China’s Average Wages – Trends and Implications for Businesses
Average salaries in China have more than doubled over the last decade, following the country’s rapid growth in GDP and living standards. However, average salaries vary greatly from industry to industry, and the gap between private and non-private sector pay is widening. Rising wages have significant implications for businesses, particularly for those that rely on cheap low-skilled labor in manufacturing industries. At the same time, rising income levels present new opportunities for companies seeking high-skilled labor or looking to tap into China’s huge consumer markets.
In 2022, the average annual salary of employees in urban non-private positions reached RMB 114,029 (approx. US$15,946), a nominal increase of 3.7 percent year-on-year and a real increase of 1.7 percent year-on-year.
Urban non-private companies in the Chinese government’s nomenclature refers to all non-private legal entities in urban areas and includes state-owned enterprises (SOEs), collectively owned enterprises, joint ventures, joint-stock companies, foreign-invested economies (FIEs), and Hong Kong, Macao, and Taiwan-invested companies.
Salaries in the non-private sector are considerably higher than in the private sector. On average, a non-private sector employee made almost twice the amount of an employee in the private sector, whose annual average salary in 2022 was RMB 65,237 (approx. US$9,123).
Salaries in both the private and non-private sectors have more than doubled over the last decade. However, the growth of average salaries in the non-private sector has been slightly faster than in the private sector, with the non-private sector recording a CAGR of 8.28 percent from 2013 to 2022, compared to 7.15 percent in the private sector.
The rate of growth has also slowed considerably over the last decade. This deceleration has been more marked in the private sector, which saw salaries slow to year-on-year growth of 3.74 percent in 2022, compared to 6.73 percent year-on-year growth in the non-private sector.
Average salaries in China by industry
The sector with the highest annual average salary in China is information transmission, software, and IT services, which reached RMB 220,418 (approx. US$30,824) in the non-private sector. The private sector counterparts, however, made just 56 percent of this, at an average of RMB 123,894 (approx. US$30,824).
The second highest-paying industry in 2022 was finance, in which urban non-private employees earned an average of RMB 174,341 (approx. US$24,380) and private employees earned RMB 110,304 (approx. US$15,425).
The industry with the highest discrepancy between private and non-private sector pay is education, in which urban employees in the private sector earn just 43.8 percent of the amount of their non-private counterparts per year on average.
Salaries have also increased at a faster rate in the non-private sector in almost all industries over the last decade. One notable exception is the finance industry, in which salaries in the private sector grew at an annual average rate of 13 percent since 2013, compared to just under 7 percent in the non-private sector.
Manufacturing salaries have grown at an annual average rate of 9.1 percent and 9.5 percent in the private and non-private sectors respectively since 2013. Non-private sector manufacturing salaries rose from RMB 46,431 (approx. US$6,493) in 2013 to RMB 97,528 (approx. US$13,638) in 2022, while private sector manufacturing salaries rose from RMB 32,035 (approx. US$4,479) to RMB 67,352 (approx. US$9,418) in 2022.
Average salaries in China by entity type
Urban employees at SOEs, FIEs, limited companies, and Hong Kong, Macao, and Taiwan-invested enterprises earned an above-average annual salary for non-private companies, with salaries being the highest in FIEs. Meanwhile, employees at urban collectively owned enterprises and limited liability companies (LLCs) earned a below-average annual salary for non-private companies.
|Average Annual Salary for Urban Employees in Non-Private Entities|
|Entity type||2022 (RMB)||2021 (RMB)||Growth rate (%)|
|Collectively owned enterprises||77,868||74,491||4.5|
|Hong Kong, Macao, and Taiwan-invested companies||124,841||114,034||9.5|
|Source: National Bureau of Statistics|
Average annual salary by region
Average salaries for urban employees also varied between different regions. Eastern China, a broad regional designation that includes 11 provinces and municipalities, including Beijing, Tianjin, Shanghai, Zhejiang, and Guangdong, unsurprisingly reported the highest annual average salary in 2022, with private employees earning an average of RMB 72,965 (approx. US$10,203). Non-private employees earning an average of RMB 132,802 (approx. US$18,571).
