Significant wage rises expected by German firms

German companies in China expect significant wage increases in 2013 as competition intensifies to retain qualified staff, especially blue-collar workers, in second-tier cities, the German Chamber of Commerce in China said on Thursday.

"German firms in China will see a wide range of wage increases in 2013," the chamber said in its Flash Survey on Wage Trends report, which polled 452 companies from March 4 to 11.

"While some companies don't plan to increase wages at all or only at very low levels, others are facing severe competition to retain qualified staff and need to substantially increase wages by up to 50 percent for some positions," it added.

Salaries for blue-collar workers are expected to increase 9.9 percent year-on-year on average in 2013, while the wages of white-collar workers are expected to increase 8.8 percent, the survey said.

German companies expected a wage increase of 8.1 percent year-on-year in 2012, compared with the 10.2 percent wage rise in 2011, the chamber said in its 2012 Annual Salary Survey Report conducted in September last year with 220 companies.

"The labor market remains tight, providing employees with good bargaining power for higher wages. This is especially the case for highly skilled employees. Qualified job candidates can easily realize wage rises of 20 to 40 percent when switching jobs," this year's report said.

"Traditional migrant workers continue to see the employment situation in western and central regions improve as GDP and wage growth outpace that of the coastal regions. After the growth slowdown in 2012, the economy is expected to accelerate in 2013, putting further pressure on already tight labor markets," it added.

Fan Jianping, chief economist at the State Information Center, a government think tank, said: "Chinese labor costs were undervalued in the past because of oversupply. But in recent years, blue-collar and skilled workers are in short supply."

The chamber's survey also found that wage rises in second-tier cities are increasing at a faster pace as the gap with first-tier cities narrows. And that trend is stronger in northern and southern regions.

Manufacturing wages are picking up faster than wages in the non-manufacturing or services sectors, which "typically have higher wage levels and find it harder to make productivity gains," said the report.

Overall export-oriented manufacturing companies reported plans for the highest wage increases, which may be explained by the fact that 57 percent of these companies are located in second-tier cities, according to the report.

"Wage increases have become the most serious issue to my company in addition to the renminbi appreciation. And profits are now smaller and smaller. Wages in my company will increase 6 to 9 percent this year and the rise will be maintained in the next three to five years with a slower pace," said Stefan Rosenbohm, technical director of Shenzhen Giesecke & Devrient Currency Automation Systems Co Ltd.

Overall, nearly half of the polled companies said that they have a "neutral" stance regarding the wage increases when considering productivity increases and the companies' performances. However, nearly 40 percent said that the wage increases are "high" or "very high".

"These results show that most firms can compensate for the near double-digit wage increases with productivity increases and/or healthy business growth. But companies which are experiencing difficulties will quickly feel the increasing costs affecting their profitability," said the report.