Cities across China are raising their minimum wages despite the prospect of slower economic growth this year, a move that owners of smaller businesses warn could result in widespread closures given the sharp fall in demand from western economies.
But announcements from Beijing and Shenzhen over the past week suggest that basic pay in China looks set to grow at a slower rate than in previous years, as local governments acknowledge the pressures faced by the country's largely export-dependent industrial sector.
The southern city of Shenzhen, where the minimum wage has historically been China's highest, will increase the rate by 15.9 per cent in February to 1,500 yuan ($238) a month. In 2011, the minimum wage in the boom town, just across the border from Hong Kong, was increased 20 per cent.
Beijing is putting its minimum wage up by just 8.6 per cent to 1,260 yuan a month, compared to the 21 per cent increase it introduced last January and a 20 per cent increase in June 2010. Even so, factory owners said the timing could not be worse.
"It means that Shenzhen doesn't care whether businesses struggling under the harsh economic environment are going to live or die", said Stanley Lau, deputy chairman of the Federation of Hong Kong Industries, speaking on behalf of the many members operating factories just across the border.
Mr. Lau said factory owners were waiting to hear if wages would also rise in Guangdong province, where most of China's manufacturing capacity is located. Shenzhen, though located in Guangdong, sets its own minimum wage due to its status as a special economic zone.
On an hourly basis, Shenzhen's minimum wage is now less than four times the federal requirement in the United States. In 2004 when Shenzhen introduced a minimum wage, basic pay was nearly 12 times cheaper than in the U.S.
China's government is keen to push wages higher in order to boost domestic consumption, and to narrow a widening poverty gap, which is one source of growing discontent. Different regions also adjust wages competitively to attract migrant workers because China's one-child policy has resulted in a systemic labour shortage.
However, many blue collar workers earning just the basic wage have complained that their disposable income has not gone up due to high inflation. China's consumer price index rose as much as 6.5 per cent year-on-year last summer.
"Factories often deduct mandatory pension and insurance contributions from the workers, even though it is the employer's responsibility to make those payments. What's left for the workers rarely covers increases in utilities bills and rent," said Zhang Zhiru, a labour activist in Shenzhen.
Poorer rural regions have announced bigger increases this week. Sichuan province increased its basic pay by 23.4 per cent to 1,050 yuan, although that followed no rise in 2011.