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Q: Why are wages so low in China? (Yes, actual question)
It may be one of those "Duh" questions... But actually the more I think about it, the more I become confused. This could be due to having no economics study. What are the reasons? As far as observations go, I notice:
1. Large population
2. Bad education system (overlooking bad students, giving useless homework, teachers and principals that care more about appearing knowledgeable than actually being knowledgeable, a lot fits here)
3. Verbatim driven education style (goes in hand with no.2, but not the same)
4. Various policies that support under performing industries (changing somewhat, but not sure how much)
I have always put a lot of emphasis on number 1 in the list, simply because the high number of people really does seem to be a burden for economies that emphasize high employment (countries with poor welfare systems, China, U.S., maybe others.) High populations benefited ancient empires that needed to dig canals or build empires, but they don't seem to help when mechanization and automation increasingly allow work to be done by machines.
Are there more variables to consider? Is it more so a question of international competition instead of domestic factors? Will Chinese people ever earn high wages?
the government follows a policy of keeping "needs" cheap and "wants" higher, similiar to singapore, it keeps the population content and avoid uprisings, may not always work but its their system.
a cleaner making 1000 rmb a month can eat noodles, rice, dumplings, and still have money in their pocket.
you can buy a cheap 4 door chinese family car for 100k or pay a duty for a foreign one 400k.
tax the "wants" and make the "needs' very cheap."
the problem i see here is too many college graduates and not enough office jobs like the west, so eventually accountants will work cheaper than blue collar workers because everybody wants to be an accountant and not get their hands dirty. the white collar salaries will fall and the blue collar will increase, the cheap labor is steadily disappearing like it always does as the country develops.
the time bomb is the cheap farm labor replaced by technology and what to do with the peasants. retraining will be expensive and no money to afford living in the cities.
jetfire9000:
According to this reasoning, it makes more sense to classify things in terms of "domestically produced" or "foreign produced" since the example listed is basically a choice between a domestic car or a foreign one. Is that just by coincidence by any chance? If a Chinese car brand with similar functions to the 400K foreign one (a "want" by your definition, yet a Chinese-made one) appeared, would the import car still be priced 4 times higher? If so, then I'll argue the "need" versus" want" is more accurately described as a " domestic" versus "import" question, and move on from there. The price differentials between domestic and imported products basically reflects that most imported items have a tax attached to keep the domestic products more competetive, which serves protectionist policies as well as brings in money to the *ahem* appropriate places.
I do agree that staples are cheap, whether they are like that originally, or whether they are artificially cheap (ie, result of subsidy). But the cheapness of "need" (or staples) in that case is the same for most countries - oil, agriculture, milk, etc, are all things that most countries keep cheap.
Yet I'm not sure how this bears on wage levels.
While what you were saying about the difference between staples or imported consumer products makes sense, I can't quite make sense of how that is related to wage levels perse.
The first thing I can think of off the top of my head is that the cost of living is quite low in all but a small handful of cities that I am aware of. It is certainly cheap here.
the government follows a policy of keeping "needs" cheap and "wants" higher, similiar to singapore, it keeps the population content and avoid uprisings, may not always work but its their system.
a cleaner making 1000 rmb a month can eat noodles, rice, dumplings, and still have money in their pocket.
you can buy a cheap 4 door chinese family car for 100k or pay a duty for a foreign one 400k.
tax the "wants" and make the "needs' very cheap."
the problem i see here is too many college graduates and not enough office jobs like the west, so eventually accountants will work cheaper than blue collar workers because everybody wants to be an accountant and not get their hands dirty. the white collar salaries will fall and the blue collar will increase, the cheap labor is steadily disappearing like it always does as the country develops.
the time bomb is the cheap farm labor replaced by technology and what to do with the peasants. retraining will be expensive and no money to afford living in the cities.
jetfire9000:
According to this reasoning, it makes more sense to classify things in terms of "domestically produced" or "foreign produced" since the example listed is basically a choice between a domestic car or a foreign one. Is that just by coincidence by any chance? If a Chinese car brand with similar functions to the 400K foreign one (a "want" by your definition, yet a Chinese-made one) appeared, would the import car still be priced 4 times higher? If so, then I'll argue the "need" versus" want" is more accurately described as a " domestic" versus "import" question, and move on from there. The price differentials between domestic and imported products basically reflects that most imported items have a tax attached to keep the domestic products more competetive, which serves protectionist policies as well as brings in money to the *ahem* appropriate places.
