Raising Minimum Wage Vs Raising The Yuan

We have been wondering for some days about the economic implications of a scattershot of endings of last year’s freeze in minimum wages. Jiangsu is lifting its minimum wage to 960 yuan a month from 850 yuan a month, which will put it on par with Shanghai and Hangzhou. Reports say Beijing will follow suit on April 1. Zhejiang and Sichuan are two other provinces said to be considering raising monthly minimum wage rates, as are cities such as Chongqing, Guangzhou and Dongguan.

The recovery in the global economy has brought an end to China’s export slump and factories in the East are seemingly facing labor shortages. At the same time, last year’s stimulus package promoted jobs growth in the center and West of the country, giving migrant workers who had returned home when export jobs disappeared, one less reason to head back east again. So there is an obvious supply and demand pull to rising wages. But that will work through to higher export prices, making Chinese goods less competitive and thus slowing the recovery in exports.

So what is the policy imperative? Could it be that Beijing is managing the recovery in exports so they don’t suddenly swell the internationally sensitive trade surplus, and at the same time putting more money in workers pockets to boost domestic consumption. That is a politically more attractive alternative — at least internally — than letting the exchange rate bear the burden of the adjustment.

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