Chinese local governments are raising the minimum wage one after another to stimulate consumption amid an economic recession. The strategy to artificially raise the incomes of the middle class and low-income earners to enhance purchasing power is similar to the 'income-led growth' policy promoted during the tenure of Moon Jae-in in South Korea.
According to the South China Morning Post (SCMP) on the 19th, the minimum wage has recently been raised in five provincial regions, including Shanxi Province, Sichuan Province, the Inner Mongolia Autonomous Region, the Xinjiang Uyghur Autonomous Region, and Chongqing. In some areas, the increase ranged from 70 yuan (approximately 13,862 won) to as much as 200 yuan (approximately 39,606 won).
Chongqing, a major city in Southwest China, raised its minimum wage by 10% from 2,000 yuan to 2,200 yuan last October, while Sichuan Province increased its minimum wage from 1,870 yuan to 2,200 yuan, marking a 17.5% rise. The Xinjiang Uyghur Autonomous Region, known as the lowest wage region in China, raised its minimum wage by 13.6%, from 1,540 yuan to 1,750 yuan.
Due to the significant disparity in living standards across different regions in China, local governments set their own minimum wages. The minimum wage in Shanghai, China's 'financial hub,' is 2,690 yuan, the highest in the country, while the minimum wage in the capital, Beijing, is around 2,420 yuan. SCMP reported that about half of China's local governments raised the minimum wage last year.
The simultaneous increase in minimum wages by local governments indicates the severity of the economic recession in China. Last year, China's economic growth rate slowed from 5.2% the previous year to 5.0%. As President-elect Donald Trump signaled a tariff on China, it is expected that warnings will arise for Chinese exports following his inauguration.
SCMP noted, 'With Trump's inauguration, trade tensions between the U.S. and China are expected to escalate this year,' adding that 'China, the world's second-largest economy, is focusing on growth through domestic market expansion, and raising wages for the middle class and low-income earners seems to be an effective strategy for this goal.'
The government reports from Beijing and Zhejiang Province emphasized the core economic priority of 'increasing the incomes of the middle class and low-income earners to enhance consumption motivation and capability.' In China, low-income individuals account for approximately 64% of the total population. It is expected that low-wage service workers, such as factory workers, cleaners, security guards, and supermarket cashiers, will directly benefit from the minimum wage increase.
After 10 years, the Chinese government has also raised civil servant salaries. According to Reuters, there are approximately 48 million civil servants in China, and this salary increase will be retroactively applied from July of last year. The last time China raised civil servant salaries was in 2015, when the government increased their pay by about 30% to stimulate consumption.
The economic stimulus effect resulting from the salary increase for civil servants is expected to reach up to $20 billion (approximately 29 trillion won). Chief economist Shiu Tianqian of the Economist Intelligence Unit (EIU) stated, 'China's strategy appears to focus on encouraging consumption among those with a high willingness to spend.'