I do agree that staples are cheap, whether they are like that originally, or whether they are artificially cheap (ie, result of subsidy). But the cheapness of "need" (or staples) in that case is the same for most countries - oil, agriculture, milk, etc, are all things that most countries keep cheap.
Yet I'm not sure how this bears on wage levels.
While what you were saying about the difference between staples or imported consumer products makes sense, I can't quite make sense of how that is related to wage levels perse.
As of now, China is roughly where Japan was in the late 80s and now needs to transition toward a consumer based society, but for a number of reasons, Chinese salaries are far lower than that of Japan in the late 80s.
- Large population, too much offer, not enough demand, salaries stay low.
- The global economy is in a much worse shape than it was when Japan needed to transition, especially in the West, consumer driver of demand for Chinese goods.
- Since there is less demand for the goods they produce, Chinese factories should lay off workers, but the gov pushes for employment for the sake of stability, this means that bosses don't have the money to raise wages.
- Inefficiency plagues China, it is said that it takes on average 4 Chinese office workers to achieve what is being done by one in the West, many spend half of their day playing Angry Birds and chatting with their friends. It's not the workers' fault, they just don't have any workload. Here again the gov is to blame for pushing bosses to employ too many workers where they are not needed. Salaries stay low.
- Wealth disparity is huge, the largest in the world as of now, a handful of people are filthy rich and the 1% wealthiest own 78% of every assets in China. Others can enjoy peanuts and leftovers.
jetfire9000:
Thanks for the points. Have you studied economics or international trade?
RandomGuy:
Not at all, but I have been having my own company (HR, recruiting) for the past 6 years here and I now have 15 local Chinese staff who I pay above market rate because I know first hand that while finding staff is easy, finding GOOD staff (as in, hard-working, motivated, able to take initiatives, etc...) is really difficult here. So I kinda got an idea of the state of the job market and realities of wages in China, and more importantly why it is so.
ScotsAlan:
Good point about the efficiency aspect Random Guy. Manufacturing costs in the PRD are not as attractive as they once were. And its not just down to Chinese worker v Western worker efficiency. There is also flexibility. Western workers might do their own QA for example. But in china that is another person needed. Add to that cleaners, security, drivers. It all adds to the cost.
silverbutton1:
"Chinese factories should lay off workers, but the gov pushes for employment for the sake of stability" - Random Guy.
the need subsidizes the want, cars, clothes anything here, cheap items for the masses and higher taxed for the wants, the expensive car made here or abroad will still subsidize making the cheap car for the masses. i dont agree with the system but with the population they may have no choice. busy work for the masses is everywhere here, ticket counters and helpers for bus drivers, people telling you how to line up at the subway, some of things they actually call work here is amazing.
singapore is even worse, a case of beer 35 dollars , mostly taxes, case of water no tax, singapore will tell you which basic car for a family has no tax and all the others will have tax, duties, etc. buy the bread, meat and make a hamburger, no taxes, buy the made hamburger and pay through the nose.
In Australia a box of 24 x 375 or 330ml cans or stubbies costs 50 effing dollars. Or more. Cop that young harry!
Low wages, right. Because there's no demand from the masses for that to change.
Any overt agitation among the chattering classes results in 'adjustment theory' being engaged.
The first what I would suggest is to drop comparing salaries unless you recalculate them into buying power parity.
