Insights Into China's Salary Landscape

What determines salaries for individuals in China?

China's labor market stands as a fascinating enigma, deeply integrated into the core of the global economy. As home to the world's largest population, China houses an impressive labor force of over 780 million individuals. Formally, the labor market employs more than 746 million workers with a total wage bill of 18 trillion yuan, the equivalent of 9.5 trillion SAR dispersed through salary systems (for context this is 19 times the public sector wage bill in Saudi Arabia of 0.5 trillion SAR). These wages don't merely reflect a simple exchange of work for wages, but rather, they illuminate a complex system - integrated with societal norms, institutional policies, historical legacies, and ever-evolving economic realities. To fully grasp the vast complexities of this system, one must delve into its unique, multi-faceted aspects.

China's economy is a complex myriad of sectors, regions, and ownership structures. As of 2021, China's economy recorded a GDP exceeding 114 trillion yuan, translating into approximately 15.9 trillion USD. The World Bank estimates push this figure a little higher, at 17.7 trillion USD. With such staggering numbers, China's economic prowess is undeniably substantial. Across the nation's 33 administrative locales, there's a significant urban-rural divide, adding another layer of complexity to the economic landscape. The economy is typically categorized into three key sectors, each bearing its own weight in the GDP: the primary sector forms the foundation with a 7% contribution, the secondary sector builds upon it with a 39% share, and the tertiary sector crowns the structure with a commanding 53% stake. Looking at the businesses that make up these sectors, China's labor market hosts around 33 million corporate units, each with its unique legal registration and ownership statuses - state-owned, publicly traded, or privately held. While the private sector holds the majority of these entities, the public sector continues to be a robust pillar in China's labor market.

Dissecting the distribution of these corporate entities across sectors, a fascinating pattern emerges - more than 70% are nestled in the tertiary sector, catering to services and retail, and about 20% in the secondary sector, such as manufacturing. The primary sector, encompassing agriculture, mining, and others, plays host to a small but significant 6% of these entities.

As we roam through the urban-rural divide, around 65% of the population resides in urban regions, leaving a sizeable 35% in rural areas. This divide reflects in the employment distribution as well. Of the staggering employed workforce of over 746 million, half are employed in the services sector. The non-private and private sectors represent two different sides of China's economic coin. While non-private sectors employ about 173 million workers, the private sector provides livelihoods to a colossal 572 million workers.

Let's take a journey through the salary landscape, observing variations across sectors, regions, and industries. To begin our journey, we look at the public sector, encompassing state-owned and publicly traded companies among other non-private entities. Picture the typical Chinese employee in this sphere - according to the National Bureau of Statistics of China, they are bringing home an average monthly salary of 8,903 yuan, or around 4,650 SAR. Zoom in on the bustling metropolis of Beijing, the heart of political power and a prominent economic hub. The salaries here far outstrip the national average, with employees in the public sector earning 16,221 yuan per month - around 8,471 SAR. It's a similar story in Shanghai, another economic powerhouse, where the average monthly salary rivals that of Beijing. Contrast this with Henan, an inland region to the North with sprawling rural landscapes and a significant agricultural sector. The average salary here drops to about 6,239 yuan (or 3,258 SAR). These varying figures illustrate the diverse economic profiles of different regions, influenced by factors like cost of living and industrial focus.

Now, let's cross over into the realm of the private sector. The story changes significantly - the national average salary dips to 5,240 yuan (about 2,737 SAR). Even in Beijing, where salaries peak, the private sector average is 8,334 yuan (or 4,353 SAR), markedly lower than in the public sector. The gap continues in Henan, with an average private sector salary of 4,010 yuan (or 2,094 SAR).

In terms of the status of registration, foreign-funded enterprises have the highest average across the non-private sector of 10,502 yuan (or 5,484 SAR), followed by publicly trade enterprises with an average of 10,133 yuan (or 5,292 SAR), and state-owned enterprises with an average of 9,632 yuan (or 5,030 SAR).

Taking a sector-specific view, we see some intriguing trends. In the high-tech industry, employees in the public sector have an average monthly salary of 16,792 yuan (or 8,770 SAR). The research and technical services sector trails behind but still boasts a 12,648 yuan (or 6,605 SAR) average. However, a familiar pattern emerges in the private sector. The average salary here is significantly lower – 9,552 yuan (or 4,988 SAR) in high-tech and 6,476 yuan (or 3,382 SAR) in research and technical services.

These statistics may be understandable, given the sheer size of the private sector compared to the non-private, which is much smaller. However, the word 'small' has no context in China, for instance, the state-owned sector alone employs more than 60 million workers. While these averages do not tell us anything about the dispersion of salaries in China, or any realistic accounts of the salary landscape there, they suggest a significant premium or incentive between private and non-private sectors, rural-urban regions, major cities, and inland smaller cities, and primary and tertiary sectors.

