Wages in China
During the era of the state-run economy, wage levels, bonuses and benefits were all set and controlled by the state. In the mid-1980s, the
government began to give state-owned enterprises (SOEs) more freedom to set their own wage levels.
SOEs were allowed to use their
profits retained after tax for bonuses and temporary wage rises.
In the 1990s, the system was further liberalized and SOEs were allowed
to establish their own internal wage structure within the confines of the overall wage budget established by the government. The 1994
Labour Law allowed SOE management to independently determine wages on the basis of productivity and profitability. From 1995, SOEs
listed on the Shenzhen and Shanghai stock exchanges were allowed to set their own wages if: the growth rate of the total wage bill was
lower than that of after-tax profitability; or per capita wage growth was lower than the growth rate of labour productivity (MOL, 2000). Wages
could be set according to occupation and rank, as well as skill levels and productivity. Of the then estimated 100,000 SOEs, approximately
40,000 issued shares and set wages under this system. With the massive SOE privatization programme of the late 1990s, the era of state-
controlled wages effectively came to an end.
Average monthly wages have increased every year in China since the late 1980s. The average wage in urban areas in 2006 was 1,750
yuan a month, four times higher than the figure for 1995 (
statistics: Average monthly wage in urban areas 1978-2007
). However, as wage
levels increased, so did discrepancies between different sectors, types of ownership and regions. In general, average monthly wages were
higher in share-holding, foreign-owned and state-owned enterprises, and were lowest in locally funded enterprises, with wages in
enterprises owned by Hong Kong and Taiwanese businesses in the middle (
statistics: Average monthly wages by types of ownership 2006-
A more significant gap emerged between different occupations and industrial sectors, and especially between low-skilled and highly-skilled
statistics: Monthly average wages by sector 2006-2007
). In 2006, the average wage of those employed in primary industries was
only 786 yuan, a quarter of the average wage of those working in financial services (3,273 yuan); and one-fifth of those working in the
computer industry (3,730 yuan).
The gap between urban and rural incomes also grew. A report from the Chinese Academy of Social Sciences indicated that in 1978 urban
income was 2.57 times that of rural income, but by 2005, that gap had expanded to 3.22 times, and in 2006 to 3.27 times. In 2006, the
annual per capita disposable income of urban households was 11,759 yuan compared with only 3,587 yuan in rural households. Taking into
account the fact that rural residents effectively have no social security or welfare benefits, the urban-rural income gap in real terms was