China: Increase in the Monthly Minimum Wage to Counter the Economic Slowdown

China: Increase in the Monthly Minimum Wage to Counter the Economic Slowdown

China is gradually revising the minimum monthly wage, but not all at once for the entire nation. Each province and municipality set its minimum wage based on its local economic needs. Recently, the Shanghai Municipal Bureau of Human Resource & Social Security has made minimum wage adjustments and other relevant changes to employee benefits for 2017. Starting from April 1, these adjustments would impact salaries, medical insurance, social insurance, pensions, and other forms of employee compensation.

Minimum Wage Increase

The Shanghai government has raised the minimum monthly wage by five percent from RMB 2,190 (US$318) to RMB 2,300 (US$334), and the minimum hourly wage from RMB 19 (US$2.76) to RMB 20 (US$2.90). The raise this year is the lowest since 2009; however, Shanghai is still leading among the cities in China with the highest minimum monthly wage. Last year the monthly wage was increased by 8.4 percent, while it rose by 11 percent in 2015. Except 2014, the data for the five years on the minimum wage rate has been showing a downward trend. This dipping rate is because the labor cost has outpaced productivity gain, and that has slowed down China’s overall economic growth. This is why most provincial governments in China, including Shanghai, have taken this step to restore growth. The government expects this wage adjustment is likely to bring back the competitive edge of China along with other Asian markets.

Revised Social Insurance Payments 

In China, employers have to contribute to the social insurance system including medical insurance, pensions, housing, maternity care, and others. In Shanghai, for the last five years, social insurance contribution base for the employers has been increasing due to the rapid growth in the average monthly salaries as the contribution limits depend on the average monthly wages of employees. After this year’s wage adjustment, the lower and the upper limit has been revised to RMB 3,902 (US$567) and RMB 19,512 (US$2,833) respectively. The government has also increased the medical insurance payment limit to RMB 460,000 (US$66,795) from RMB 420,000 (US$60,987).

Employer Contribution Revised

The Shanghai government has reduced the employer contribution rate for medical insurance from 10 percent to 9.5 percent, and the unemployment insurance contribution rate from one to 0.5 percent. These reductions are made to ease the burden on employers. The new rates are effective from January 1, 2017, until April 30, 2018. All other social insurance rates in Shanghai remain the same.

New HR reforms to come

Shanghai expects more HR reforms shortly. Three of the most significant initiatives include:
• Allowing resident permit to foreign domestic workers
• Introducing an online work permit registration for foreign nationals
• Providing easier access to green cards to foreigners in the Shanghai Free Trade Zone

Through these reforms, Shanghai not only hopes to attract more international talents but also maintain its significance as one of the top investment destinations in China.
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