Labor Market & Salary Report

Transcription

1 Labor Market & Salary Report 2015/2016

2 Key Developments Limited public report The full report is available for members of the regional chapters of the German Chamber of Commerce in China. Please contact your regional chamber representative for more information. The continued economic slowdown is starting to affect the labor market, resulting in a downward adjustment of wage growth by German companies. According to the results of a survey carried out by the German Chamber of Commerce in China of its member companies, German companies anticipate average wage increases of 7.1% in 2016 for their 1.1 million employees in China. Compared to 2015, this reflects a decrease of 1 percentage point. This year s survey was conducted between 17 th August and 18 th September 2015 with valid responses from 393 companies in China. Wage Growth Development at German Companies in China 11% 1 9% 8% 7% 6% 5% 4% 3% 2% 1% 10.2% 8.9% 8.8% 8.1% 7.1% Results and key findings of the eighth annual wage survey: Wage Adjustments In line with a general slowdown of wage growth indicators across China, German companies expect wage increases of 7.1% amid a cooling economy and low inflation environment Lower wage increases reflected across all regions and positions Despite lower adjustments wage increases continue to be a major business challenge Wage increases outpacing productivity is an issue for about one third of companies, but overall German companies remain optimistic regarding future productivity gains HR Environment Companies are generally satisfied with their employees technical and professional knowledge, but 56.3% report that high levels of additional training is necessary Retaining and recruiting qualified staff remains a major business challenge despite the cooling labor market Recruitment of technical sales and engineering positions are considered to be the most difficult The pressure to establish enterprise trade unions has leveled off compared with previous years 1 P a g e

3 Contents I Labor Market Environment 1. Economic Conditions 3 2. Price Levels 5 3. Labor Market Structure 6 4. Labor Market Conditions 8 5. Trade Unions and Collective Bargaining 10 II Wages Developments in China 1. National Wage Developments Provincial Wage Developments 11 Provincial Wage Levels Minimum Wage Rates in China China Wage Map Wages Levels by Ownership and Industry Productivity Wage Developments in Asia 19 III Survey Results 1. Wage Developments at German Companies NOT AVAILABLE IN LIMITED REPORT 2. Wage Levels Productivity Wage Determination Collective Action and Trade Unions Supplementary HR Data HR Challenges Retention and Employee Skills Recruitment Foreigners Profile of Responding Companies About the Survey 30 IV Survey Data Wage levels and expected increases for 36 job categories can be found by the following break-down: 1. Regional: China, Shanghai, Beijing, Shenzhen/Guangzhou, other East, North, and South Regional: Suzhou, Taicang/Kunshan, other Yangtze River Delta Comparison by Level of Pay: highest, middle and lowest levels / 1 st, 2 nd and 3 rd tier cities Industry: Machinery, Automotive, Consulting, Plastics/Metal Products, Chemical, Electronics, Consumer Goods Number of employees: <50, , > Appendix- Definitions used Definitions for wages and wage increases, job experience, job positions 60 2 P a g e

4 I Labor Market Environment Key Developments in Brief Economic Conditions Economy will continue to face headwinds GDP growth likely to further fall to around 6.8% in 2016 German companies are increasingly affected by slower economic growth Inflation expected to remain a low levels Labor Market Conditions Labor market remains relatively resilient due to strong growth in service sector Shortages of skilled workers persist Vacancy rates have come down, with demand for new employees easing slightly in Q2 Push in increased unionization and collective agreements is easing Wages Development Average national wage growth below 1 mark Minimum wage adjustments and wage guideline increases slowing Wages at foreign companies continue to be highest by ownership type Maintaining productivity growth remains a key concern 1. Economic Conditions China s economy is continuing its shift to lower levels of growth. After decades of rapid economic growth, GDP growth began to decelerate in The slowdown however has been anticipated, and at present the economy is managing to gradually shift onto a lower growth path, rather than experiencing an abrupt fall. China has already emerged as the world s second largest economy. As a result lower growth rates today correspond to more growth in absolute terms than were achieved at the higher growth rates of the past. Despite already being the world s second largest economy, growth potential continues to be high, as China s 2014 GDP per capita at USD 7,575 remains at comparatively low levels. Although at present a hard landing seems unlikely, the risks of a potential growth crisis are increasing. However, the medium growth prospects continue to remain positive. Over the coming five years GDP should be able to maintain growth of between 6-7%. In 2015 the economy has been able to maintain growth of 7. in the first half. The government has been implementing proactive fiscal and monetary policies in order to defend growth of 7. in A slowdown below 7% is expected in Q3 with a mild recovery in Q4. Even if overall growth can be maintained in 2015, GDP growth is prone to further decelerate in 2016, falling to around 6.8%. This should be interpreted as a natural development helping to readjust the economy onto a more sustainable development path. Excessive intervention propping up growth would only have shortterm effects while also harming the transformation of China s mid-term economic development. Quarterly GDP Growth % 11% 1 9% 8% 7% 6% 5% 4% 3% 2% 1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3*Q4* Source: NBS / *German Chamber of Commerce in China analysis 3 P a g e

