China Cuts White Collar Wages to Control Extravagance

China Chinese President Xi Jinping

The salaries of numerous white-collar professionals in China, such as financial personnel, doctors, and civil servants, are experiencing significant reductions. This situation may have potential consequences, including a decrease in retail sales and an increased risk of deflation.

Earlier this year, a renowned publication pointed out that the Central Commission for Discipline Inspection of the Communist Party of China and the National Supervisory Commission revealed their plans for combating corruption. As part of this effort, they aimed to address the "hedonism and extravagance" issues prevalent in the financial and central enterprise sectors. Consequently, salaries and bonuses in these industries have been reduced.

Throughout this year, several financially burdened local governments have taken measures to cut wages for civil servants. Furthermore, certain hospitals, schools, and private businesses grappling with reduced sales have similarly opted to implement pay cuts for their workforce.

Although the precise count of affected Chinese white-collar workers remains unknown, economists are warning that these notable salary reductions are intensifying the fragility of consumer confidence and heightening the likelihood of deflation.

Despite the average Chinese income in the first half of this year showing a 6.8% rise from the same period in 2022, reaching 11,300 yuan (approximately 1,580 U.S. dollars) per month, there are concerns about sustaining this growth rate.

Analysts and experts point to the return of migrant workers to factories as a significant driver behind this surge in income figures. Following the shutdowns caused by the 2019 pandemic, many migrant workers had to leave their jobs temporarily or were laid off.

As the situation improved and restrictions eased, these workers returned to the workforce, increasing economic activity and production in various industries.

However, there is a cause for caution amidst this positive development. While the income growth seems impressive, there is growing scepticism about whether it can be sustained in the long run. One reason for this concern is the lack of a similar rise in white-collar wages during the same period. While blue-collar workers, particularly those in the manufacturing and industrial sectors, saw an improvement in their earnings due to increased demand for their services, the wages of white-collar professionals did not witness a proportional increase.

This wage growth disparity between different workforce sectors could have broader implications for the overall economy. Consumer confidence, for instance, may be impacted, as white-collar workers constitute a significant segment of middle-class consumers who drive a substantial portion of domestic spending. If white-collar wages remain stagnant, it may dampen their purchasing power and, subsequently, affect retail sales and consumer-driven industries. As a result, a prevailing trend of frugality is evident in China, with retail sales still lagging behind pre-pandemic levels. In this climate, households are more inclined towards saving rather than spending.

Amidst the challenging economic conditions, some individuals seriously consider resigning from their jobs rather than accepting a 50% salary reduction. This situation adds an additional strain on the Chinese economy, which is already grappling with weak consumer confidence, further hindering the prospects of a robust economic recovery.

Xi Lao is a freelance journalist based in Taiwan.

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