Inflation will hit wage hikes: Research

Average wages in China will rise by 8.85 percent in 2014, accelerating from this year but hit by possible higher inflation next year, research by Hay Group showed.

According to the research report, the average salary increase in the world's second-largest economy would be 8.4 percent in 2013.

"We would see an additional growth in wages next year, but the real rate will be lower than this year in case of an increasing CPI (Consumer Price Index, a measure of inflation)," said Wayne Chen, vice-president of the Philadelphia-based management consulting firm.

China's CPI grew 3.2 percent year-on-year in October, the second monthly increase in a row, and continued an upward trend over the first three quarters.

Lian Ping, chief economist at Bank of Communications Co, said inflation would stay above 3 percent in the fourth quarter and keep rising over the next year, ranging from 3 to 4 percent.

Under such pressure, the income disparity between executives and ordinary employees in China's first-tier cities, which already ranks the highest in the world, is also likely to be further increased.

"There is still abundant supply in the basic-level knowledge workforce, considering nearly 7 million college graduates, many of whom are still struggling to secure a job," Chen said.

"However, the prospering economy is in bad need of middle- to high-level management, and companies would rather offer high payments to hire such personnel," he said.

The report by Hay Group showed that in Asian offices, senior managers earned 14 times more than ordinary staff in 2012, the highest worldwide. The global average level was 8.4 times. Beijing and Shanghai were among the top 10 cities with the highest income gap, both above 18 times.

According to Chen, the salary of China's high-level management is now pretty close to that of those in developed countries, especially in Beijing Shanghai and Guangzhou, although the true ability of the managers is still far behind their Western counterparts.

Such wage increases don't necessarily raise the labor costs, so long as the growth in productivity exceeds that of salaries, said Chen. One good example is the telecom equipment maker Huawei Technologies Co Ltd, which has significantly increased the salaries for its entry-level staff.

"This is sharing of wealth. It's a good thing in a sense that it increases purchasing power.

"But facing an aging society, if the salary increase doesn't come along with a rise in productivity, how could we continue generating wealth?" Chen asked.

A bad example would be State-owned enterprises. According to Chen Ji, head of the industrial economic research at Capital University of Economics and Business, the income of SOE leaders can be a dozen times, or even higher, than that of basic-level staff and is still rising, despite their profitability falling.

Senior officials with the State-owned assets watchdog vowed that major steps to reform SOEs will be taken after the ongoing Third Plenum of the Communist Party of China's 18th Central Committee, which started on Saturday.

Hay Group's Chen said one key step in the reform would be organizational transformation.

"SOEs generally lack a performance-driven corporate culture and their rigid hierarchy system makes it hard to meet innovation requirements," he said. He explained there are also exceptions.

"Those who have carried out performance-driven reform, such as China Resources Co and Air China Co Ltd, which have reported strong growth and have boosted their ranking on the Fortune Global 500."

Later in the month, Hay Group will hold its international conference for the first time in Shanghai for further discussion on the issues surrounding organizational transformation.

The survey found Chinese employees generally have low commitment to their employers. More than half of them lack professional dedication.

According to Hay Group's survey, 15.84 percent of Chinese employees have chosen to quit their job so far in 2013.

"There are multiple reasons for this phenomenon," Chen said, explaining that salary is only part of it - but there are also other aspects such as involvement in company decisions, corporate culture and management ability, he said.