China’s wage gains have moderated on weaker corporate profits, capping consumer demand as the government seeks to sustain a rebound after a seven-quarter economic slowdown.
Average urban salaries rose 12 per cent in the first nine months from a year earlier without adjusting for inflation, slowing from 14.4 per cent for all of last year and 13.3 per cent in 2010, government data show. Restaurant operator Yum Brands! reports smaller pay increases, and labour ministry data show the same for minimum wages.
Deeper declines in wage growth would undermine efforts by China’s new leadership under Xi Jinping to boost consumer spending and shift the world’s second-biggest economy away from dependence on investment and exports. Overcapacity in manufacturing is weighing on profits, with the latest reading due tomorrow when the statistics bureau releases industrial companies’ net income for this year through October.
“Given the poor profit picture, wage growth is bound to slow down in the coming quarters and this is set to reduce the robustness of consumption,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who formerly worked at the World Bank in Beijing. “The expected slowdown will impact the rebalancing in the sense that it will reduce the relative role of consumption in the short term.”
Li Keqiang, the second-highest ranked official in the new Communist Party leadership and set to take over from Wen Jiabao as premier in March, said last week that household spending is key to boosting domestic demand.
Minimum wages rose an average 19.4 per cent in 18 provinces this year through September, government data show. That follows nine-month gains of 21.7 per cent in 21 provinces last year and 24 per cent in 30 provinces in 2010. China has targeted an annual average increase of 13 per cent for last year-15.