This is China! BLOG

Slitting Our Own Throats: Wage Inflation in China

A couple days ago I had lengthy conversations with friends who run factories in Suzhou. The conversations were held separately, and yet the concerns were nearly identical: foreign-invested companies - mostly Western - were inflating wages in the Yangtze River Delta through negligence, ignorance and laziness.

One friend, a European, had found that European companies in another China economic development zone across town from his own Suzhou Industrial Park were paying more than twice what he was paying his own financial manager. It seemed that a European consultancy had advised the new companies to pay the inflated wages when the companies moved into Suzhou a year ago. So what that the individual positions did not warrant such relatively high salary levels, nor that the next company that moves into the area will simply pay substantially more to individuals who have only incrementally greater experience levels for rote jobs.

The knock-on effect of the rapid inflation of salaries is substantial. My other friend, an American, is seriously considering moving his operations further west from Suzhou. He had one engineer interview at his company recently; the engineer asked 15,000 RMB per month for a 7000RMB per month job at which he was currently being paid 6,500RMB per month. Many foreign companies new to China will simply acquiesce to the demand, or negotiate to a lower level; perhaps to 10,000 RMB per month, thinking themselves quite clever they had saved themselves several hundred US dollars per month and showing the candidate just who is boss. Meanwhile, the new hire is laughing all the way to the bank because he now commands a salary that allows him to live like a king, relatively speaking.

lt is one thing, my European friend extolled, to pay someone who is worth the money, who has some special skills. Instead, what is happening is that the salaries of the mediocre and of the minimally experienced are escalating out of proportion to their work experience, level of professionalism and maturity. Employers are sensing greater numbers of Chinese employees working at Western companies are developing an entitlement mentality.

Indeed, a Chinese acquaintance who manages a staff of 1500 said that 90% of the interviewees who accept an offer from his company do not take the position. Instead, they take the formal offer letter with the increased salary offer back to their bosses at their current company to negotiate a higher salary level: pay more or I walk, they say. Many of the companies pay more.

My European friend told me the same is the case with his financial manager, who recently resigned to go to a company willing to pay her 40% more. It seemed she expected my friend to counter-offer. Once my friend understood that, he talked with her about expanded responsibilities with a slightly increased salary. She likes the working environment at my friend’s company, and so seems a little more likely to stay.

My friend suggested Western managers need to make a small effort to check the average market rates for various positions. He saw one report, from a human resources consultancy that cited Shanghai salary levels for middle management positions at a rate of 1.0; Beijing 1.04; Guangzhou 1.0; Suzhou .85.

Western companies though are making it tough on themselves and other businesses by busting the salary curves. It is not China nor Chinese people that are making China uncompetitive in international markets for some industries, but the Western companies themselves. We are slitting our own throats.

William Dodson
Silk Road Advisors
Beijing