About Work and Wages in China

How Much do we know about Work and Wages in China?

The economy is in such a state that men don’t have enough money to care for elderly parents and support their wives and children. Even in good years their lives are bitter while, in bad years, they struggle to avoid starving to death. Under those circumstances, how can you expect them to be civil–even lawful? Mencius[1].

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Beijing expects[2] employers to treat workers well, “Entrepreneurs–especially state-owned entrepreneurs–should play a leading role in serving society as conscious models of political, economic, and social responsibility, and so serve the Party, the country, and the people”.

The Birth of Eurasia

Workers with fewer than ten years of cumulative work experience are entitled to three months’ sick leave[3] on sixty-per cent to one-hundred-per cent of salary, depending on seniority.

In 2018, a labour law consultant warned Guangzhou Human Resources executives that private business labour costs would rise dramatically due to stricter collection of social security payments, a ten-per cent rise in the minimum wage, and the growing number of workers filing labour disputes. I think all of you will agree that one-third of small and medium-sized private entrepreneurs will shut down if they have to pay their social welfare contributions in full”.

In 2019, provincial Trial Spots began monitoring employer compliance and The Wall Street Journal reported[4] that the socially-oriented economy had doubled everyone’s salary every decade for the past forty years, “In 2012 alone, the average wage rose by 14 per cent.

Western corporations such as Crystal Group, which produces clothes for Abercrombie & Fitch and Gap, have pulled out because of rising labour costs”.

Yet The New York Times found widespread[5] complaints of labour shortages, “Waves of migrant workers from the countryside filled China’s factories for the last three decades and helped make the nation the world’s largest manufacturer but many companies now find themselves struggling to hire enough workers and, for the scarce workers they do find, pay has more than quintupled in the last decade”.

The Labor Contract Law’s ‘termination for cause’ clause forces employers to publish detailed regulations, keep careful records, and negotiate with unions because management can only terminate employees–with severance pay–if they remain incompetent after training or reassignment.

Strikes are rare, explains union leader An Jianhua[6], “China has a huge population, so striking doesn’t help much. There are plenty of labourers ready to replace workers”.

Instead, the All-China Federation of Trade Unions, ACTFU, resolves labour disputes through legislation, consultation, and arbitration. If all else fails, the threat of legal action brings employers into line because unions rarely lose in front of communist judges, and the ACFTU.

Whose three-hundred million members outnumber the rest of the world’s unionists combined, has persuaded the government to ratify four of eight United Nations Labor Conventions, two of its four Governance Conventions, and twenty-two Technical Conventions[7]. Base wages rise with seniority and come with annual bonuses plus a thirteenth monthly payment at New Year.

Workers covet overtime because labour laws stipulate that, after forty-four hours of work, they receive one-hundred-fifty per cent of base salary, two-hundred-per cent on Saturday afternoon and Sunday, and three-hundred-per cent on national holidays.

Employers can hire on contract only twice (two six-month contracts, for example) after which hires automatically become permanent. Tenure, based on cumulative experience with all previous employers, allows job-changers to keep their seniority and accumulated vacation time. If they switch employers: five days annually for the first nine years, ten for the next nine years and fifteen days thereafter–in addition to seven public holidays.

Accelerating inland growth has triggered labor shortages in coastal cities, forcing employers to automate, raise productivity, and move up the value chain–as Beijing intends. In 2019, Mentech, a telecom manufacturer in coastal Dongguan, offered regular wages plus $1,100 guaranteed monthly overtime, air-conditioned dorms, free Wi-Fi, and birthday presents.

Monthly manufacturing wages averaged[8] $1800 in 2019 and overtime, bonuses, company housing, and free meals allow workers to send money home.

Factory workers are generally young, happy, and carefree, gossiping, flirting, listening to music and–except in large corporations–wearing what they please. Adjusted for productivity, regulations, and benefits, they cost[9] employers as much as their American cousins and a friend of the author, who hires workers in both countries, explained why they represent good value:

The Great Proletarian Cultural Revolution

At our US facility, our only requirement for assemblers is a high school degree. US citizenship, passing a drug and criminal background check, and a simple assembly test: looking at an assembly engineering drawing and then putting the components together. While the vast majority of American applicants were unable to complete the assembly test, in China they completed it in half the time and 100% of applicants passed.

