Yesterday I looked at China’s poorest people, and while they definitely work for a living they don’t really fall into the “working class” category because their incomes aren’t high enough at the moment. (That’s a scary thought isn’t it?)
When we talk about China’s working classes we mean mainly shop workers, factory workers and farmers who are getting paid what might euphemistically be described as a “living wage”. This is the biggest number of workers in China and it probably covers around 1 billion people give or take a few million.
These are the people whose lives have improved dramatically over the last 30 years or so in financial terms, but aren’t rich or even middle class in terms of their earnings.
The average wage of a Chinese working class person is 1,200 RMB a month which is about $190 at current exchange rates. The income bracket for this class is between 700 RMB (just over $100) and 3,000 RMB (about $475) a month.
When you consider that in the UK the minimum wage is 6 pounds and eight pence an hour, which would be $9.60, a British employee doing the same level of work as a Chinese employee (which tends to be a 60 hour week) would expect a minimum return of 15,735 RMB in a month. That’s right you can employ 13.11 perfectly average Chinese working class people for the costs of one British employee on a minimum wage.
This of course makes manufacturing in China a very interesting proposition for Western companies, while raw material costs are generally fixed, labor costs can contribute up to 1/3rd of manufacturing costs and they can be slashed by moving jobs overseas. This inevitably leads to the accusation, from Western countries and their people, that Chinese people are stealing their jobs.
They’re wrong of course – the people stealing the jobs from Western countries are Westerners. If consumers weren’t endlessly chasing the lowest price, it wouldn’t require off shoring of manufacturing to make businesses competitive. The Chinese person making your clothes, consumer goods, etc. is happy that his economic situation is improving (and it is improving 20 years ago my wife worked full-time in a factory for 40 RMB a month! And back then that was worth less than $1!) but he’s not out to steal someone else’s job, that’s a concerted effort by Western companies to drive up margins by cutting down on costs.
As you may have noticed that average salary of $190 isn’t very much money, many Westerners spend more than that on groceries per month. In China it goes a bit further than it does in the West but not so much further that $190 is a lot of money. It’s one of the main reasons that opportunities to make a fortune in China are often illusory. Chinese people living on these wages aren’t big spenders – firstly because they can’t afford to be, and secondly because not only do they need to cover today’s costs they also need to save for the future. There’s no social security in China of any real importance so when you get old – you need money in the bank to pay for your modest life and to cover the ever-growing medical bills.
And it’s this propensity to save that explains a lot of the current global financial crisis and why China often appears to be richer than the figures suggest. Before we check in with China’s middle classes and the mega-rich, tomorrow I’m going to look at why saving in China is hitting everyone in the pocket book and why those big budget deficits in the West are an essential part of keeping the economy running everywhere.