environment 5 Economic Outlook Page 8 27. October 2015 Beijing, October 09 th, 2012
Beijing Shanghai Tianjin Jiangsu Zhejiang Guangdong Yunnan Jilin Hebei Guangxi Heilongjiang Henan Regional Wage Focus Poorer regions only with minimal faster wage increases Wage gap only slowly closing 5-year average wage increases in richest provinces/municipalities: 11.3% 5-year average wage increases poorest provinces/municipalities: 11.8% However, some second and third tier cities with faster wage growth 5-year average wage increases 14% 13% 12% 11% 1 9% 8% 7% 6% 5% 4% 3% 2% 1% Highest wages Lowest wages Page 9 27. October 2015
Regional Wage Focus West 51,204 RMB/year (2014) Average wage (2014) 9. Minimum wage 13.7% Wage guidelines 10.3% Central 46,828 RMB/year (2014) Average wage (2014) 9.4% Minimum wage 15.8% Wage guidelines 10.5% North East 46,512 RMB/year (2014) Average wage (2014) 7.1% Minimum wage Wage guidelines 8. East 58,561 RMB/year (2014) Average wage (2014) 9.7% Minimum wage 13. Wage guidelines 10.5% Source:NBS / GCC Page 10 27. October 2015
Regional Wage Focus Wage increases falling across all regions at German companies Generally downward adjustments similar in main economic centers Wage increases in second and third tier cities typically slightly higher Regional wage increases at German companies 9% 8.5% 8. 8.2% 8.1% 8.2% 8% 7.3% 7.5% 7.5% 6.9% 7.2% 7% 6.7% 6.6% 6% 5% 4% 3% 2% 1% Shanghai Other East Beijing Other North SZ/GZ* Other South East North South *SZ/GZ=Shenzhen/Guangzhou 2015 2016 Page 11 27. October 2015
Regional Wage Focus Comparable wage levels in Shanghai and Beijing Wage levels at German companies in Shenzhen and Guangzhou on average more than 1 lower compared to other first-tier cities Wage levels first-tier cities: by seniority 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 junior mid-level senior Beijing Shanghai Shenzhen/Guangzhou Page 12 27. October 2015
Regional Wage Focus Lower wage levels in second and third tier cities Difference in pay levels in region increases with seniority of position Relatively similar wages levels for production workers Wage levels first and lower tier cities: by seniority 30,000 25,000 20,000 15,000 10,000 5,000 0 junior mid-level senior first-tier second-tier third-tier Page 13 27. October 2015
Agenda 1 National Wage Developments 2 Regional Focus 3 Evaluation of Wage Increases 4 Labor Market Environment 5 Economic Outlook Page 14 27. October 2015 Beijing, October 09 th, 2012
Evaluation of Wage Increases HR problems continue to dominate business challenges despite cooling labor market Increasing labor costs remains one of the main problems for German companies Problem of finding qualified staff highlights lack of skilled labor Top 3 Business Challenges 9 8 7 6 5 4 3 2 1 2012 2013 2014 2015 Retaining qualified staff Increasing labour costs Finding qualified staff Page 15 27. October 2015
Evaluation of Wage Increases Wage growth measured in % has been declining steadily since 2011 Measured in absolute terms wage growth has increased Impact of wage adjustments affecting cost of labor stronger despite slowing increases Absolute and nominal wage increases (of average national wage) 6,000 5,000 4,000 3,000 2,000 1,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016* 2 18% 16% 14% 12% 1 8% 6% 4% 2% Source:NBS / GCC /* forecast Absolute increases (in RMB) Wage growth (nominal) Page 16 27. October 2015
Evaluation of Wage Increases Adjusted for inflation real wage increases have been stable since 2012 Low inflation environment suggest that there is no real downward adjustment of wage growth Real wage development 16% 14% 12% 1 8% 6% 4% 2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016* Source:NBS / GCC /* forecast Real wage growth (national) Real wage growth (German companies) Page 17 27. October 2015
Evaluation of Wage Increases Productivity increases have been higher or similar for 2/3 of companies Survey suggests that average productivity at German companies increased by 8.1% in 2015 Wage increases and productivity at German companies 45% 4 35% 34.6% 42.4% 40.7% 33.5% 3 25% 24.7% 24.1% 2 15% 1 5% Productivity higher than wage increase Similar Productivity lower than wage increase 2014 2015 Page 18 27. October 2015
Evaluation of Wage Increases Taking employees productivity and qualifications into account majority perceive wage levels as reasonable or low Just over 2 already perceive wage levels as being too high Perception of wage levels 6 5 49.9% 4 3 2 21.3% 28.8% 1 High Reasonable Low Page 19 27. October 2015
Evaluation of Wage Increases Foreign managers with different evaluation of wage levels and productivity Only minority perceive wage levels as being low Perception of wage levels by foreign managers 6 51.6% 5 4 40.1% 3 2 1 8.3% high reasonable low Page 20 27. October 2015
Evaluation of Wage Increases German companies remain mostly optimistic about future productivity gains Evaluation stable compared to previous year Majority of foreign managers more pessimistic Likelihood future productivity growth will match wage increases 6 51.9% 49.2% 5 4 3 31.6% 32.5% 2 16.4% 18.4% 1 Likely Neutral Unlikely 2015 2016 Page 21 27. October 2015