Hiring for an assembler position in the US would require thirty interviews a day and produce twenty-nine rejections, not to mention all the HR hassles of assemblers walking off shift, excessive lateness, stealing from work, slow work speed, and poor attitudes.

The position starts at $12 an hour in flyover country which is pretty reasonable compared to other jobs that only require a GED and no prior work experience. It offers medical, dental, and annual raises with plenty of opportunities to move up in the company and earn an average Production Assembler salary, $33,029. If they stay beyond five years. Identical positions in China pay the same wages as other positions there with only a high school degree and no work experience.

Yet the applicant quality is much higher, and this also applies to the white-collar support professionals: schedulers, quality inspectors, equipment testers and calibrators, engineers, supply chain managers, account managers, and sales. Their labour quality is simply higher. At the end of the day, high-end and middling manufacturing is not moving to either the US. Or Mexico because average workers in flyover country cannot meet the demands of twenty-first-century manufacturing.

Barely two-per cent of Chinese pay taxes and they want to keep it that way: recent Congressional consultations on income taxes attracted 130,000 submissions–all advocating the status quo.

Yet despite low taxes, a powerful union, strong labour laws, sympathetic courts, and rising wages, China is no workers’ paradise. Only three-quarters of workers reported having union representation, paid annual leave, and paid days off. In 2019, ten years after they were promised a union. Walmart’s employees were still struggling to establish one and Foxconn. Apple’s Taiwan-owned assembler, allowed employees to unionize only after the media exposed its practise of forcing employees to stand for illegal. Twelve-hour shifts and local officials moved in to lend muscle to workers’ efforts.

 

Retirement pensions are another sore spot until recently. Millions of migrant workers who contributed to urban retirement funds could only collect full pensions in their home provinces. Where local governments had no money for them after they returned at the end of their working lives.China taxes

Despite pleas from cash-starved inland provinces, rich coastal provinces clung to multi-billion-dollar surpluses. So, Beijing endowed a trillion-dollar National Pension Insurance Program in 2011 and strong-armed the rich provinces to join.

The People’s Daily[10] drummed up support by appealing to national pride, “In developed countries like America–whose Gini[11] index sometimes reaches 0.4–income disparities are eased through gradually increasing taxation on the wealthy and improving welfare systems to help the poor. China should learn from America’s experience”. In 2014, government officials and academics joined the national scheme and, in 2019. Beijing issued a billion electronic cards. So, everyone can access their social security benefits, medical records, government subsidies and reimbursements, and pay bills.

By 2020, the quality of life in Tier One cities like Beijing, Shanghai, and Shenzhen rivalled the world’s best. Since education is virtually free and low-income scholarships abound. Graduates carry no student loans and most employers supplement. The inexpensive state health coverage and give mid-level managers modest, non-taxable expense accounts and occasional use of a company car.

Software engineers out-earn their foreign colleagues and Shenzhen offers starting salaries to teachers with bachelor’s degrees rivalling San Francisco’s $68,000.

While post-grads start at $73,000 and receive priority housing, subsidized long-term rentals, and one-hundred-sixty-five paid vacation days. Says economist Weiwei Zhang[12], “Shanghai’s life expectancy is already higher than New York’s, its level of education is the highest in the world, and its overall scientific and technological power suggests a healthy economic future.

The average wealth, even the living standard, of many Shanghai residents is higher than the Swiss. While urban housing is better than Japan’s or Hong Kong’s”. Shanghai’s high-speed trains, subways, airports, wharves, commercial facilities, and public safety outperform New York’s and, says the New York Times’ Thomas Friedman[13], “Just compare arriving at La Guardia’s dumpy terminal in New York City and driving through the crumbling infrastructure into Manhattan with arriving at Shanghai’s sleek airport and taking the 220-mile-per-hour magnetic levitation train to get to town in a blink. Then ask yourself: Who’s living in the third world country?”

In 2019 Credit Suisse[14] reported, “This year, China recorded more members of the global top 10 percent (100 million) than the United States (99 million), and created 182 new billionaires[15]–compared to America’s fifty-nine–taking its total to 799”. Every week, two more become billionaires and a hundred become millionaires.