5 Jan/Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan/Feb Mar Apr May Jun Jul Aug Labor Market and Salary Report 2015/16 Despite recent turmoil in the Chinese stock markets, the resulting effect on the economy remains limited. There had already been a noticeable slowdown of the economy prior to the increased volatility in the markets. Most key macroeconomic indicators dropped to lower levels in the beginning of 2015 and continued to fall over the following months. There were initial signs that the economy has bottomed out over the summer, but overall the stabilization remains unsteady and it is likely that GDP growth will decelerate below the 7. threshold during the last two quarters of the year. The data also suggests that retail has performed robustly with double digit growth. However, previous keystones of growth, such as manufacturing, investment or exports, have fallen to lower levels of growth. Growth of Retail, Production and Investment 2014/15 18% 13% 8% 3% -2% Retail Industrial production Fixed-asset investment* Source: NBS / * fixed-asset investment data is cumulative for the year This is part of the ongoing structural adjustments of the Chinese economy. Although still heavily dependent on investment and manufacturing, the importance of services is progressing steadily. In the first half of 2015 the tertiary sector expanded by 8.1%, outperforming the manufacturing sector, which was only able to expand by 6.1%. By the end of 2015 services are likely to account for 5 of GDP and will continue to expand steadily. As traditional growth drivers struggle, services including retail will become increasingly relevant for the development of the economy. Business Sentiment in Jan Feb Mar Apr May Jun Jul Aug Sep Manufacturing Services Source: Caixin/Markit Note: Purchasing Managers Index (PMI) values >50 indicate expanding business, values <50 indicate contraction. For clarification the Caixin/Markit PMI has a stronger focus on small and medium sized enterprises, while the NBS PMI has a stronger focus on state-owned enterprises. For better illustration only the Caixin/Markit PMI is used here. The business sentiment measured by the Purchasing Managers Index (PMI) has also indicated that manufacturing companies are more pessimistic than companies engaged in services. The index for manufacturing has been below 50 for most of the year, indicating a monthly contraction. The service index has continued to be well above the 50 mark, but there has been increased volatility over the past few months, with figures slipping to just 50.5 in September. While key industries for German companies in China remained fairly resilient in 2014, the overall slowdown has begun to affect them in A weaker economic environment has taken its toll on the machinery and automotive sector leading to German companies reevaluating their business outlook. Findings from the German Chamber s annual Business Confidence Survey show that companies have adjusted their expectations downward compared with the previous year. Overall growth of German business is also beginning to shift to lower levels, though in general companies have retained their optimism about the long-term development potential of their relevant industry as well as of the Chinese economy in general. After having been accustomed to prolonged periods of rapid expansion, the transition to lower levels of growth has created a more challenging economic environment to operate in. This environment is likely to persist in The economy is expected to encounter continued downward pressure before it begins to stabilize at lower growth levels. 4 P a g e

6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Labor Market and Salary Report 2015/16 2. Price Levels The cooling economic environment has also affected price increases. Consumer inflation has remained well below the government s 3% target. For most of the months so far in 2015 price increases were below 2%. Fueled by overcapacity in some industries, producer prices accelerated their downward slide. Producer prices have now been falling for 42 consecutive months. Risk of deflation has increased, but remains unlikely for the time being. In 2016, overall price levels are expected to remain at low levels of below 3%, with consumer prices slightly picking up over the coming months. The low inflation environment will provide the policy makers with more room to implement looser monetary and fiscal measures. As for consumer inflation, food price increases remained the biggest driver for accelerating prices. However, food prices have also continued to fall in the last few months. The drop in transportation and communication costs is due in part to lower prices for oil. Increasing costs for housing have dropped to just 0.7%, reflecting a cooling in the country s property market. It is noteworthy that housing prices in first-tier cities in general have been less affected by the weaker demand for housing. Price Level Development 2014/15 3% 2% 1% -1% -2% -3% -4% -5% -6% Breakdown of Consumer Price Development Jan- Aug % 3% 2% 2% 1% 1% -1% -1% -2% -2% 2.3% Source: NBS 1.3% 2.9% 1.1% 1.8% -1.7% 1.5% 0.7% More Information Regarding the Business Environment in China The German Chamber of Commerce in China publishes quarterly economic updates in German and English as well as monthly datasheets with key macroeconomic figures in German. Detailed information on the business sentiment of German companies and an overview of Sino-German economic relations can be found in our German Business in China 2015 report. For more information please visit our website or contact your chamber representative. Consumer prices Producer prices Source: NBS 5 P a g e

