Beijing City to Raise Minimum Wage 21%

It’s a game of political survival.

The people want no inflation and they also want more income to keep up with rising prices.

Not totally impossible to achieve both, but requires a lot more than the traditional macro tools taught in the western universities.

Beijing city to raise minimum wage 21%
By Jamil Anderlini in Beijing and Rahul Jacob in Hong Kong
Published: December 28 2010 12:47 | Last updated: December 28 2010 12:47

 

Every province and municipality in China has announced a rise in its minimum wage this year, with increases ranging from 12 per cent to Beijing’s rise.
 

The official measure of annual consumer price inflation in China hit 5.1 per cent in November, up from 4.4 per cent in October, with food prices rising 11.7 per cent in November from a year earlier.
 

Beijing city is to raise its minimum wage 21 per cent next year, the second such rise in barely six months, amid rising inflationary pressure and growing concern over China’s widening wealth gap.
 

The increase, which will come into effect on New Year’s day, raises the statutory minimum monthly wage in the Chinese capital to Rmb1,160 ($175) and the hourly rate to Rmb6.7. It follows a 20 per cent rise in June.
 

Every province and municipality in China has announced a rise in its minimum wage this year, with increases ranging from 12 per cent to Beijing’s rise.
 

The official measure of annual consumer price inflation in China hit 5.1 per cent in November, up from 4.4 per cent in October, with food prices rising 11.7 per cent in November from a year earlier.
 

The government is worried about the disproportionate burden of rising food costs on low-income households, which spend a larger share of their income on basic necessities. It also fears that persistent price rises could stoke social unrest, as they often have in the past.
 

“While China’s living standards have dramatically risen over the past 30 years, the gap between rich and poor has sharply widened,” Yu Yongding, an influential former adviser to China’s central bank, wrote in a newspaper article last week. “With the contrast between the opulent lifestyles of the rich and the slow improvement of basic living conditions for the poor fomenting social tension, a serious backlash is brewing.”
 

Nationwide increases in minimum wages are part of the government’s plan to reduce income disparity and the Chinese economy’s heavy reliance on investment and promote greater consumption by middle- and low-income households.
 

But with many businesses already being squeezed by rising input costs, wage increases come at a difficult time and are likely to lead to higher overall inflation.
 

“In just the last three months we’ve already had to raise entry-level starting wages 60 per cent just to get people to come to a job interview,” said Jade Gray, chief executive of Gung Ho Pizza, a Beijing-based gourmet pizza delivery service. “With rising rents, the much higher cost of ingredients and now wage inflation, many businesses in the services industries are going to find it impossible not to pass on much higher costs to consumers.”
 

With its latest wage increase Beijing now has the highest minimum wage in the country, ahead of Shanghai on Rmb1,120 per month but other cities and provinces, including the manufacturing hub of Guangdong, are already eyeing further increases early in the new year.
 

The government estimates that Beijing’s minimum wage rise will benefit nearly 3m people.
 

In the separately-ruled Chinese territory of Hong Kong, legislators in November set the city’s first-ever minimum wage at HK$28 an hour. The new wage, which takes effect in May 2011, followed months of public consultation and debate amid growing concern in the city about widening income disparities.

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11 Responses to Beijing City to Raise Minimum Wage 21%

  1. strawberry picker says:

    TOm Hickey, since you guys are so worried about unemployment, check out this chart.

    http://forums.wallstreetexaminer.com/topic/920246-employment-to-population-ratio-%E2%80%93-one-chart-tells-all/

    All that stimulus is making jobs in china maybe? Warren you are finally starting to come around to my way of thinking, why does world need 1 or 2 billion more shopping machines? Since you are all economists here, you look at 2 sides of stuff – supply AND demand, supply of human beings is too much as recent events PROVE governments cannot manage all this oversupply of human beings and get their idle hands occupied and my bible says idle hands are of the devil’s work, so through birthing policies we gotta bring that down or like you say warren, the nukular option may start appealing to some folks as the resources get strained and the idle hands grow. This is REALLY a failure of our species to think we can grow uncontrollably and then manage the chaos with monetary solution, how freaking stupid on a macro scale. Where I live, 2500 people per square mile, everyone is rude, hateful, rushed, crowded, indexed, stamped, filed, queued refiled, you are just a number and many people are very very unhappy. Human beings did not evolve to handle such queing and stress I believe, we evolved to exist in small usufruct societies.