The region with the second-highest average salary for urban workers was Western China (encompassing 12 provinces, municipalities, and autonomous regions, including Chengdu, Chongqing, Yunnan, Shaanxi, and Xinjiang), where urban private employees on average earned RMB 55,781 (approx. US$7,800) per year and non-private employees earned an average of RMB 100,759 (approx. US$14,090).
The region with the lowest average salaries in both the private and non-private sectors was the northeast (encompassing the provinces of Jilin, Heilongjiang, Liaoning, and parts of Inner Mongolia). The average private sector salary in 2022 reached RMB 49,895 (approx. US$6,945), while the average non-private sector salary reached RMB 89,941 (approx. US$12,520).
Analysis of trends in average salaries in China
The rise in salaries across industries in China over the last decade has corresponded with the country’s rapid GDP growth and rise in living standards. The average disposable income per capita in China has more than doubled from RMB 18,311 (approx. US$2,561) in 2013 to RMB 36,883 (approx. US$5,158) in 2022.
The difference between salaries in the private and non-private sectors is in large part attributed to the higher levels of investment in the non-private sector. Infrastructure investment is a core tenet of China’s economic growth, and large SOEs tend to be favored in government bidding processes. As a result, fixed asset investment (FAI) by the private sector has slowed significantly over the last decade and grew just 0.9 percent year-on-year in 2022 compared to 10.1 percent year-on-year by SOEs. In addition, FAI by private companies only accounted for 54 percent of overall FAI, despite making up for the vast majority of companies in China.
At the same time, the number of private enterprises has quadrupled over the last decade. According to data from the State Administration for Market Registration (SAMR), the number of private enterprises grew from 10.86 million in 2012 to 47 million at the end of August 2022. This means private companies have gone from accounting for 79.4 percent to 93.3 percent of all companies in China over this period.
This means far more people are employed in the private sector than in the non-private sector today. However, these private companies are on average much smaller than non-private enterprises and therefore have much lower levels of income and resources.
While there are far fewer non-private companies, they are also some of China’s largest companies. SOEs, in particular, tend to be engaged in highly lucrative industries that are of strategic importance to the Chinese economy, such as resource extraction or construction, and thus are provided with significant government support. They are also much better situated to participate in major infrastructure projects, which have historically been at the core of China’s economic growth.
The Chinese government has recently made efforts to boost private investment, which is hoped to increase profits and growth in the private sector. This in turn could help to boost private sector wages.
Considerations for businesses in China
Rising wages in China will have significant implications for businesses. As labor costs increase, the cost of production will rise. This has fueled discussions of “re-shoring” or “near-shoring”, in particular for companies in labor-intensive industries, such as textiles and apparel. Chinese companies are also hopping on this trend.
The disparity in salaries across different areas of China may also encourage more companies to set up production in areas with cheaper labor, such as China’s western or northern regions.
Rising wages are also coinciding with a shrinking working-age population as China’s population begins to decline. While this may further accelerate the process of re-shoring in some industries, these two trends will also encourage China to focus more on higher value-added, technology-driven sectors, creating new opportunities for knowledge-based industries. As China’s workers shrink in number but become more skilled, salaries are also expected to rise further.
While challenges in cost competitiveness in certain industries may arise, China’s rising salaries may also further boost the domestic market as disposable income grows, benefiting businesses catering to the expanding middle class. Nevertheless, businesses will need to address labor-related issues, such as improved working conditions and benefits, potentially increasing operational costs and compliance with labor laws.
Adaptability, innovation, and strategic planning will be crucial for businesses to thrive amid these changes in China’s economic landscape. By embracing the shift towards higher value-added sectors and tapping into the growing domestic market, businesses can position themselves for long-term success in this evolving business environment.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
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