At least nine Chinese provinces and cities will raise minimum wages from Thursday by as much as a third after Premier Wen Jiabao called on companies to create "harmonious employment relations" by gradually raising incomes last week.
Beijing is increasing the lowest monthly salary employers may pay in the Chinese capital to 960 yuan ($142) from 800 yuan, according to the city government's website. Central China's Henan, the nation's most populous province with almost 100 million residents, is raising its minimum wage by 33 percent to 600 yuan, the local government said on its website.
"This is a step in the right direction," Stephen Roach, Morgan Stanley's Asia chairman, said in Beijing. "China has a very low personal income share of GDP, and wages, surprisingly low wages, and limited employment growth are part of the problem."
More than 20 provinces and municipalities plan to increase minimum wages this year, Yin Chengji, spokesman for the Ministry of Human Resources and Social Security, told a press conference in April. Shanghai, the country's financial hub, ordered a rise of 17 percent to 1,120 yuan per month in April and Guangdong, China's biggest export base, boosted five local minimum wages in the province by an average 21 percent, with the highest pay increasing to 1,030 yuan.
Rising wages may help sustain domestic demand as slower global growth damps the rebound in exports and the government reins in loans and real-estate investment to prevent asset bubbles. China's manufacturing expanded at a slower pace in June, two Purchasing Managers Index reports showed today, as new orders declined and inventories grew.
"The good news is that the labor market continues to improve despite slowing output growth," Qu Hongbin, a Hong Kong-based economist at HSBC Holdings Plc said. "This, combined with wage increases in some factories should offer solid support to private consumption in the coming quarters."
Higher wages and salaries among China's 468 million industrial and services workers should help China reduce its reliance on exports and investment as engines of growth and boost the share of consumption in the economy, economists say. China's central bank said on Wednesday economic restructuring needs to be accelerated.
Raising minimum wages "is part of the rebalancing," Morgan Stanley's Roach said. China has no official data specifying the number of workers who are paid the minimum wage.
The share of personal income in China's gross domestic product has fallen to 39.7 percent from 53 percent in 1999, according to economists at Beijing-based investment bank China International Capital Corp. That compares with 57 percent in the US and 51 percent in Japan, Ha Jiming and Xing Ziqiang wrote in a June 14 report.