Widespread wage growth in China is forcing some smaller manufacturers out of business, but is crucial to driving the economy up the value chain, the country's top labour official said on Tuesday.
Minimum wages rose by a nationwide average of 24 per cent last year, while the average monthly salary for the country's army of migrant labourers rose 13 per cent to 1,690 yuan, Minister of Human Resources and Social Security Yin Weimin said.
That, together with the rising cost of raw materials, is squeezing the already thin profit margins of small Chinese firms, particularly those engaged in the processing trade, Yin told a news briefing held during China's annual session of parliament.
However, he said the impact was not all bad.
"The rise in labour costs will force us to reform our economy, adjust the industrial structure and appropriately move factories (inland). That is not a bad thing," Yin said.
Six Chinese cities and provinces, including Beijing and Zhejiang, have already raised minimum wage levels by around 20 per cent this year and more will follow, he said.
Many economists believe the underlying cause of increasing wages in China is slower growth of the country's vast labour pool, a trend that will become clearer with each passing year.
But Yin said that from his perspective, the biggest challenge was still job creation. He said 24 million urban residents and 8 million rural workers would enter the labour force this year.
"The employment situation is becoming more and more complicated," he said. "Labour shortages are specific to certain sectors and regions. Over-supply is still the basic problem in China's labour market."
Many of China's 150 million migrant workers are choosing to stay closer to their hometowns, where the cost of living is cheaper, as development spreads into the country's interior.
That is forcing factories along China's relatively affluent eastern coast to raise wages more steeply to attract employees.
The start of the year is always a nervous period for factory owners, as they wait to see whether workers will come back after the Lunar New Year holiday. Most migrants have already returned, easing concerns about a labour shortage, Yin said.