A blog on Chinese economy & society

Guangdong to hike minimum wage by a whopping 21%

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China’s Guangdong province, which is the leading export powerhouse, has announced that it will raise minimum wage by an average 21%, effective on the Chinese labor day, May 1. Increases in MW is no news, as other exporter dominated provinces had already announced similar raises. However, most of those raises are in the range of 10%-15%, so this is still surprising in its generosity.

Why are they doing this? Perhaps just a natural response to the recent labor shortage. However, this also gives credibility to China’s efforts in rebalancing its economy towards more consumption. Afterall, only when the folks earn more that they can spend more.

But it also indicates that China will NOT budge in its exchange rate. It has chosen to appreciate internally through wage-led inflation, rather than external currency adjustment. China is trying to reduce the competitiveness of its exporters, and accordingly its trade surplus, by making them less profitable. The benefit of this route vs. external currency adjustment is that profits lost to Chinese exporters will go towards Chinese workers, rather than accruing to exporters in other countries. Smart move, if you ask me, but definitely not welcomed by the debtor nations.

Couple this with the recent rhetoric from Washington, a showdown on trade is looming.


Written by Cindy Luk

March 17, 2010 at 10:18 pm

Posted in China, Macro

Tagged with , ,

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