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Economy

Wage cuts begin in China as coronavirus weakens companies

Government turns a blind eye preferring it to job losses

A worker at cable factory in Guiyang, China. Many employees have taken pay cuts in the virus-hit economy.   © Reuters

SHANGHAI -- A growing number of Chinese employers have cut employee pay as the novel coronavirus outbreak wreaks havoc on industries from autos and retail to tech and advertising.

Most workers have accepted the reductions because of poor employment prospects in the virus-hit economy. The Chinese government, circumspect of massive job losses, has signaled tolerance for the trend.

China's auto industry, which reported a nearly 80% drop in sales last month, has been especially aggressive in trimming wages. SAIC Motor, China's largest automaker based in Shanghai, has been negotiating with workers and conducting information sessions within the group since early this month.

SAIC Maxus Automotive, a sport utility vehicle subsidiary, will reportedly cut performance-based pay, which accounts for 35% of total wages. Some benefits are also on the chopping block.

When contacted by Nikkei, SAIC Maxus confirmed the pay cuts will apply primarily to executives. However, the company said production line workers will be unaffected and that base wages will not be modified.

SAIC's affiliated auto supplier, Shanghai Huizhong Automotive Manufacturing, is expected to slash wages by about 20% starting this month. The company will prioritize securing cash on hand in the face of the last month's crash in auto sales.

The retail sector is also offsetting the coronavirus effect by reducing labor costs. Miniso, which operates retail stores inside and outside China, said it will cut wages by 30-50% in March. Employees ordered to stay home will receive 30% of normal pay.

The tech industry is not immune either. Online used car dealer Uxin Group has enacted pay cuts between 20% and 30%. Fellow secondhand auto trading platform Chehaoduo has reportedly asked some of its workforce to stay home until May.

Advertising website 58.com has ordered staff in some areas to take leave once every week. "The monthly income will be reduced by about 500 yuan ($70), and much of the telecommunication fees are to be paid out-of-pocket," said a company employee.

Although life is slowly returning to normal in China, there are still restrictions on travel between provinces and cities. Many companies have held off on face-to-face meetings with business clients.

In addition, there is strong speculation that businesses that have encouraged staff to work from home seek to use that arrangement to reduce labor costs.

Even as companies cut pay, they have widely held off from staff reductions to stay in line with the Communist Party's message. In addition to rolling out corporate stimulus programs, President Xi Jinping has pledged strong employment stabilization policies.

The city of Beijing issued a notice allowing employers to temporarily suspend workers, as long as employees give consent and those affected receive 70% of the minimum wage.

Officials appear willing to stomach drastic pay cuts if they can ward off large-scale layoffs. An estimate by Goldman Sachs predicts unemployment to spike as high as 6% for the second quarter, up from 5.2% at the end of 2019.

Some companies are already cutting staff.

Advertising startup Xinchao Media is letting go of 500 employees, equivalent to 10% of its workforce. Xinchao was once considered a promising unicorn worth more than $1 billion. The company says it has nearly 1 billion yuan in funds on hand, enough to survive six to seven months. Yet Xinchao's ability to stay afloat has come into doubt.

Although employees object to pay cuts, many see little prospect of improving their compensation packages by switching jobs. Wage growth has slowed over the past two years.

"I'll stay at the company for the time being," said a 58.com employee.

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