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Economy

Shenzhen tamps down wages with eye on China's manufacturing exodus

City plans first rule change in 17 years as companies chase cheaper labor abroad

Workers assemble TVs at a Shenzhen factory. The city plans a major overhaul to stem the rise in wages.   © Reuters

GUANGZHOU -- The Chinese city of Shenzhen will overhaul its rules on worker pay for the first time in 17 years, looking to curb surging labor costs and stem the exodus of companies to cheaper markets in Southeast Asia and elsewhere.

A bustling technology hub, Shenzhen's plan boils down to three main components -- reducing overtime pay for irregular workers, tightening bonus rules and extending deadlines for paying employees.

The Shenzhen government has explained that supporting businesses serves workers' interests in the medium to long term. Employment in China still has yet to recover to pre-pandemic levels, and Shenzhen hopes cutting wages could encourage hiring.

Shenzhen currently requires triple pay for workers who show up on statutory holidays, like the Lunar New Year. Under revisions to the local ordinance on wages, which the Municipal People's Congress began deliberating at the end of May, holidays would pay the same as regular weekdays.

Employers also issue bonuses in proportion to how long employees worked there each year, even if they quit partway through. The Shenzhen proposal will allow companies to set their own guidelines on bonus payments, and potentially not pay workers who were only there short-term.

The city plan would allow the deadline for companies to pay their workers to be extended to the 30th of the following month from the current 22nd, though some local lawmakers are pushing for a shorter extension.

The average monthly pay for migrant workers in China's cities has doubled in a decade. (Photo by Yusuke Hinata)

Shenzhen was designated a special economic zone in 1980 as the poster child for China's economic reform and opening up. New industrial and economic policy is often tested in the city before being adopted nationwide, and new pay rules there could eventually lead to an overhaul of China's national labor laws.

Foreign companies operating in the city would benefit as well. "Companies with factories in Shenzhen can reduce labor costs," said Mizuno Consultancy Holdings President Masumi Mizuno, an expert in Chinese corporate law.

Still, "any change that involves updating contracts could receive pushback from workers, so companies must tread carefully," he said.

China has been granting greater power to its workers since passing a new labor contract law in 2008, which in turn has led to a marked growth in wages. The average monthly pay for migrant workers in cities doubled in a decade to 4,072 yuan ($630) in 2020, according to China's National Bureau of Statistics.

Monthly pay for manufacturing workers in China came to $531, according to a survey of about 6,000 companies with operations in Asia and Oceania conducted by the Japan External Trade Organization last year. That was significantly higher than the $447 in Thailand and $431 in Malaysia. The average was even lower in Vietnam, whose manufacturing sector excels in many of the same fields as China, at $250.

But the growing wage gap has pushed many companies to shift production from China to Southeast Asia, in a blow to the country's reputation as the world's factory.

Roughly 43,700 foreign-owned manufacturers with 20 million yuan or more in revenue operated in China as of April, according to the statistics bureau, dropping 24% from its peak in 2014.

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