7 3. Labor Market Structure China s population continues to undergo massive structural changes. With its birth rate falling to just 1.2, China s population will soon have reached its maximum before it will begin to shrink. This process is accompanied by an aging society. While the share of the population younger than 15 has fallen from 22.9% to 16.2% between 2000 and 2015, the share older than 65 has increased from 7. to 10. during the same time period. Consequently this will also have future ramifications for the labor supply. The United Nations estimates that the working age population (16-59) will drop by an additional 24 million between 2015 and Demographic Composition of Population % 8.9% % % 73.8% 22.9% 20.3% 16.6% 16.2% * 0-14 age group age group >65 age group Source: NBS / *German Chamber of Commerce in China forecast There has been continued discussion, but no progress on increasing the retirement age, which has remained unchanged since At present women may retire between 50 and 55, while retirement age for men stands at 60. It seems likely that an increase of the retirement age to 60 for women and 65 for men will take place in the coming years. Current information suggests that the retirement age will gradually be increased by a few months at a time starting This step is not only crucial in alleviating potential labor shortages, but also in order to finance China s social security system, which remains weak. The labor market is expected to undergo further reforms in the coming years. An important element pertaining to reforming the household registration (hukou) system, which restricts certain government services to the place of registration. Reforming the household registration system is a central component of progressing the government s ongoing urbanization efforts. The share of the urban population has been steadily increasing and will reach over 55% by end of Meanwhile, the number of people officially defined as the floating population (referring to people living in places other than their household registration), has increased to 298 million. The increased urbanization has also contributed to a bigger importance of the service sector in the Chinese labor market. Over the last few decades China has shifted from a rural based, agriculture dominated economy to an industrialized one. In the process, labor has shifted from agriculture (primary) to manufacturing (secondary) and services (tertiary). In recent years there has been a noticeably stronger emphasis on services as a source for employment. The share of the labor force engaged in manufacturing is likely to have peaked in 2012 when a total share of 30.3% was reached. The redistribution in the employed population will continue in the coming years as the service sector increases in importance. While employment in the manufacturing sector will only gradually decline, employment in agriculture will continue to fall at a faster rate. Employment Distribution by Tier Source: NBS / *German Chamber of Commerce in China forecast In 2014 urban employment increased by 13.2 million. By the end of 2015 around 52% of the labor force will be working in urban areas. The shift within the employment structure however does not come without challenges. As well as an increased strain on urban infrastructure and social services, the government is under pressure to create adequate jobs for the rural population in the cities. Migrant Workers % 22.5% 23.8% 36.7% 28.7% 30.3% 29.5% 27.5% 31.4% 34.6% 40.2% * Tertiary industry Secondary industry Primary industry Migrant workers have long been an important component in the Chinese labor market, supplying mostly manual labor to the rapidly developing coastal regions. Most 6 P a g e

8 migrants would move from western and central regions to the eastern regions in order to find employment with better pay, eventually returning to their province of origin. Overall, the number of migrant workers has continued to increase, reaching million in 2014; an increase of 1.9% over Growth is expected to fall to just over 1% by 2016 as the supply of migrant workers is about to have reached its maximum. There are already shifts within the structure of migrant workers. The percentage of migrant workers leaving their home province has already fallen sharply to just 1.3% in The percentage of migrant workers staying closer to their home province has also fallen, but has been expanding at a faster rate. By % of migrant workers stayed within their home province and the figure is expected to increase to around 4 by The shift shows that gradually migrant workers have less of an incentive to work far away from their families and are increasingly finding adequate pay and employment in western and central regions. With the percentage of migrant workers in eastern regions having fallen to a tickle, the percentage of migrants in western regions has increased the fastest, expanding 3.1% compared to Growth of Migrant Workers Moving Within and Outside their Home Province older age structure of migrant workers. By 2014, 17.1% were older than 50, while the share of workers below 30 has been falling over the last few years. Development of Age Structure of Migrant Workers % 14.3% 15.1% 15.2% 17.1% 44.7% 46.7% 48.1% 49.3% 49.2% 42.4% % 35.5% 33.7% years years >50 years Source: NBS / *German Chamber of Commerce in China analysis 6% 5% 5.5% 5.2% 5.9% 5.4% 4% 3% 2% 1% 3.4% % 1.7% 2.8% 1.3% within province outside province Source: NBS / Note: outside province refers to migrant workers working in a province other than their household registration. Within province refers to workers working in the same province as their household registration. Manufacturing and construction continue to remain the main sectors of employment, but the number of migrants working in the secondary sector is gradually declining while the share working in the tertiary industry is increasing. By 2014, 31.3% and 22.3% were employed in manufacturing and construction respectively, while 42.9% were working in different sectors of the service industry. The coming years will see further regional and sector shifts, but will also become affected by an increasingly 7 P a g e