    Tom HIckey you can watch movie “miracle mile” with mare winningham about what is coming. I like the part where everyone knows the nuke is coming and the guy starts shooting the hero because someone stepped on the roof of his car! He probably just went into debt to buy that car and wanted it nice and purdy for the big show – see how silly humans get? LOL! :O)

    Reply

    Tom Hickey Reply:

    Don’t worry, Straw, climate change will whittle population way down in a few decades, if WMD doesn’t do it first.

    Reply

  2. Tom Hickey says:

    Beijing is forcing distribution. Leaders realize that their Achilles heel is their export economy and that they have to build a domestic consumer base fast before there is social unrest. So far, the wealthy, as in the US, have been hoarding the bulk of gains and not passing income along to workers. Moreover, interest rates have been low, so savers have not accumulated much through saving.

    Consumption in China is estimated to be about ~36% of GDP, woefully short of a modern consumer society. Beijing can react quickly through command and the leadership seems to have woken up to a dangerous political situation brewing due to worker discontent.

    In the long run this will not be inflationary for China in a bad sense, although prices will rise, because it will lead to higher GDP based on a vibrant domestic economy instead of a non-existent domestic economy and a burgeoning export one. China inflation problem is imported, due to its outsized trade surpluses (which are now declining). They seem to realize that and are setting about fixing it.

    Maybe they are listening to Yu Yongding.

    China’s House of Cards

    Reply

    knapp Reply:

    “The government is worried about the disproportionate burden of rising food costs on low-income households, which spend a larger share of their income on basic necessities. It also fears that persistent price rises could stoke social unrest, as they often have in the past”

    I was under the impression that the lower income people were the ones growing the food, i.e. the farmers. And that maybe some at least are benefitting from a higher price on the produce they sell to rich Beijing’ers.

    Reply

    WARREN MOSLER Reply:

    they have issues with imported food and the increase in energy input into domestic food production, last i heard

    Reply

    art Reply:

    How much of that is driven by leveraged financial speculation, I wonder? Even some of the best bottom-up fundamental investors (e.g., hedgies like Einhorn) are caught up in this trade (Einhorn in gold).

    Contango is reportedly beginning to crack in some markets though, so perhaps the hoarding trades are set to come off in 2011? Heard something about one large investment bank — Morgan maybe? — trying to get out of some kind of warehousing exposure recently. Could lead to a ‘look out below’ inflection for spot prices. Would do wonders for consumers worldwide though, esp the Chinese given 2010 min wage hikes.

    SethM Reply:

    For political reasons it is highly debatable that China will be successful in reorienting the economy towards increased domestic consumption. Increased domestic consumption means more power for average citizens and that is in direct contrast with the current political framework that aggregates all power to the center. In China, the economy and the people serve the government, not the other way around. Any moves such as raising the minimum wage are merely token gestures in order to placate the people.

    Here’s a nice discussion on this reality: http://chinageeks.org/2010/12/rich-state-poor-people/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Chinageeks+%28ChinaGeeks%29

    Reply

    Tom Hickey Reply:

    What we are likely to see not only in China but the UK, EZ, and US is rising social unrest over the next few years as adjustments owing to the process of globalization bite, along with the hangover the debt crisis that led to the GFC. The Chinese government, being more authoritarian, is more sensitive to this trend, but the Western governments are soon going to be caught up in it, too, as we go into the second leg down and lots of people get worked up. This is going to involve more than “crowd control.”

    Reply

    WARREN MOSLER Reply:

    and they have nukes, too

    WARREN MOSLER Reply:

    not sure what good 1.5 billion people consuming more real resources does for us

    Reply

    Tom Hickey Reply:

    Depends on the meaning of “us.” This is the multinationals’ dream and why they are all establishing beachheads in China, India, Brazil, etc., and abandoning the developed countries where growth has more or less maxed out in favor of emerging nations even where there are still major issues.

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