Agenda 1 National Wage Developments 2 Regional Focus 3 Evaluation of Wage Increases 4 Labor Market Environment 5 Economic Outlook Page 22 27. October 2015 Beijing, October 09 th, 2012
Labor Market Environment Labor market has remained resilient as economy slows Strong growth in service sector jobs has been compensating slowdown in other areas However, the job growth is increasingly starting to be affected, -2.6% in H1 Government has already launched several support projects New urban jobs (in million) 14 12 11.7 12.2 12.7 13.1 13.2 13.0 10 8 6 4 2 Source:NBS / GCC /* forecast 0 2010 2011 2012 2013 2014 2015* Page 23 27. October 2015
Labor Market Environment ` Labor demand continues to be larger than labor supply (>1) Significant downward adjustment in Q2 Sectors supporting job growth also coming under pressure Labor demand 1.16 1.14 1.12 1.1 1.08 1.06 1.04 1.02 1 National East Central West Source:NBS Q1 Q2 Page 24 27. October 2015
Labor Market Environment Manufacturing industries have been laying off workers since 2014 Employment demand at service sector better, but also indicating contraction PMI sub-index on employment 52 51 > 50 expansion 50 49 48 < 50 contraction 47 46 45 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2014 2015 Source:NBS Manufacturing Non-Manufacturing Page 25 27. October 2015
Labor Market Environment Expansion of labor force at German companies slowing since 2013 Slowdown in key German industries affecting growth prospects and reducing demand for labor Employment intentions German companies 7 6 5 4 3 2 1 2012 2013 2014 2015 increase similar decrease Page 26 27. October 2015
Labor Market Environment Skills mismatch on labor market persists Despite lower labor demand, finding qualified staff remains a major problem Insufficient professional skills and too high salary expecations major reason vacant positions cannot be filled Reasons vacancies cannot be filled Insufficient of professional skills High salary expectations Insufficient of English skills Insufficient working experience Not enough applications Unfavorable company location Company not competitive enough No experience with foreign company 2 4 6 8 10 Major problem Problem Page 27 27. October 2015
Labor Market Environment Effort of training needed in order to obtain necessary skill level of staff is high Qualification of labor pool a major problem Deficiencies in educational system need to be compensated Required training to achieve necessary skills 6 56.3% 5 4 36.1% 3 2 1 7.7% High Neutral Low Page 28 27. October 2015
Agenda 1 National Wage Developments 2 Regional Focus 3 Evaluation of Wage Increases 4 Labor Market Environment 5 Economic Outlook Page 29 27. October 2015 Beijing, October 09 th, 2012
Economic Outlook China s labor market structure is transforming Importance of service sector expanding Share of labor in manufacturing likely to start declining Employment structure 10 9 8 7 6 5 4 3 2 1 30.3% 36.7% 50. 44.8% 29.5% 28.7% 23.8% 22.5% 27.5% 31.4% 34.6% 40.2% 2000 2005 2010 2015* Tertiary industry Secondary industry Primary industry Source:NBS / GCC /* forecast Page 30 27. October 2015
Jan/Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan/Feb Mar Apr May Jun Jul Aug Sep Economic Outlook Economic slowdown has not bottomed out yet, weak Q3 data Slight recovery possible in Q4 2015 GDP growth likely to achieve 7% But overall growth will shift to lower levels in 2016 Development of key macroeconomic indicators 2 18% 16% 14% 12% 1 8% 6% 4% 2% 2014 2015 Retail Fixed-asset investment* Industrial production Source:NBS Page 31 27. October 2015
Economic Outlook Low inflation environment to continue CPI slightly recovering, but at low levels Overcapacities and slower growth affecting producer prices Development of price levels 3% 2% 1% -1% -2% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2014 2015-3% -4% -5% -6% Source:NBS Consumer prices Producer prices Page 32 27. October 2015
Economic Outlook Slower economic growth to affect labor market Low inflation to contribute to easing wage increases Wage growth and economic development 2 18% 16% 14% 12% 1 8% 6% 4% 2% -2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016* National wage growth Conusmer inflation GDP German companies Page 33 27. October 2015
Key developments Wage increases Despite lower wage increases, rising labor cost a key business challenge Achieving productivity growth remains crucial Labor market environment Skills mismatch persists with high competition for highly skilled professionals and workers High level of training necessary Outlook Economy shifting to lower growth levels Look out: labor contract law, social insurance, retirement age, new 5-year plan Page 34 27. October 2015
Full Labor Market and Salary Report 2015/16 available for GCC members Flash survey will follow in March 2016 PPT available on request Thank you! Max J. Zenglein Economic Analyst China T: 010 6539 6665 E: zenglein.max@bj.china.ahk.de Page 35 27. October 2015