9 4. Labor Market Conditions Employment is a key concern for the government, as the economy shifts to lower levels of growth. To a large extent its tolerance for lower economic growth will depend on how the labor market is performing, which for the most part retained its resilience in 2015 with urban unemployment staying at around 4.1%. With another record number of university graduates (7.5 million) a total of 15 million young students will enter the labor market. An unemployment rate of 7.5% for university graduates is already far higher than the average, stressing that some segments of the labor force are facing challenging employment conditions. Urban job creation reached 7.2 million in the first six months, a 2.6% decline compared to the same period last year. However, new employment is once again on track to surpass the government s target of 10 million for In order to maintain a steady growth of new jobs, the government has implemented a number of support measures. These include training programs, tax incentives, and support for university graduates. Most notably the government has encouraged entrepreneurships among the population by easing restrictions and providing financial support. As a result 2 million new start-ups were registered between January and June 2015, an increase of 19.4%. New Urban Employment (in millions) * Source: NBS / *German Chamber of Commerce in China forecast While the ratio measuring the job vacancies to job seekers indicates that demand exceeds supply, the second quarter has seen a noticeable drop compared with the first quarter. Nationally the vacancy ratio fell from 1.12 in the first quarter 2015, to 1.06 in the second quarter. The ratio dropped to just 1.03 in eastern areas of the country, but also central and western China recorded considerable downward adjustments. Ratio of Job Vacancies by Region Q1 and Q Source: MOHRSS National East Central West 1.08 How to read these numbers: A value greater than 1 means the demand for labor is larger than demand (labor shortage): For example 1.2 means for 12 open positions, there are 10 job seekers. A value below 1 means there is an oversupply of labor. For example 0.8 means for 8 open positions, there are 10 job seekers. East: Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong and Hainan Central: Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei and Hunan West: Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang Employment demand in the second quarter was strongest in logistics and transportation (36.3%), finance (17.5%) as well as IT (5.5%) compared with the same period last year. Strong demand in the logistics and IT sector suggest that booming online retail and services are likely to continue. In the wake of the recent turmoil in the Chinese stock markets, finance related jobs will take a hit in the coming months. There has been a decline in job demand in construction (-23.8%), agriculture (-16.8%) as well as retail (-9.8%). Demand in manufacturing related industries has fallen by 7.7%. Demand in manufacturing is expected to continue to remain weak throughout 2015 and 2016 while services will account for the majority of job growth. With real estate prices showing the first signs of a recovery and infrastructure spending likely to pick Factors Explaining Labor Market Resilience Q1 Growth in service sector Retention of employees in industries with overcapacity Boom in start-up companies Infrastructure projects Q2 8 P a g e

10 up, demand for construction workers should also improve in the coming months. German companies in China have also adjusted their employment intentions. Although the majority (45.3%) still plan to increase their headcount in 2015, the share of companies has been falling, while the share of companies planning to downsize has increased to 16.6%. The figures reflect the business sentiment of German companies up until May 2015 and are likely to have been revised further in the meantime as key industries including automotive and machinery have been affected by the cooling economy. Employment Intentions at German Companies % 8.6% 60.8% 31.5% 7.7% Source: German Chamber of Commerce in China 50.2% 39.9% 9.9% increase similar decrease 45.3% 38.1% 16.6% The national demand for technical employees relaxed in the first six months of 2015 compared to the same period last year. Nonetheless official data from the National Bureau of Statistics suggests that demand is still bigger than supply of technicians and engineers. Therefore a skills mismatch in the labor market persists. The situation will remain unchanged in the near future, as China s educational system struggles to match the demand for vocationally trained workers as well as adequately educated professional staff. Finding qualified staff in either field has been among the most pressing business challenges for German companies operating in China. Given the technological focus of their industries as well as the expansion of research and development activities, shortages of skilled employees will continue to be a major problem. Top 3 Business Challenges for German Companies Retaining qualified staff Finding qualified staff Source: German Chamber of Commerce in China Employee Attitudes Increasing labour costs The expectations and preferences of the Chinese labor force are also undergoing changes. Salary remains the most important determinant for choosing a job, but nonmonetary and long-term prospects have become more relevant. This includes job satisfaction, career prospects, or work-life balance. The recent boom in internet startups and general encouragement of entrepreneurism have affected expectations of younger generations as well. Large multinational companies have long been the most attractive employers for high potentials and university graduates, but in recent years they have lost some of their shine as private Chinese companies, which are increasingly going global have improved their appeal. Various surveys further indicate that the first-tier cities (Beijing, Shanghai, Guangzhou, Shenzhen), that have been the preferred choice for high potentials and workers alike for so long are now becoming less attractive. While the pay premium in these cities has been falling compared to secondary cities, unaffordable housing, high living costs, and congestion has been affecting their long standing attractiveness. Second-tier cities including Chengdu, Wuhan or Hangzhou meanwhile have been becoming more appealing for offering adequate job prospects and pay while the cost of living is more affordable. 9 P a g e

