Expat and Local Wages in China
Wages in China are the main concern of any foreign company there, both whilst preparing for company registration and during operation. Labor costs will form a major part of many companies’ expenditures, and understanding the laws and market realities as early as possible is well advised.
This article will look at wages in China, and discuss:
- How wages have changed along with the nature of business in China
- The laws governing employment and wages in China
- Is there a minimum wage in China?
- Average salaries in reality
- The significant regional wage differences in the country
- The salary situation for expats in China
Wages in China – not a cheap labor market anymore
The opening up and economic development of China since the early 1980s has been dramatic. One of the main drivers of this was certainly the large availability of cheap labor, propelling the country forward. The often-used phrase of “the world’s factory” was an appropriate description, with companies and inbound investment attracted by the possibilities of low-cost manufacturing.
In the past decade, this has started to change. The economy has matured, and the strengths of China have shifted away from this low-cost manufacturing hub into higher technology and service industries. For inbound investors, the growing appeal has been to take advantage of a rapidly rising domestic market, rather than a cheap labor pool. And with these changes, wages have risen (along with the cost of living in the country!)
This trend for increasing wages looks set to continue, although the pace has decreased in the past few years. The economy continues to grow, prices continue to rise and skills and education continue to improve. Urban and regional differences are significant, but these too may decrease, with a major current government focus being the reduction of rural poverty.
Chinese employment and labor law
Since opening up the economy in the 1980s, China has developed extensive new laws and economic guidelines. Employment and labor are currently governed by two mains legal frameworks – the 1995 Labor Law and 2008 (amended in 2012) Labor Contract Law (sometimes referred to as “Employment Contract Law”). Together these laws define the main requirements for employment, contract, termination, payment of wages, etc..
Some of the main areas these laws describe include:
All employees must have a contract with a company, specifying the nature and location of work, contract terms, salary, hours, leave and other entitlements;
A standard working week of 40 hours with overtime restrictions, and compensated at higher rates;
Wages should be paid and may not be delayed;
Salary should be paid for statutory holidays, marriage or funeral leave;
- Rules are defined for contract termination including levels of severance pay.
As with many other countries, China is not without its challenges in the labor market.
The new laws of 2008 led to an increase in companies looking to offer contracts or flexible work in an effort to avoid some of the new requirements. Efforts have been made by the government to control this, but in difficult labor markets, many employees are left with unsatisfactory temporary arrangements.
In light of such challenges, the Interim Provision on Labor Dispatch (2012) and the 2014 amendments to the Labor Contract Law introduced in an attempt to protect and manage temporary workers.
There are still challenges for employees and employers, however, China is striving toward fair employment laws; between protections of the workers and a competitive business environment for the employers which are supported by two main vehicles to hire staff in China, employment solutions, and company formation.
Minimum wages in China
Minimum wages are set across China, and these are controlled by the local government. Each province sets a minimum hourly (for part-time workers) and monthly minimum wages appropriate to that province. There are still large differences in living costs in China (certainly between but also within provinces), and this differential wage setting is likely to continue.
So, what is the minimum wage in China?
These regions based minimums vary widely and are updated annually by the local government. For example, as of September 2018, levels in the city of Shanghai are as high as 2,420 RMB per month (and 20RMB per hour). However, in provinces such as Sichuan and Yunnan, they can drop to around 1,300 per month (around 14RMB per hour) and in Liaoning as low as 1,120 per month.
Average salaries – much more than the minimum
Although the minimum wage has risen steadily over the past decade or so, it has not, in general, kept pace with rising living costs. Government regulations state that the provincial minimum wage should be set at between 40% and 60% of the actual average wage. Few regions, however, reach this target, and data for 2018 (here) shows that most cities have minimums of around 25% of the actual wage, and as low as 20% in the larger cities.
For companies in China then, this means that the minimum wage whilst being an important legal regulation is not an accurate guide for planning or setting wages. Companies will struggle to attract or retain good employees if they cannot offer a liveable wage.
Actual salaries (sourced here) have a much higher variance than the minimum levels. As of early 2018, average salaries in Beijing were just over 10,000 RMB / month, and just below this in Shanghai and Shenzhen. Other cities such as Chongqing and Kunming have a lower average of just over 7000 RMB.
Companies operating in China should be aware of these averages and how they continue to increase. Although the rate of increase has lessened recently, they have risen dramatically over the past decade. Rates and accurate data can be hard to obtain but a couple of quoted increases demonstrate this. CNBC (here) quotes a countrywide average increase of 64% between 2011 and 2017, and Statista.com (here) source data that shows a rise from 2007 to 2016 of approximately 170%. Future increases are unlikely to be this high as the economy cools somewhat, but are still a factor in operating a business in China.
A useful, comprehensive, guide to salaries at different levels and in different industries in China is published by employment agency Kelly Services, this can be found here
Expat Wages in China
It is much harder to quote an “average” salary for expat workers in China. Salaries for expats vary widely depending on skill set, experience and language abilities. We share some thoughts here on the market and wages for expats in China:
The market has changed over the past decade as the skills and experience of local Chinese graduates has risen. Many of the mid-level positions that expats used to be hired for can now be filled at lower cost and more effectively by local staff.
- Expats are still regularly hired into more senior or skill-specific roles by both domestic and foreign companies.
Expat salaries tend to increase with experience but also with experience working in China and the ability to speak Mandarin Chinese.
- Salaries offered will often be much higher for an expat moving from overseas rather than an expat hired locally in China.
Benefits and total salary packages need to be considered as these are often much more comprehensive than would be offered to a local employee. Expat health insurance, housing allowances, and possible inclusion for family living, insurance, and education can be very costly if offered.
Note that various benefits (including housing) can be offered free from Income Tax. See our separate article for more details of this.
Referring to actual expat salaries, some data from Expatarrivals.com provides a good indication. As of 2012, they include the following salary examples:
Salaries at the lower end of approximately 19k to 28k US$ for junior ESL teachers in China, or front office/account manager roles in sales, marketing or communications of 32k to 44k US$.
An HR Manager with 6+ years’ experience salary of 80k US$, and similar experience in sales/marketing salary range of 48k to 100k US$.
At the upper end, CFO roles could earn up to 240k US$, an experienced lawyer 205k US$, and a Managing Director in Sales / Marketing upwards of 315k US$.
It is also interesting for companies to note that expat wages in China are amongst the highest in Asia. A region-wide survey in May 2018 (from ECA International) shows that total expat salary packages for the mid-manager level were third highest in China (after Japan and India), at close to US$280,000. This is interestingly a decrease from the levels they quoted in 2016 and 2017 (when China was second highest).
We hope that this article helped you to clarify some aspects of wages in China. These are the main concern of any foreign company operating in China, both whilst preparing for company registration and during operation. Labor costs will form a major part of many companies’ expenditures, and understanding the laws and market realities as early as possible is well advised.