Despite the rigorous methodology used by the National Bureau of Statistics of China, their published salary statistics have inherent limitations. These figures, while derived from credible and extensive data, are significantly generalized, encompassing vast regional areas and entire sectors, which inevitably dilutes the utility of the information. This broad-brush approach does not adequately consider the considerable variations among different jobs within each industry, or the notable disparities between various sectors such as banking and retail. Consequently, the resulting figures, while statistically valid in their representation of broad averages, produce fictional figures that may not accurately reflect the complex realities of this specific job market.

Michael Page's 'Mainland China Salary Report 2023' offers a more detailed snapshot of salary variations across various industries in China, overcoming the broad scope of NBSC's data. Despite some notable concerns about its methodology and reliability, it serves as a useful guide to understanding China's diverse salary landscape and may reflect actual market realities. Here the report is structured by sectors and specific jobs. Let's take a quick look at those.

In Beijing, the median monthly salary for a Chief Human Resources Officer is roughly 166,666 yuan (or 87,012 SAR), for a compensation and benefits manager, it is 37,500 yuan (or 19,577 SAR), and for a Junior HR, it is just 10,000 yuan (or 5,220 SAR). In Banking, the median monthly salary for an investment analyst is 18,333 yuan (or 9,571 SAR), for a risk management director, it is 58,333 (or 30,454 SAR), and for a finance manager, it is 32,500 yuan (or 16,967 SAR).

If we scrutinize the variation observed in this report, we might uncover superficial patterns and trends indicative of overgeneralization due to limited sampling and inconsistent data collection, compromising statistical accuracy and representation. This is a common issue with commercial salary reports as they often prioritize wide dissemination over meticulous data gathering. For such a scope, gathering data systematically would demand considerable time and likely a sizable portion of their operating budget and I wouldn't anticipate them investing the necessary diligence and resources required for a robust, comprehensive survey. They remain a good snapshot and for specific purposes, a valuable resource.

Lastly, senior engineers earn a median monthly salary of 27,500 yuan (or 14,357 SAR), while chief engineers make 55,000 yuan (or 28,714 SAR). Despite this, given the vast scale of China's economy and population, alongside its high manufacturing efficiency, we see downward pressure on engineers' earnings. The sheer number of engineers and China's highly efficient, narrow-margin manufacturing industry may contribute to this salary trend.

Consolidating insights from both the NBSC data and the Michael Page report, it is plausible to hypothesize that the national median salary in China is trailing the national average. This suggests a significant portion of the workforce earns considerably less than the average, while a distinct segment vastly exceeds it. This pattern could indicate a negatively skewed salary dispersion in China with a right-modal distribution and significant outliers - not unexpected for a country with such a large population. This hypothesis aligns with China's Gini coefficient of 38.2 (as per the World Bank), indicative of notable income inequality. Even with these insights, our understanding of the salary landscape for the hundreds of millions of private sector workers in China, who typically earn less compared to those in more regulated non-private sectors, remains incomplete. Being employed in a foreign-funded, state-owned, or publicly listed Chinese company generally provides better career opportunities and income prospects. This suggests that the highest paymasters in China are likely concentrated in these non-private sectors and major cities like Beijing, Shanghai, and Guangzhou. The fascinating structure and dynamics of the Chinese labor market underscore this reality.

I started this article with the question of what determines salaries for individuals in China, and already we have some progress toward the answer. In addition, to the typical suspects, such as education, skill level, industry, networks, expertise, personal competence, and years of service, China has a couple of unique factors that go into determining the salary for individual employees. Let's dive deeper into those.

Firstly, the Gaokao exam, a notoriously rigorous and grueling college entrance exam that every Chinese student must face, is akin to running an intellectual marathon. Those marathon runners (namely young Chinese students) who cross the finish line with flying colors have a better chance of entering top-ranking universities, such as Peking University and Tsinghua University, which, as you might expect, often leads to higher-paying jobs. The Gaokao has serious implications for Chinese society, some claim, it can even boost someone's marriage prospects. It is held every year in June and in 2021 about 10.78 million students took the exam. The Gaokao can make or break young Chinese dreams, testing not only their discipline, resources, and resilience, but also their latent mental faculties. China has a well-educated population, maybe the most educated in all of China's history, which is both a challenge and an opportunity that likely requires sufficient compensation and lucrative salaries to motivate. Poor performance in the exam can potentially limit an individual to low-wage occupations or even perpetuate cycles of poverty. The exam is more than an academic hurdle; it is a significant gateway within China's socioeconomic landscape. Thus, in the race for salaries in China, the starting gun is fired long before one enters the workforce.?

The 'Hukou' system, China's unique household registration policy, is an essential factor influencing the Chinese labor market and salary structures. It serves as a domestic passport, impacting an individual's employment, residence, and even dependents' healthcare and education. A Hukou can be categorized as either rural or urban, each carrying its own benefits and constraints. Notably, while rural Hukou holders can own land in rural areas, their access to high-paying urban jobs can be limited. The Hukou system essentially manages internal migration — a significant force in China's socioeconomic landscape. It may be credited with preventing over-urbanization that could strain city infrastructures or generate reclining slums. According to the NBSC, In 2021, there were approximately 292 million rural migrant workers, comprising more than a third of the workforce. Yet, their earnings and social protections were typically less than those with an urban Hukou, highlighting the salary disparities created by the Hukou system, an area poised for reform. Reportedly, Beijing and Shanghai have the toughest Hukou regulations.