11 5. Trade Unions and Collective Bargaining Following major advancements between 2008 and 2013 a push to promote trade unions in China appears to have leveled off. Official membership reached 274 million by the end of 2014, technically representing more than 1/3 of the workforce. Foreign companies in particular were under pressure to establish unions. All enterprise level trade unions remain under the All-China Federation of Trade Unions (ACFTU), which is closely associated with the Communist Party. Despite its large membership it has little representational power in industrial relations and its function for the most part is not identical with the western concepts of trade unions. Experiences of companies in China can however be very different depending on local conditions. For the majority however, the presence of an enterprise trade union has little effect, although a potential 2% fee on total wages comprises a significant financial burden. By the end of 2014 collective bargaining provisions were published in Guangdong and pilot programs for greater independence from the government were announced in August The recent reforms are limited in scope and are not given high political priority. However, the initial push of recent years appears to have lost support under the current administration. Some experimentation with trade union reform and collective bargaining is likely to continue in 2016, but for the majority the status quo can be expected to persist. Key Facts about Trade Unions Every employee has the right to participate in a trade union If there are more than 25 ACFTU members in a company, an enterprise level trade union may be established. Alternatively the ACFTU may set up a trade union at an enterprise. Management may not stop unionization efforts Once a trade union is established, 2% of total wages must be paid to the ACFTU. This is often directly collected by the tax bureau. Technically, 1% should be transferred to be used directly in the company. Trade unions may request collective bargaining Key Facts about Collective Bargaining Agreements are between the employer and union representatives Typically deals are bargained and implemented at company level Agreements can cover: wages, allowances, insurance and benefits, working hours, holidays and rest time, health and safety issues, as well as other items agreed upon. 10 P a g e

12 * 2016* Labor Market and Salary Report 2015/16 II Wage Developments in China 1. National Wage Developments The period of double digit wage growth has come to an end. Average nominal wages increases dropped to 9.4% in Corresponding to a downward shift of GDP growth, wage increases started to ease towards lower levels in Despite the slowdown the government is on track to double the average income by 2017 based on the 2010 values, well ahead of the 2020 target. By 2017 it is expected to surpass the RMB 73,000 average annual income target. Having reached higher income levels, the absolute increase has been increasing despite slower wage growth. Average wage increases in the last five years fell by 3.4 points compared to five years earlier. In absolute terms average wages between 2009 and 2014 increased from by RMB 4,819 RMB annually, up from RMB 3,265 (+ RMB 1,554) during the five year period before. The pressure for companies to deal with increasing labor costs therefore remains pressing. China is also on track to reach its second target, of increasing minimum wage rates by an average of 13% for a five year period ending This is likely to take some of the pressure off minimum wage increases in the future. While it is expected that future adjustments will be gradual, they will continue to outpace other indicators. Average Wage and Wage Growth ,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Average wage (RMB) Wage growth (nominal) 2 18% 16% 14% 12% 1 8% 6% 4% 2% Source: NBS / *German Chamber of Commerce in China forecast based on 6.9% GDP growth. Along with national average wage growth, provincial level adjustments of the minimum wage and wage guidelines have also moved towards lower levels of growth. As of September 2015, 21 provinces had announced minimum wage increases effective for the current year, while 16 also announced wage guidelines (see page 12). Average minimum wage adjustments fell to 12.4% and average wage guidelines fell to 10.2%. It has been noticeable in recent years that the wage growth indicators have begun to move within a narrower band. Wage Growth Indicators % % 18% % 14% % 13.1% 12.4% 12% 11.9% 11.6% 11.9% % 9.8% 8% 10.1% 9.4% 9.2% 9. 6% 4% 2% * Average wage Minimum wage Wage guidelines Source: NBS / German Chamber of Commerce in China research / *forecast Note: The number of provinces releasing adjustments for wage guidelines and minimum wages varies each year. 2. Provincial Wage Developments Increases of average wages in poorer provinces typically have been outpacing those in more developed coastal provinces, but there are regional variations. For example wage growth in Henan and Tibet, some of the poorest regions in the country, achieved the lowest average wage increases. However, for the most part, wage increases in poorer regions have been outpacing those of richer regions. Provinces and municipalities with a heavy German presence around the Bohai economic rim, the Yangtze Delta and the Pearl River Delta tend to be in the lower half. Despite achieving higher wage growth, poorer regions in central and western China have only been slowly closing the income gap with the three main economic centers. Looking at provincial data however will discount progress made in second-tier cities while giving too much weight to the rural hinterland. For example developments in Sichuan as a whole are slower than in booming Chengdu. Similar developments are noticeable in other high potential secondary cities. 11 P a g e

