China Watch Blog

Starting on July 1, regions including Henan, Shenzhen, Shaanxi, Anhui and Hainan increased their minimum wage standards, and in all regions, with the exception of Shenzhen, wages increased by more than 20 percent, according to a local news report.

Of those provinces, wages increased most in Hainan, which saw an increase of nearly 32 percent.

“The minimum wage was raised based on actual situations in different regions and by taking into account the stabilized economic development trend of this year and rising prices,” said Su Hainan, vice president of the China Association for Labor Studies and president of the Remuneration Committee. “Moreover, this was done in order to better ensure the basic living conditions of low-income earners.”

Unlike those provinces and cities which had increased their minimum wages in the first half of this year, the regions that raised wages on July 1 all increased them by more than 20 percent. For example, Anhui, Yunnan, Hunan and Henan saw increases of 26 percent, 22 percent, 28 percent and 23 percent, respectively.

“In recent years, China’s minimum wage standard was far lower than the global average level. Although the minimum wage standards have been adjusted, there is still a lot of room for improvement,” said Cai Jiming, director of the Political Economy Research Centre under Tsinghua University.

The minimum wage standards were determined after considering all kinds of comprehensive factors including the lowest costs of living for laborers and their families, the consumer price index, the social average wage growth rate, economic development level and employment status.

Su believes that the increase of the minimum wage standards will not bring negative effects on enterprises because the overall bearing capacity in regions has been fully considered. However, the pressure will probably exist in some small- and medium sized enterprises in the labor-intensive sectors.

Cai said the increase of the minimum wage standards will certainly impact local labor costs. Therefore, the government should provide more preferential policies to enterprises.

The Hong Kong government is holding talks with Beijing to open channels for investment opportunities in the mainland for yuan held in former British colony, according to a Standard report.

Foreign direct investment, the Qualified Foreign Institutional Investor scheme and re-insurance are potential channels being studied, Julia Leung Fung-yee, Under Secretary for Financial Services and the Treasury, was quoted as  saying in the report.

But she declined to comment whether the so-called “mini QFII” – a program that allows locals to invest in A shares – is being discussed.

Leung said the volume of trade settlement in yuan surged to 7.2 billion yuan (HK$8.27 billion) in May, from 400 million yuan in February.

Transactions are expected to grow even faster after the People’s Bank of China expanded the pilot scheme last week to cover 20 provinces and cities in the mainland, as well as worldwide for overseas counterparts, Leung said.

This allows more flexibility in both current and capital accounts to pay for services imported to China, the under secretary said.

“For example, tour agents and investment banks will be able to accept yuan as tour fees or underwriting fees, instead of just Hong Kong dollars or foreign currencies,” Leung said.

“Even H-share holders can receive yuan in dividend payment as the current regulation allows. Of course, that all depends on a company’s policy and arrangement,” she added.

Leung said the lack of yuan products for investment is the reason for the slow yuan deposit accumulation rate.

Yuan deposits in Hong Kong in May were about 84.7 billion yuan, up only 4.7 percent from the previous month, Hong Kong Monetary Authority data showed.

Building up an asset base for yuan investment is crucial to boost yuan liquidity, said Leung.

Besides opening investment channels in the mainland, the under secretary said financial institutions are ready to offer new yuan products.

As for yuan-denominated insurance policies and equities in Hong Kong, the under secretary said insurance products should be more readily available as less liquidity is required and risks are easily hedged.

“It’s only the beginning of the yuan- product era,” Leung said.