Rapid wage gains in China that began after the 2009 global financial crisis have begun to fade as the economy slows, and that could create problems for officials trying to boost domestic consumption.
Income increases for migrant workers will fall below 7% this year, down from a 7.2% rise in 2015, according to nine of 12 economists surveyed by Bloomberg News this month. The findings follow an announcement by Guangdong province, China’s biggest exporter and one of the biggest destinations for rural job seekers, that it will freeze minimum wages for two years.
A slower rise in labour costs could make Chinese companies more competitive while also helping employers weather structural reforms that Communist Party leaders pledge will address excess capacity in the world’s No 2 economy. Authorities under the previous administration had championed wage gains as a way to stoke domestic demand.
“China’s fairly pragmatic policymakers have recognised the limits of things like minimum wage increases,” said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. “You cannot expect wage growth to continue to power ahead if business conditions and profit developments are weaker.”    Consumers also won’t spend as freely, according to the survey. Six economists said they see average disposable income rising 6.5 to 6.9% this year, compared with a 7.4% increase in 2015. Four forecast a rise of 7% to 7.4%.
Jobs, income and the “new normal” of slower economic growth were among the top agenda items for the Chinese congress meeting earlier this month in Beijing and again this week on the southern island of Hainan, where policymakers are gathering for their annual Boao Forum. Premier Li Keqiang set a target to create 10mn jobs this year, the same goal as the last two years. Even with smaller pay rises for workers, economists still forecast an increase in joblessness in China this year. The urban unemployment rate will rise to 5.3% to 5.5% in 2016, up from about 5.1% last year, seven out of 12 economists said in a Bloomberg survey.
“For all the talk of the new normal, the implicit promise is that things will get better,” said Pauline Loong, managing director at Asia-Analytica Research in Hong Kong. “But look at wages growth – or the lack of it. With even big bank profits down, where is the room for wage growth? The big state-owned enterprises are not making money either.”
The projected weakening of the job market is notable because China has a shrinking labour force, something that otherwise would typically lead to companies having to pay more to attract the workers they need. Wage growth has been held down by salary freezes, most recently in Guangdong, China’s most populous province with 107mn people and a $1.1tn economy.