Wages to rise with efficiency gains

According to a report recently released by the Institute of Industrial Economics of Chinese Academy of Social Sciences, the average Chinese manufacturing sector employee now makes more than his peers in Southeast and South Asia. Despite this though, wages among Chinese factory workers are unlikely to notch substantial increases over the years to come.

News of this report has aroused many questions, as its findings seem to contradict targets mentioned in the communiqué released following the 18th National Congress of the Communist Party of China (CPC), where leaders identified a goal of doubling 2010 GDP and annual income per capita by 2020.

During the process of transformation and upgrading, China's manufacturing sector will also have to confront the problems brought by a more challenging financing environment and a more stringent tax regime. Any increase in salaries will surely encounter resistance over the years ahead. Yet, it is unlikely that needed upgrades and restructurings will come to pass unless employees are given the right level of financial incentive.

It should be pointed out that such arguments have overlooked an important factor: labor productivity. As manufacturing strengthens, it is necessary to adopt new technologies to improve labor productivity, which will allow enterprises to reduce employment and maintain income growth for a smaller group of employees.