Adding to this, the historical 'Danwei' or work unit system, once an integral part of an individual's livelihood, and social and economic life, continues to ghost China's socio-economic landscape. Although it's largely dismantled and does not directly influence current salary structures, especially among younger employees and the emergent private sector, its remnants can still be seen in the older generation and some state-owned enterprises. Understanding these systems, particularly for someone outside of China, can be difficult and yet essential to draw a realistic picture of China's labor market.

In China, there is a single labor union federation, the All-China Federation of Trade Unions (ACFTU). Although unions are legally acknowledged in the country's labor law, the ACFTU's role in shaping China's salary landscape appears to be less prominent. This might be attributed to the union's broad mandate which encompasses various aspects of workers' welfare beyond wage negotiations.

China's salary policies are as complex as they are diverse, reflecting the complexity of its labor market. Much like other major economies, these policies encompass a fixed base salary, allowances, and performance-based pay. However, there are distinct features that set China apart, namely the Chinese New Year (CNY) bonus and the 13th-month bonus. In a typical pattern observed elsewhere, a Chinese annual salary is typically split into thirteen payments instead of twelve, with the last two installments paid together in the 12th month—a practice that adds an element of culture to the payroll. The CNY bonus, traditionally delivered in cash inside a 'red envelope,' is a deeply rooted element of Chinese remuneration culture. This bonus, typically granted in January or February of each year, adds a festive dimension to the country's compensation practices. In terms of allowances and benefits, there is a wide range of provisions spanning from transportation to meals, consistent with global norms. Yet, the Chinese corporate culture has its unique facets, with a pronounced emphasis on seniority, reflecting tenure's impact on pay. Historically, there has been limited labor mobility across employers within China, a trend attributable to a restrictive environment. However, as the country modernizes its labor market, these patterns are rapidly evolving. Today, employees have greater flexibility to move between sectors and regions, creating dynamic shifts in the Chinese labor market.

China operates under a progressive income tax system, taxing income that exceeds 5,000 yuan (about 2,611 SAR) at rates from 3% to 45%. The highest tax bracket applies to earnings over 80,000 yuan (around 41,779 SAR). Employers are required to handle the remittance of these income taxes. When it comes to annual leave, China's labor law sets entitlements based on an employee's years of service. Workers with 1 to 10 years of service receive five days of leave per year; those with 10 to 20 years earn ten days; and those with over 20 years of service are entitled to fifteen days. These provisions contrast sharply with countries like Saudi Arabia, where employees enjoy 21 to 30 days of leave per year as soon as 5 years of service. The Chinese social security system mandates that employees contribute 17.5% (this figure sits at 9.75% in Saudi Arabia for nationals) of their deductible income towards benefits such as pensions, medical care, and housing. An intriguing element of this scheme is the housing provident fund (HPF), a 7% contribution (matched by employers) designed to facilitate homeownership among Chinese workers. For their part, employers are required to remit 35.5% of their payroll for social security and statutory benefits. China's retirement age is one of the lowest globally, set at 60 for men, 55 for professional women, and a mere 50 for women working in factories. The working age in China is 16 years of age.

To conclude, salary determinants in China are not restricted to mere job roles and qualifications. They are intertwined with a multifaceted web of historical, societal, and institutional aspects. The distinct nature of China's labor market, with its immense scope, sectoral diversity, and urban-rural divide, undeniably contributes to the salary discrepancies observed across regions, sectors, and industries. As China's economic trajectory continues, these patterns are bound to evolve and bring forth new complexities. Numerous segments within the Chinese labor market are likely if not already, becoming highly lucrative and internationally competitive, departing from the stereotype of a 'cheap' labor force. The Chinese case serves as a stark reminder of the colossal task of equitably distributing the gains of economic prosperity and the elusive pursuit of balancing efficiency with fairness to optimize labor market incentives and collective well-being. Ultimately, China's shift from prioritizing equality to a rigorous focus on efficiency has not only defined its global economic role but has also fostered a vibrant and diverse labor market, as diverse as China's geography.

Sources used

For the majority of insights and statistics, described in this article, I referred to the official 2022 yearbook compiled by the National Bureau of Statistics of China. You can visit the same source by following the below link:

https://www.stats.gov.cn/sj/ndsj/2022/indexeh.htm

You can also follow the below link to access Michael Page's China salary report:

In addition to the sources I directly linked in the article, a small number of insights required independent searches and readings including news articles and special guides on China's labor market, salary structures, pay policies and labor law. If you needed to verify these details or wanted to know more you can directly look them up online.