Wage rises may not end unrest

As state moves to preserve harmony, inflation and labour shortage stoke pay demands.

BEIJING // Labour rights campaigners have warned that more industrial discontent is likely in China despite a round of minimum wage increases that took effect yesterday. The minimum pay rates in at least nine provinces and cities were increased, in some cases by as much as a third, after a series of strikes over pay at manufacturing plants.

While the wage increases had largely been planned in advance and announced this year before the latest wave of strikes, academics said yesterday they were at least partly prompted by an ongoing aim to reduce the frequency of industrial action. Patrick Chovanec, an associate professor in the school of economics and management at Tsinghua University in Beijing, said the wage increases reflected a government policy to "reduce social unrest and maximise social harmony" by spreading the benefits of economic growth across the country and to different social classes. This had been a consistent aim under Hu Jintao, the president, he said.

Yesterday's wage increases covered geographical areas including the central province of Henan, where the minimum wage increased by one third to 600 yuan (Dh325) a month, and the capital, Beijing, where there was a 20 per cent rise to 960 yuan a month. China's business capital, Shanghai, and the key manufacturing province of Guangdong, which has borne the brunt of recent strike action, have already increased minimum wages this year by about 20 per cent.

In total, more than 20 provinces are thought to have introduced or planned wage increases this year. Recent industrial action was partly a consequence of a shortage of skilled rather than unskilled labour, Mr Chovanec said, and he cautioned that a rise in the minimum wage "may or may not have much of an impact" on skilled workers of the kind who have tended to strike in the past few weeks. This week's pay rises followed a period of salary stagnation for many workers after minimum wage rises were frozen more than a year ago to help companies get through the global economic slump. This stagnation in earnings has been accompanied by high inflation, meaning that increases were necessary, said Ren Xianfang, a China analyst at IHS Global Insight in Beijing.

"Inflation in China is getting to the point where it's creating pressure for wage inflation," she said. "Manufacturing workers need higher wages to offset the increases in the cost of living." Significant increases in the minimum wage in percentage terms were not enough to turn it into "a decent living", said Geoffrey Crothall, an editor at the China Labour Bulletin, a pressure group based in Hong Kong.

Mr Crothall "expects to see" more strikes on top of those that have recently caused the car makers Toyota and Honda to stop production when employees at parts suppliers walked out. Managers felt compelled to offer large wage rises, in some cases as much as 24 per cent, to try to get staff back to work. "The basic problem is that even after this increase, the minimum wage is still a very low wage," Mr Crothall said. "Workers still have to do long hours to make a decent living."

He predicted that in the coming months workers in the garment and electronics industries in particular would be "pushed even harder" to fulfil orders in the run-up to Christmas, and this could lead to walkouts. "Often the summer disputes are triggered by high temperatures," he said. "If the boss is too cheap to have a decent air conditioner or any air conditioner, conditions can become intolerable and workers will quickly go out on strike."

Aside from reducing the potential for industrial unrest, the minimum wage increases are also part of the government's aim of boosting domestic demand through giving workers a "bigger share of the pie", Mr Chovanec said. Wages made up only 39.7 per cent of China's GDP in 2007, down from 51.4 per cent in 1995 and considerably below the figure for western nations such as the UK, where wages make up about 53 per cent of GDP.

But wage rises are not guaranteed to improve domestic consumption, he cautioned, saying that instead people might simply save more. Concerns over costs such as for health care were a big factor behind high savings rates in China, he said. Without improved healthcare coverage and welfare benefits, there might not be increases in consumer spending. @Email:[e-mail]