It makes little sense to compare just abstract numbers without relation to real living costs.
Secondly I do not find Chinese salaries low. Considering the costs of living (talking about Chinese style of living - not expats) I find them quite OK and in some cases even high.
I am more surprised that in general in Asia the salaries for higher positions in business tend to be much higher than in Europe.
Coming back to China.
I am afraid that if the current trend of salaries continuous increase does not stop so it can mean the real problem for China (not talking about the lowest salaries level).
jetfire9000:
Buying Power Parity changes a lot when you distribute it to fit the relative population size of a country well. If you go purely by buying parity alone, then India ranks as the third most powerful economy in the world, China being 2, and the US being one. This overlooks the broader question of sophistication though, because China, and even moreso India, (Even India and China in comparison to one another!) are very different from another. You can only explain the vast differences in per capita income, and China has only 20% of that of the U.S. when you take that into account. If you don't believe me... compare the ability of a Chinese wage to buy a house?
expatlife26:
yeah for a measurement that so many take as gospel, PPP has a lot of flaws.
Of course anything that is tradable internationally isn't really affected by it. For example you don't get much of a hometown discount on diamonds in sierra leone.
The other part is that even on the nontradable stuff, quality isn't taken into account. A shack in Mozambique =/= modern home in france. Even if they are both technically 100 m2 on 1 acre of land.
The only place I think it applies legitimately and consistently is to food. You're going hungry at 6,000 USD a year in the US. Here you're doing ok.
Janosik:
I agree that parity of buying power is far away from perfect.
It's of course really difficult to select proper price basket just out of the simple fact that living style in different countries is different.
If you like to drink wine but hate beer so any price of drought beer does not effect you.
I just wanted to point out that talking in salary and GDP per capita may not make much sense.
jetfire9000:
@ Janoisk
The whole ability to point out that anything makes or doesn't make sense rests on the bedrock of examples that you make to either confirm or overturn the statements being made.... As Expatlife says, food seems to be one of the few things here that don't cost much. That was stated way up above by the early responding posters too. Staples are cheap, haircuts are cheap if you're looking for a quick buzz (quality not included though) basically the question still stands
Janosik:
OK, let me be a bit clearer.
1) Housing with utilities in China, with exception of several top cities like Shanghai, Beijing, Shenzhen and Guangzhou is reasonably cheaper than in Europe.
2) Food is much cheaper.
3) Clothing is much cheaper.
4) Costs of entertainment is much cheaper than in Europe.
It of course gets all distorted once you opt for Western things - but if you stay with Chinese so no issue.
Therefore the salaries in China, even though much lower than in the West - with exception of top positions, still secure decent living standard for majority of population - probably with exception of the lowest incomes though.
Clearer now?
Even tho Chinese cost of living is comparitively low in some areas, try buying (re-leasing) an apartment! I'm not sure what the ratio should be between wages & house price in China, but am damn sure it would have to be one of the worse in the world.
Also, besides wages, what about the important benefits?
I taught a large Co. (Hisense) class of 23 ss they were told to come in regulary on a Sat morning 9am - 12pm for work. Not cos they were busy, just at the discretion of the boss, in fact, they had NO work to do. They were not paid over time, they were not even paid their usual wages! So, all for free! They dare not complain cos it would mean loss of job.
My point is, the lower wages are not always a bad thing IF you are getting your due benefits/entitlements (as International Co's do here) as laid down by law (funny, the Govt. doesn't enforce this, not priorty for the workers, I assume).
It just seems the Chinese are getting screwed both ways..
dom87:
You only compare migrant salaries with apartment prices in tier1 like shanghai.
in the migrant town an apartment costs 200,000.00 RMB. Considering this the salary level is similar to europe.
For engineers in Shanghai (good ones), I have to pay more than 3000 Euro.
Salaries are rising buy more than 10% in many cases per year. this cannot go well for long
