Flash Survey on Wage Trends 2014 Results and Key Findings 11 th April 2014 Following up on our Annual Wage Survey, the GCC conducted its second Flash Survey on Wage Trends to provide companies with current trends on wage increases. In total, 411 responses throughout mainland China were collected in our survey, which ran from March 31 st to April 8 th 2014. The major findings of the survey are: Wages for blue collar workers are expected to rise by 9.6%, while those of white collar workers are expected to rise by 8.8%. These figures are between 0.5-0.7 percentage points higher than the results of our Annual Wage Survey 2013, indicating that wage increases have been slightly revised upward over the past months Wage increases for companies engaging in manufacturing are outpacing wage growth in service companies, with domestic oriented production companies reporting highest increases for blue collar workers (11.2%). 22.7% of companies report the highest individual increases for blue collar workers, followed by engineering and sales positions. Mid-level positions (53.4%) and senior positions (29.1%) are most likely to receive the highest individual increases. Nearly 50% of companies report increases greater than 15% for the individual positions with the highest increases. 11.0% of companies signed collective agreements with the ACFTU, and 7.5% signed them independently. The majority of companies (51.7%) evaluate wage increases as neutral considering productivity increases and the company performance. Unchanged to 2013, 39.3% of companies perceive wage increases as high or very high. For any detailed questions or recommendations for improvement of our survey, please feel free to contact us: Contact: Max J. Zenglein, Economic Analyst Greater China Email: zenglein.max@gz.china.ahk.de Phone: 0755-8635 0487 Page 1 of 7
Brief Analysis of Flash Survey Results and Labor Market Environment Summary of Flash Survey Results Despite slower economic growth, with many macroeconomic indicators cooling in the first 3 months of 2014, the labor market environment continues to remain a major challenge for German companies in China. Wage increases for 2014 are slightly higher than the figures of our extensive Wage and Salary Survey in September 2013. Increases for blue collar workers increased by 0.5 percentage points to 9.6%, while increases for white collar workers increased 0.7 percentage points to 8.8%. The results confirm a stabilization at lower wage increases compared to previous years. Regionally, wage increases in Beijing and second-tier Eastern cities are slightly higher than in other regions, while secondary Northern cities reported the lowest wage increases. Overall, regional variations in wage increases at German companies across China are relatively low. Wages for blue collar workers tend to be about 1 percentage point higher than adjustments for white collar workers, secondary Northern cities being the only exception. Companies engaging in manufacturing (60.5%) report higher wage increases than service companies. Wages for blue collar workers at domestic oriented manufacturing companies are expected to rise the most (11.2%), while blue collar workers wages at export oriented companies and service companies expect increases of 10.6% and 8.1% respectively. Manufacturing companies tend to generally have lower wage levels, are more likely to be located in second-tier cities and can more easily achieve productivity gains, in part explaining higher wage increases there. Individual adjustments at companies for specific positions continue to show great variation, with companies reporting over 50% increases for certain positions. Mid-level positions are likely to have the highest wage increases with 53.4% of companies reporting increases for these positions to be among the three highest. 29.2% of companies report senior positions receiving the highest increases while only 17.4% report highest increases of junior positions. For individual positions however, blue collar workers are most likely to receive the highest increases (22.7%), followed by sales (21.0%) and engineering positions (18.2%). For positions with the highest increases nearly 25% of companies increase wages greater than 20%. For the majority of companies collective bargaining agreements are irrelevant (81.5%), while 7.5% engage in enterprise level agreements independent of the official trade union. At present only 11% of companies negotiate collective bargaining with representatives of the ACFTU. As in 2013, 39.3% of companies evaluate wage increases as being high if productivity and company performance are taken into account. The largest share of companies, however. see wage increases as neutral (51.7%). While a smaller share of manufacturing companies report wage increases as being high or very high, the share of service companies reporting high increases increased by 14.9 percentage points to 44.3%. Page 2 of 7
Labor Market Developments Q1 2014 The central government aims to boost consumption over the next few years as the economy continues its transformation from high growth levels to more intermediate growth. The slowdown in economic growth translates into lower overall wage increases, but considering the already relatively high base level in the coastal areas, wage increases continue to be a challenge for companies. Economic policies under Xi Jinping have reiterated the importance of increasing wage levels and closing the income gap. Wage increases hence are expected to remain fairly stable at between 8-10% despite lower GDP growth. The labor market in general, however, remains tight. This is especially the case in coastal areas, as the flow of migrant workers from central and western regions is slowing. Manufacturing hubs in eastern provinces as well as the PRD have already reported a labor shortages in the first three months. Most important and most publically noticeable, a new round of minimum wage adjustments have been announced in the first few months of 2013. As of April 10 th nine jurisdictions have announced new minimum wage levels, averaging an increase of 12.5%. This is still below average increases in 2011 (22.1%), 2012 (16.9%) as well as for the first 3 months in 2013 (14.9%). Chongqing announced the highest increase, although it must be noted that minimum wages had not been adjusted there since 2012. At the lower end, Shandong s adjustment of 8.7% is because the adjustment is the second within 10 months. Other adjustments are similar, and most other provinces are expected to follow suit, increasing between 12-13% on average in 2014. Minimum Wage Increases Q1 2014 Jurisdiction Average Increase Chongqing 19.0% Shenzhen 13.0% Inner Mongolia 12.5% Gansu 12.5% Shanghai 12.3% Tianjin 12.0% Beijing 11.4% Shaanxi 11.3% Shandong 8.7% Source: Local Labor and Social Security Bureaus It should be noted that Guangdong province has drafted new legislation regulating negotiation of collective agreements, and it is widely expected that collective agreements will acquire a more prominent role in the future. Page 3 of 7
After increasing over 3% in the autumn of 2013, inflation continued to cool in the first months in 2014. Price level increases are generally expected to remain stable at an average of below 3% for the remainder of the year, with individual spikes over the 3% level. CPI Development Feb 2013 Feb 2014 Source: NBS Page 4 of 7
Flash Survey Results 2014 1. Regional distribution 2. Main business purpose 3. Average wage Increases by region (in %) *Guangzhou and Shenzhen Page 5 of 7
4. Average Wage Increases by business purpose (in %) 5. Job positions with highest wage increases (share of companies) Highest 2nd highest 3rd highest Position Blue collar/operator 22.7% Engineering 19.1% Engineering 14.2% Sales 21.0% Sales 15.8% Other 13.1% Engineering 18.2% Accounting 10.2% Sales/Accounting** 11.6% Level Mid-level 43.8% Mid-level 61.4% Mid-level 54.9% Senior 33.5% Senior 26.7% Senior 25.0% Junior 22.7% Junior 11.9% Junior 16.0% Increase >20 23.3% >20 12.3% >20 9.3% 15-20 26.8% 15-20 24.9% 15-20 19.1% 11-14 22.2% 11-14 23.3% 11-14 20.2% ** tied for third. Page 6 of 7
6. Signing of collective agreements 7. Evaluation of wage increases taking productivity and company s performance into account (by business purpose). Page 7 of 7