13 Average Regional Wage Developments Hainan Jiangxi Xinjiang Guizhou Hubei Inner Mongolia Sichuan Fujian Chonqqing Heilongjiang Anhui Shaanxi Jilin Shanxi Jiangsu Yunnan Gansu Shandong Hunan Shanghai Hebei Qinghai Tianjin Ningxia Zhejiang Liaoning Guangxi Beijing Guangdong Henan Tibet Source: NBS / German Chamber of Commerce in China analysis Development of Regional Wages % 13% 12% 11% 1 9% 8% 7% 6% 5% 4% 3% 2% 1% 5.6% National 11.9% 10.1% 9.4% East 10.9% 9.6% 9.7% West 13.1% 11.9% 9. Central 12.3% 6.6% 9.4% North East 12.8% 10.7% 7.1% 15.7% 15.6% 14.8% 14.6% 14.5% 14.4% 14.2% 13.7% 13.4% 13.4% 13.3% 13.3% % 12.8% 12.8% 12.7% 12.4% 12.1% 11.8% 11.4% 11.3% 11.2% % 10.8% 10.8% 9.9% 9.5% National East West Central North East Source: NBS East: Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong and Hainan Central: Shanxi, Anhui, Jiangxi, Henan, Hubei and Hunan West: Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang North East: Jilin, Heilongjiang, Liaoning Regional Wage Guidelines 2015 Minimum Average Maximum Beijing 3.5% 10.5% 16. Shaanxi Shandong Shanxi Tianjin Henan Xinjiang Sichuan Liaoning Fujian Hebei Guangxi Inner Mongolia % 14.5% Yunnan Shanghai Qinghai Average % 10.2% 16.2% Average % 17.3% Average % 13.6% 19.2% Source: German Chamber of Commerce in China research and analysis. Note: Averages calculated on basis of regional adjustments identified. What are Wage Guidelines? Issued annually by some local governments Non-binding recommendations Wage information for specific industries and job positions Take into account regional economic growth, price levels, unemployment levels, enterprise profits Influence wage developments at SOEs Expected to act as a guide for future collective bargaining Different adjustment types: Maximum increase: for companies experiencing good growth (above average) Average increase: for companies experiencing normal growth (average) Minimum increase: for companies experiencing poor growth (below average) 12 P a g e

14 Provincial Wages Levels Region Average Monthly Wages Factor of National Average * 2015* 2014 Beijing 7,751 8,367 9, Shanghai Tianjin Jiangsu Zhejiang Tibet Guangdong Qinghai Ningxia Chongqing Inner Mongolia Fujian Xinjiang Anhui Sichuan Shandong Guizhou Shaanxi Shanxi Hainan Hubei Liaoning Hunan Jiangxi Gansu Yunnan Jilin Hebei Guangxi Heilongjiang Not available in limited report Henan Source: German Chamber of Commerce in China analysis based on 2013 NBS data. *2014 and 2015 are estimates based on GDP growth, inflation and previous wage increases. Note: wages reflect total direct remuneration including basic wage, bonus, cash benefits and allowances, overtime pay. All wages are pre-tax. Monthly wages are based on 12 months. 13 P a g e

