Caught in a Chinese Pricing Pincer

Chinese exporters, already battling a slump in demand and an intense squeeze on profit margins, will come under even more pressure following the decision of two of China’s largest cities to raise their minimum wage rates. The decisions by Beijing and Shenzhen are likely to prompt other local governments to follow suit in raising minimum wages. But this year’s increase in minimum wage rates is well below the 20 per cent annual increases seen in the past two years. The southern city of Shenzhen, which traditionally offers China’s highest minimum wage, will boost its minimum monthly rate by 15.9 per cent in February to 1,500 yuan ($US238), while the city of Beijing has raised its minimum wage rate by 8.6 per cent to 1,160 yuan. The Chinese government has encouraged this move towards higher minimum wages because it is keen to boost domestic consumption, which would reduce China’s heavy reliance on exports. Higher minimum wages also help address the country’s growing income inequality, which is sparking social unrest. In the country’s five-year plan for 2011-15, the Chinese government has said that the minimum wages should rise by is at least 13 per cent annually.