Annual wage increases in German companies operating in China are likely to decrease in 2014 due to the slower economic growth, as rising labor costs remain the major human resources issue, a report from the German Chamber of Commerce in China has said.
Overall wages are expected to increase 8.2 percent in 2014, compared with the 8.9-percent growth in 2013 and the 10.2-percent growth in 2012, according to the Wage and Salary Survey of 2013, which was released on Monday.
The survey was conducted between Aug 19 and Sept 17, with the participation of 287 companies, mainly in industries such as machinery, vehicles, electronics, and consulting.
"As GDP growth cools, wage growth is expected to stabilize at lower levels," said Max Zenglein, an economic analyst for greater China at the chamber. "Nearly all job positions will see decreasing wage growth, with limited regional variation. And individual and company performance are most important for determining new wage levels."
China's GDP growth is expected to stay at more moderate levels of about 7.5 percent in the near future, while the country's working population, which increased less than 1 percent in 2012, will likely continue to see little growth, Zenglein said.
"Despite the economic slowdown, the labor market is likely to remain tight due to the major factors of skills mismatch, aging population, and slowdown of migrant population. But more than 60 percent of surveyed German companies plan to expand their workforce," he added.
Wage growth at foreign-owned companies has outpaced the productivity gains in industrial sectors, as well in the service sector, since 2011, according to the survey.
Blue-collar workers, rather than junior, mid-level or senior white-collar employees, will see the highest wage increases in 2014, of 9.1 percent across the country, while more senior positions will see the lowest growth rates, at 7.9 percent nationally, the largest overall growth reduction, according to the survey.
As for regional differences, Beijing and Shanghai have the highest wages, while southern regions have the lowest wage levels, the same as in previous years. Salaries in first-tier cities, on average, are 40 percent higher compared with those in second- or third-tier cities, according to the survey.
The auto industry has the highest wages, the machinery sector is at a level similar to the national average, while wages in manufacturing sectors are 16.7 percent lower than in non-manufacturing sectors, the report added.
"Rising labor costs are the high or medium issue for nearly 90 percent of surveyed companies, while recruitment and retaining qualified staff are equally a problem," said Zenglein.
Meanwhile, an increasing number of German companies in China are trying to boost their productivity to offset cost rises and maintain profit growth, while optimizing internal processes and better training of current employees should be the major ways to tackle labor challenges, according to the survey.
"Labor costs increased about 10 percent annually in recent years and the wages in our factories are on the whole higher than those in East Europe. We have to enhance our efficiency to offset the increasing costs," said Zhang Yilin, deputy managing director and president of the automotive unit of Schaeffler Greater China, a major manufacturer of bearings and a renowned supplier to the auto industry.
"The Chinese market is our top priority. Even though China's economic growth has slowed down, growth of 6 or 7 percent is still envied in the world and the potential of the Chinese automobile market is yet to be fully unleashed," Zhang said.