15 Minimum Wage Rates in China 2015 Region Category Valid since Last increase A B C D E F Shenzhen 2, Mar % Shanghai 2, Apr Guangdong 1,895 1,650 1,510 1,350 1, May % Tianjin 1, Apr % Beijing 1, Apr % Jiangsu 1,680 1,630 1,460 1, Nov % Zhejiang 1,650 1,470 1,350 1, Aug % Inner Mongolia 1,640 1,540 1,440 1, Jul % Shanxi 1,620 1,520 1,420 1, May % Shandong 1,600 1,450 1, Mar % Henan 1,600 1,450 1, Jul % Yunnan 1,570 1,400 1, Sep % Xinjiang 1,520 1,320 1,240 1, Jun % Fujian 1,500 1,350 1,230 1, Jul % Sichuan 1,500 1,380 1, Jul % Hubei 1,500 1,320 1,225 1, Sep % Hebei 1,480 1,420 1,310 1, Dec % Shaanxi 1,480 1,370 1,260 1, May % Gansu 1,470 1,420 1,370 1, Apr % Tibet 1, Jan % Guangxi 1,400 1,210 1,085 1, Apr % Jiangxi 1,390 1,300 1,210 1, Jul % Hunan 1,390 1,250 1,130 1, Jan % Jilin 1,350 1,220 1, Jun % Ningxia 1,300 1,220 1, Mar % Liaoning 1,300 1, Jul % Qinghai 1,270 1,260 1, May % Hainan 1,270 1,170 1, Jan % Anhui 1,260 1, Jul % Chongqing 1,250 1, Jan % Guizhou 1,250 1,100 1, Jul % Heilongjiang 1,160 1, Dec % Source: Provincial Human Resources and Social Security Bureaus / German Chamber of Commerce in China analysis Note: Increases reflect the average increases for adjustments for all categories in the province. Categories refer to different regional jurisdictions within a province. With the exception of Shenzhen only provinces and province-level municipalities set minimum wage levels. 14 P a g e

16 China Wage Map 2015 Labor Market and Salary Report 2015/16 15 P a g e

17 * 2016* Labor Market and Salary Report 2015/16 3. Wages by Ownership and Industry Foreign-owned companies have retained the highest paying average wages in China, with average pay being around 2 above the national average. This is about on a par with average wages paid at Chinese shareholding companies and well ahead of other forms of ownership. In part the higher average wages paid by foreign companies can also be explained by a higher likelihood that foreign companies are located in coastal areas with corresponding higher wage levels. At present foreign companies employ around 5% of the urban workforce. State-owned enterprises (SOE) are currently undergoing a series of reforms, which have also affected compensation. Domestic limited liability companies (LLC) remain at the bottom, but have been experiencing faster growth in recent years, slowly closing the gap to SOEs and Hong Kong, Macau and Taiwan owned companies. Companies from Hong Kong, Macau and Taiwan are heavily engaged in export oriented manufacturing and tend to react to weak export figures as is currently the case. Average Annual Wage in RMB by Form of Ownership ,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, * 2016* Foreign SOEs LLC Shareholding Hong Kong/Macau/Taiwan Source: NBS / *German Chamber of Commerce forecast Average Wage Levels by Ownership in Relation to Foreign Companies (foreign companies = 10) SOEs Shareholding Source: German Chamber of Commerce analysis based on NBS data / * forecast Employees in finance, IT and the technical services sectors are paid the highest average wages of the 19 separate industries tracked by the National Bureau of Statistics. Next to a demand for professionals and technical staff, these industries have also been showing a strong performance in At the lower end are industries requiring unskilled and moderately skilled worker. The rankings of the various industries covered have remained stable and are unlikely to undergo any significant changes in the coming years. The different industries will mostly be affected by the subsequent industry performance as well as the supply of adequate skilled labor. In 2016, finance is likely to see a slight slowdown in wage growth, while IT and logistics related industries will experience higher than average wage increases due to the ongoing surge in e-commerce. On the flip side, wages in retail will be affected as competition from online retailers increases. An expected slight recovery in construction should see wage increases pick up in this segment, while manufacturing wages will remain unchanged. LLC Hong Kong/Macau/Taiwan 16 P a g e

18 Wage Developments by Industry Annual Monthly Annual Monthly Growth Factor of National Average Finance 99,653 8, ,273 9, % 1.92 IT 90,915 7, ,797 8, % 1.79 Technical services 76,602 6,384 82,220 6, % 1.46 Utilities 67,085 5,590 73,339 6, % 1.30 Business services 62,538 5,212 66,475 5, % 1.18 Culture 59,336 4,945 64,150 5, % 1.14 Transport and logistics 57,993 4,833 63,416 5, % 1.13 Healthcare 57,979 4,832 63,267 5, % 1.12 Mining 60,138 5,012 61,677 5, % 1.09 Education 51,950 4,329 56,580 4, % 1.00 National 51,483 4,290 56,339 4, % 1.00 Wholesale/retail 50,308 4,192 55,820 4, Real estate 51,048 4,254 55,554 4, % 0.99 Manufacturing 46,431 3,869 51,369 4, % 0.91 Construction 42,072 3,506 45,804 3, % 0.81 Residential services 38,429 3,202 41,882 3, Water and environment 36,123 3,010 39,198 3, % 0.70 Hotel/restaurant 34,044 2,837 37,264 3, % 0.66 Agriculture 25,820 2,152 28,356 2, % 0.50 Source: NBS / German Chamber of Commerce in China analysis Note: figures presented are pre-tax. Wages includes salary, performance bonus, allowances and subsidies 17 P a g e

