Minimal Wage Increased in Eastern China Fuels Speculation of Inflation, Says Tortola Capital Analyst

Feb. 9, 2010 - PRLog -- Eastern Jiangsu province raised its monthly minimum wage rate 13 per cent to Rmb960 ($140) last week. It was the first time the region, which exports more than Brazil and South Africa combined, had been adjusted the rate in two years, reports Henry J. Marshall, President and CEO of Tortola Capital.

The potential round of minimum wage increases comes amid indicators that inflationary pressures are showing up in the Chinese economy after a rapid recovery in the second half of 2009, fuelled by a huge government stimulus programme. Government officials are debating whether to curb the pace of new loans and begin appreciating the currency to dampen inflationary expectations.

A decision by the province that is China’s second-biggest exporter to raise minimum wage rates has heightened expectations that other provinces and cities will soon follow, just as the central government’s attention is shifting from economic stimulus to rising inflation. “This could be a red flag about wage inflation,” reports Marshall, citing Arthur Kroeber, editor of China Economic Quarterly. “Inflation in China is becoming systemic because of rising wages caused by a tighter labour market.”