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From Cover, issue no. 374, June 30 2008
Translated by Zuo Maohong
Original article: [Chinese]

Allowing workers to demand for a pay raise in line with inflation would be a key concept in China's latest round of salary reform.

The EO learned that in an effort to narrow income gaps, a draft of pay raise guidelines was being prepared and likely to be issued under the name of the State Council, China's cabinet, to highlight its importance.

This proposed guidelines has come at a time when the cost of living has been climbing steadily since last year, though the May Consumer Price Index (CPI) eased to 7.7% from the previos month's 8.5%. 

Apart from inflation-sensitive salaries, other recommendations in the draft included that of requiring private companies to set up collective agreement negotiation mechanisms; while public companies would consider pay raises based on business performance. It also suggested a minimum wage system.

Nine Articles on Salary Raises
The guidelines draft contained nine main articles to establish a mechanism for natural pay rise, and its drafting was spearheaded by the Human Resources and Social Securities Ministry (MOHRSS), the EO had learned.

With such a mechanism in place, workers' salaries would rise naturally in accordance with their companies' performance, as profit growth would be rationally and continuously distributed and reflected in pay rise for staff, explained Su Hainan, director of the Commission of Salary Studies under China Association for Labor Studies.

Though China's GDP per capita reached 2,000 dollars, statistics showed that salaries of employees in general remained low and grew slowly. A salary raise mechanism was proposed to improve social fairness and guarantee employees' rights to share corporate returns and fruits of social development, Su said.

Other government bodies involved in the drafting of the guidelines included the National Development and Reform Commission (NDRC), the State-owned Assets Administration and Supervision Commission (SASAC), the National Bureau of Statistics (NBS), and All China Federation of Trade Unions. The MOHRSS, which spearheaded the draft, was one of the so-called "superministries" born out of a round of government restructuring.announced this past March.

Some believed the guidelines was a result of the climbing consumer prices since last year. "No rise in pay means an actual fall in income, and might lead to serious social problems. For those with a low income, prices may rise to an unbearable level,"said an expert in the field who whished to remain anonymous.

Negotiations for Pay Rise
According to the guidelines, companies, mainly private ones, should gradually build up a collective salary negotiation system, and introduce the collective agreement within five years.

Collective negotiation refers to workers union representatives having the right to sign a salary agreement after negotiations with a company representative over a salary distribution system, such as various forms and levels of pay schemes.

Such negotiations have already evolved in China for some ten or so years. In reality, however, few employees dare to negotiate their salaries, and employers would rather not hold negotiations.

"The top priority for many employees is to keep their job, which is like their rice bowl. As for how much there should be in the bowl, they wouldn't dare to say a word, otherwise they might lose the bowl," said Su, adding that for an employer, salary negotiations would always mean giving up part of profits to staff.

By law, if one of the two parties proposes to negotiate, the other is obliged to respond, but no specific penalty for the absence of response has been prescribed yet.

Therefore, the guidelines mainly targeted private companies, as most of the low pay and low growth rate in salaries occurred in the private sector, especially labor-intensive industries. "In general, the average salary level of these companies is only about half of that of state-owned ones,"Su said.

According to an in-circle source, feasible measures to encourage salary negotiations included adding a clause into the Regulations on Corporate Salary, which was currently being drafted by the MOHRSS.

Management Level Vs Grassroots
Under the guidelines, the focus of salary reform for state-owned companies was salary distribution between the chiefs and common personnel, as huge income gaps between workers of different strata had long been a concern.

Last December, the State Assets Supervision and Administration Commission (SASAC) of Beijing issued guidelines on income distribution for public firms in the capital, requiring a pay raise among grassroot staff as pre-condition for salary increments among higher management.

The EO learned that a similar principle was adopted by the latest guidelines.

It was an attempt to balance the interests of the company, the higher management personnel, and low-level staff, said Su.

He added most public firms in China today adopted the yearly salary system, under which the bosses' incomes depended on the returns of the company. To increase their own income, Su said, these bosses would try to suppress salary growth among the grassroots.

In addition, the guidelines would also demand companies to formulate a reasonable salary ratio between management and grassroots employees. It would also require salary distribution in monopolized industries be more transparent, better managed, and cleared up gray income areas.

The EO learned that the guidelines also contain a clause saying the MOHRSS, based on analysis of macro economic data and indexes, would release at the end of each year a national pay raise reference guide for the following year.

In addition, each local government would also publish a local salary reference line in February. These references would serve as a basis for salary negotiations between companies and staff.

The salary reference line should take into consideration of changes in cost of living, according to the guidelines. If a company's operation remained smooth, it should provide a pay raise no lower than the growth rate of consumer prices, the guidelines added.

Meanwhile, the guidelines also called for national salary surveys and information disclosure so that salaries in certain industries would be open for reference. Salaries were also encouraged to be paid through bank accounts, and that a payment supervision system should be developed.

However, an expert in the field doubted the government's guidelines under draft could have a decisive impact.

He said the draft could demand a mechanism and grant workers union the right to negotiate. However, he added, employees, especially those with low income, were in a weak position to exert their rights and pressure their employers to hold negotiations.