19 * Labor Market and Salary Report 2015/16 4. Productivity Over the past few decades China has greatly increased its productivity as it transformed its economy by shifting unproductive labor from agriculture to manufacturing and services boosting aggregate output and income levels. The initial productivity gains however were comparatively easy to achieve as rural workers shifted to low skilled manufacturing and services. China is now in need of upgrading its manufacturing ability as the rising production costs have been affecting its competitiveness with other countries. Rapid wage increases of the past decades were mostly matched with even faster productivity growth. In recent years there have been indicators that this arrangement is no longer functioning. Overall productivity in China is slowing and is expected to increase by around 6% in the coming years, down from double digit growth in the first half of the century. Achieving steady productivity growth in the future will be crucial in order to further advance the Chinese economy. Programs by the government have been launched to improve vocational training as well as assisting increased automation in manufacturing. The biggest driver for productivity however will be in the ongoing structural shift and increasing importance of services. Huge productivity gains are in the still highly agricultural sector which still employs around 1/3 of the working population while only contributing around 9% to GDP. GDP per Employed Person Indonesia or the Philippines. If China manages to keep up its productivity growth it will soon be at similar levels to European countries such as Hungary or Bulgaria. International Productivity (in GDP per person employed, constant 1990 USD) 50,000 40,000 30,000 20,000 10,000 0 Source: World Bank Bulgaria China Hungary Malaysia Philippines Vietnam Indonesia Germany 140, , ,000 80,000 60,000 40,000 20,000 0 Total Primary Secondary Tertiary Source: NBS / * German Chamber of Commerce in China forecast In terms of productivity China has rapidly caught up with other countries over the last few decades. By 2015 it is expected to have reached comparable levels to Malaysia. Chinese productivity is well ahead of Vietnam, 18 P a g e

20 5. Wage Developments in Asia China can no longer be considered a low cost investment destination. Rapid wage increases over the last few decades have propelled labor costs ahead of most of the emerging and developing countries in Asia. The highest minimum wage in China (Shenzhen) is only surpassed by developed economies in Asia and 28% above the highest prevailing minimum wage in Thailand. China s lowest minimum wage rate (Heilongjiang) is already nearly 9 of the highest minimum wage in Malaysia. Average adjustments for minimum wages in Asia also count China among the highest, only being surpassed by Cambodia and Vietnam. Minimum Wages in Asia 2015 End of limited report Data collected from the wage survey among German companies in China is only available to members of the regional chapters of the German Chamber of Commerce in China. For more information please contact your regional chamber representative. 7,000 6,000 5,000 4,000 3,000 2,000 1, ,654 6,409 3,906 2,030 1,584 1,4901,4761,3221,160 1, Source: German Chamber of Commerce in China research Note: Other than China, the highest prevailing minimum wage is reflected. Minimum Wage Adjustments across Asia 2015 (as of September 2015) 25% 2 15% 1 5% % 12.4% 10.6% 8.3% 7.1% 3.8% 3.2% Source: German Chamber of Commerce in China research 19 P a g e

21 The German Chamber of Commerce in China The German Chamber of Commerce in China supports German companies in their act ivit ies in China. Divided into the regional centers of Beijing, Shanghai and South & South- West China, it assists all together more than 2,600 companies. It is thereby one of the largest foreign chambers in China. The Chamber offers a broad range of seminars, workshops and events to German companies, in addition to access to an enormous network end assistance with matters in relation to the local and regional government offices. The Delegation of German Industry & Commerce (AHK) Greater China The Delegation of German Industry & Commerce Greater China is the key representative body for German economic interests in China, working on behalf of the German Federal Government. With offices in Beijing, Shanghai, Guangzhou, Hong-Kong and Taipei, the AHK represents German corporate interests in Greater China and supports the expansion of German-Chinese economic relations. The AHK is part of a network of more than 130 German economic representations worldwide, which has been active abroad for more than 150 years. The first office in the Greater China region was opened in 1981 in Taipei. Labor Market and 2015/2016 Salary Report German Chamber of Commerce inchina NorthChina German Chamber of Commerce inchina Shanghai German Chamber of Commerce inchina South&SouthwestChina Landmark Tower 2, Unit NorthDongsanhuanRoad, Chaoyang District, Bejing Tel chamber@bj.china.ahk.de 25 F, China Fortune Tower 1568 Century Avenue Pudong District, Shanghai Tel chamber@sh.china.ahk.de Room1903,LeatopPlaza 32ZhuJiangEastRoad Tianhe District, Guangzhou Tel chamber@gz.china.ahk.de Contact Person Mr. Max J. Zenglein Economic Analyst China Survey Design and Analysis German Chamber of Commerce inchina NorthChina Tel zenglein.max@bj.china.ahk.de