China’s Wages are Catching up to Europe

China’s Wages are Catching up to Europe

China’s median net salary is now equal to parts of Europe, and higher than some Eastern European countries, due to its new minimum wage standards. Factory workers in China are earning more than ever as average hourly wages have gone up a significant 64% since 2011. The trend is expected to continue as salaries for both blue and white collar workers are expected to grow by 7% this year alone.

On a global scale, the constant narrowing of the wage gap between Chinese and European/American workforces has diminished the competitive cost advantage that China has enjoyed in the past.

A Move Westward

Since the fall of communist USSR in 1989, skilled workers from former Soviet Union countries have most westward for better job opportunities. Over the last decade, the European Union (EU) has taken steps to integrate this pool of cheap labor into the global workforce. However, as the Eastern European and Chinese workforces compete, a low-wage ceiling has formed; these two labor pools have come to determine the cost of low-skill labor worldwide. Despite Croatia becoming the newest EU member, the median net salary in Shenzen, Beijing and Shanghai are all higher than Croatia.

Median Net Salary - China v Croatia

Ramifications

Wage increases are beneficial for Chinese workers as they rise to the level of various European countries. Median wages in Shanghai ($1,135) are now comparable to Hungary ($1,139), Prague ($1,400) and Poland ($1,569). Yet China’s status as a global manufacturing hub – due in most part to its cheap labor – will likely be impacted. The improved wages for workers may result in a loss of the country’s competitive edge to labor pools in Eastern Europe and other Asian countries. However, the government has capped wage growth for baseline workers and the same is anticipated in the e-commerce sector as well.

If you need to consult on the essential aspects of country-specific wage variations and other cost administration for your offshore business, please send an email to info@globalupside.com, or dial +1-408-913-9130 to speak to one of our experts.