A rise in the minimum wage by 2015 strengthens domestic consumption but also increases costs The new Chinese government plans to raise minimum wages in the cities and the majority of rural regions to at least 40 percent of the average wage. The aim is an 80 million reduction of the number of people living in poverty. China’s primary intention is to prevent social unrest – but also specifically to boost domestic consumption as a cornerstone for economic growth. Staufen AG reckons that this will also benefit German companies active on the Chinese market. The demand for products and services “made in Germany” – in China a byword for quality – is already above average. More purchasing power for the Chinese lower and middle classes is most likely to increase demand even further. “Undeniably, this will make production in China more expensive, but the country has long ceased to be the extended workbench of the world or a location for low-cost production” states Markus Franz, Staufen AG Executive Director in Shanghai. “Strengthening the domestic market is a further step by the People’s Republic towards becoming a highly attractive consumer market.” With the envisaged increase of the minimum wage, the Chinese government wants to prevent a further widening of the gap between the rich and the poor. In the cities in particular, wage levels for skilled workers have risen considerably in recent years. An additional restriction on the speed at which the salaries of managers grow and the imposition of higher levies on state-owned enterprises to be spent on social purposes are intended to bridge the gap. “The primary aim is stability within the country – in political as well as economical terms”, Markus Franz reckons. In addition to increased domestic consumption, more purchasing power also means less dependence on exports to the rest of the world. “The fear is that China’s current industrial and economic strength is not yet sufficient, should the West once again falter. Chinese experts reckon that for German companies, in particular, this will open up ideal sales opportunities. ‘Made in Germany’ is held in very high regard by the Chinese people. Our products and services enjoy an excellent reputation”. Higher wage levels, though, also mean rising production costs in the country. An increase in demand quantity also means an increase in competitive pressure on the domestic market. There is already a lack of skilled workers – a problem that is bound to get more serious with increasing demands. Prices for raw materials and energy are also bound to rise with increasing demands. “Basically, German companies can face the plans of the Chinese government with confidence”, thus Markus Franz’ verdict. “It is crucial to see the country for what it is: a rising economic power with a lucrative market. Provided that companies also have an understanding of the country and its customs as well as of the expectations of Chinese consumers, they have an excellent chance to succeed.
