(BEIJING) South China's Guangdong province is the latest area in the nation to unveil plans to raise wages, state media said yesterday, a move economists worry runs counter to efforts to rein in inflation.
Guangdong provincial labour authorities said in a 2008 plan that they aimed to establish a regular salary increase system and raise wages of all employees in the region by 12 per cent or more this year, the China Youth Daily reported.
Other areas in China have announced similar policies, including the financial hub of Shanghai, where a salary rise guideline for this year has called on companies to lift employee wages by 5 to 16 per cent.
This is meant to help households, especially low- income families, cope with the country's surging inflation, which has fuelled government fears of potential social unrest.
China's consumer price index rose 8 per cent in the first quarter. In February, it climbed to 8.7 per cent, the highest in nearly 12 years, before easing to 8.3 per cent in March.
But analysts have voiced concern that salary hikes risk exacerbating the inflation problem that they are supposed to alleviate. 'Salary rises are certainly contributing to inflation,' said Chen Xingdong, an economist with BNP Paribas in Beijing.
If companies are told to pay higher wages, they may have to raise their prices to stay out of the red, the economists argued, warning this could be the beginning of a vicious cycle.
'The problem will get worse if salaries and price rises take turns,' said Ma Qing, a Beijing-based analyst with the think tank CEB Monitor Group.
The Chinese government has signalled growing concern about the ways in which rising prices might adversely affect the poorest in society.
Since January, it has resorted to freezing price hikes on key consumer items like grain, edible oil, meat, milk and liquefied petroleum gas in order to keep them affordable for most families.
Wage rises may be meant to do the same, but economists warned they could actually lead to more social tensions by widening income disparities.
This is because wage rises by decree are likely to benefit mainly government employees, while blue-collar workers in private companies may get left behind. -- AFP
This article was first published in The Business Times on May 8, 2008