Yet many of the super-rich, like Jack Ma of Alibaba, Lei Jun of Xiaomi, and Ren Zhenfei of Huawei are ‘Maoist entrepreneurs,’ says a Harvard study[16], “All but one of fifteen CEOs we interviewed told us they often turned to Mao’s teachings for management ideas”. Liu Qiangdong[17], founder of e-commerce giant JD.com, suggested that robots would make Communism possible in one generation if the government simply nationalized all companies and redistributed the wealth.

With wealth redistribution becoming a national priority, economists[18] took a closer look and found that inequality statistics have been exaggerated because, though the quality is identical, land, housing, and food are much cheaper inland, and rural incomes purchase fifty percent more than in coastal regions.

Adjusted for temporary migration, inequality shrinks further. Until 2019, economists counted people by where their hukou were registered rather than where they actually lived. So the movement of three-hundred-million migrant workers distorted statistics severely.

In reality, the coastal provinces have millions more migrant residents than their registered populations and the inland provinces have millions less.

So, a worker moving from the interior to the coast lifts inequality indicators because she contributes to aggregate income at her coastal destination. But is still counted as living in her rural home. When analysts corrected[19] the error.

They found that regional inequality has been declining by 1.1 per cent annually since 1978. In 2002, for example, the combined earnings of fourteen Guizhou workers[20] equalled one Shanghainese but, by 2019, the number had dropped to five. Nor is the structural gap as painful as it sounds. Like their coastal cousins, inlanders have gotten richer every year and, to them. Shanghai’s glitzy lifestyle is no more relevant than is Manhattan’s to folk in Little Rock, AK.

Examining China’s inequalities from a global perspective is enlightening, too. In 2018, residents of coastal Guangdong Province were five times richer than those in inland Gansu. But, Gansu folk were better off than average Armenians or Ukrainians–while residents of wealthy Beijing, Shanghai. Tianjin, and Jiangsu not only earned more than the average American but their median savings of $130,000 were higher, too.

Confucian attitudes will help the great rebalancing, for everyone knows the Master’s admonition. The ruler of a state need not worry that his people are poor but that wealth is inequitably distributed. For if wealth is equitably distributed, there is no poverty”.

Finally, a glimpse of the future that Covid-19 is bringing closer:

  1. Mencius, Confucius’ principle disciple, was born a century after the Master’s death, in 372 BC, and died in 289 BC.
  2. ”State Council Opinions on Promoting Excellent Entrepreneurship and Giving Full Play to the Role of Entrepreneurs”. NDRC, October 2017.
  3. Annual Leave and Sick Leave Entitlements in China: A Guide for Overseas Employers. Shield GEO. 2019
  4. Rising Wages Pose Dilemma for China. WSJ. Tom Orlik May 17, 2013
  5. Cheaper Robots, Fewer Workers. The New York Times. April 24, 2015
  6. China’s labour movement keeping pace with globalization. People’s World, June 18, 2018, by John Bachtell and Carol Ramos Widom
  7. The US has ratified two, one, and seven respectively.
  8. Wages in Manufacturing in China. Trading Economics–adjusted for purchasing power parity.
  9. Oxford Economics quoted in ‘Made in China’ labour is not actually that cheap. by Sophia Yan CNN. March 17, 2016
  10. New Gini figures show instability risks, need for reform By Du Liya. Global Times, September 17, 2012
  11. Gini measures income inequality. A lower number indicates greater equality.
  12. Weiwei Zhang. The China Wave
  13. Thomas Friedman, ” Biblical Seven Years”, The New York Times, August 27, 2008.
  14. Credit Suisse Global Wealth Report 2019.
  15. 2020 Hurun Global Rich List.
  16. Mao’s Pervasive Influence on Chinese CEOs. By Shaomin LiKuang S. Yeh. HBR December 2007
  17. Tycoons spark discussion on realization of communism. By Shan Jie. Global Times: 2017/8/21
  18. Spatial Price Differences and Inequality in the People’s Republic of China: Housing Market Evidence,” Chao Li & John Gibson, 2014. ”Asian Development Review, MIT Press, vol. 31(1), pages 92-120, March.
  19. Regional Inequality in China allowing for Spatial Cost-of-Living Differences: Evidence from a Hedonic Analysis of Apartment Prices. Chao Li, John Gibson. IDEAS.
  20. China’s Got a $46,000 Wealth Gap Problem. Bloomberg News. May 21, 2018

About Work and Wages in China

CHINA DREAMS OF Gini

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