South China Manufacturers Expect Sharp Spike in Wages Due To New Policies And Regional Demand

Manufacturers in southern China are planning for a significant uptick in wages this year thanks to the government's recent minimum wage increase and a continuing shortage of skilled workers.

Details in Standard Chartered Bank's (LSE: STAN) new study show how a combination of wage policy, labor negotiations and insurance payment enforcement is creating a sharp rise in worker wage demands and monthly take-home pay.

The bank, which operates in Asia, Africa and the Middle East, surveyed manufacturing companies in the Pearl River Delta near Hong Kong, one of China's most robust economic regions.

"Manufacturing wages in the PRD are expected to rise 9.2 percent this year," the report states, "faster than the 7.6 percent rate of growth respondents reported for 2012 wages."

The Chinese government is stepping up enforcement of laws that require employers to pay all types of social insurance for health, pension, worker safety, maternity and housing. When fully implemented, these add up to serious new costs for employers.

A majority of the 302 respondents indicate that output per worker has risen faster than wages, which works in favor of the companies. Beyond wages, orders appear to be improving, and Chinese yuan appreciation expectations are back.

The survey was conducted in February 2013 after the Lunar New Year holiday, when migrant workers return to work from from their homes in the interior.