Every year since the mid-1990s, Chinese local governments have issued guidelines to state-run and private enterprises specifying upper and lower bounds for permissible wage increases. But the bureaucrats who crafted these restrictions had the foresight to exempt their own salaries. The result: civil servants' wages more than doubled as a share of China's payroll between 1978 and 2024, while factory workers saw their share steadily shrink.
MIT economist Yasheng Huang has detailed this mechanism in a Foreign Affairs analysis, drawing on decades of Chinese government data, "Hvylya" reports.
A 1997 directive from the Beijing municipal government is particularly revealing. It stipulated that wage growth should stay below productivity growth, with firms facing "severe punishment" for unauthorized increases beyond state guidelines. Wage hikes near the upper bound were allowed only for firms with excellent performance. Poorly performing firms could freeze wages or even cut them below the lower bound.
Huang described this as a system that "put a ceiling on wage growth without providing a floor" - a directive issued, paradoxically, by an agency tasked with protecting Chinese workers.
Since 2010, local governments have relaxed these guidelines somewhat, but decades of wage compression during China's boom years continue to bite. With high youth unemployment and widespread reports of firms cutting or withholding wages, Huang argued that it is unclear whether Chinese firms could reverse the damage even if the government wanted them to.
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