China is losing its Labour-Cost Competitiveness to Emerging ASEAN Economies

May 10, 201610:19 am1143 views

Base salaries among emerging economies in the Association of South East Asian Nations (ASEAN) are substantially lower than those in mainland China, which is losing its labour-cost competitiveness to them, according to new research by leading global professional services company Willis Towers Watson.

China’s base salaries across all job grades are between 5% and 44% higher than in Indonesia, which is the most expensive labour market among the emerging ASEAN economies (including the Philippines, Vietnam, Malaysia, Thailand and Indonesia) covered in the research. The report also covers Singapore, but this market is regarded as a developed economy.

The findings in the Asia Pacific section of Willis Towers Watson’s 2015/2016 Global 50 Remuneration Planning Report enables cross-country pay competitiveness and draws comparisons across the region, by providing base salary information using a consistent framework for job levels. The report also sheds light on the impact of currency movements on base salaries in U.S. dollar terms.

Furthermore, the report revealed that entry-level white-collar professionals in China receive, on an average, an annual base salary of approximately US$21,000, approximately 30% more than their peers in Indonesia, who receive approximately US$16,000.

At the professional and middle management levels, average base salaries in Vietnam and the Philippines are the lowest in ASEAN and therefore lag far behind those of China. For example, average base salaries at the professional level in China are 1.9 to 2.2 times those of the Philippines and Vietnam.

The largest differentiator is at the middle management level, with China paying 44% more than Indonesia, a gap that narrows to 28% and 5% at the senior management and top management levels, respectively.

“The lower salaries in these ASEAN countries give them a competitive edge and there’s evidence that it is leading companies to reconsider where they locate operations once based in China, where an aging population and shrinking workforce suggest salaries will remain higher,” said Sambhav Rakyan, Data Services Practice Leader, Asia Pacific at Willis Towers Watson.

“China is focusing more on R&D and more higher-end value-added production, which requires a higher skill-set. For that reason, along with proximity to other parts of the supply chain, although China is much more expensive, its more mature infrastructure and skilled workforce will likely continue to attract companies particularly when compared with ASEAN’s emerging economies.”

“The pay levels illustrate that low-cost labour is no longer a major selling point for China as it seeks to attract foreign investment. If Indonesia, the most expensive country in emerging ASEAN, is still cheaper than China, clearly emerging ASEAN becomes a more compelling human resources proposition from a labour cost perspective,” said Rakyan.

Among the emerging ASEAN countries, Malaysia and Thailand are the lowest payers at the senior management and top management levels. For senior management, China pays approximately 1.9 times that of Malaysia, while for top management it pays 1.6 times that of Thailand.

Taiwan Lags on Senior and Top Management Pay

At the top management level, Taiwan pays the lowest in the Greater China region, with pay levels at just 62% and 47% of those in China and Hong Kong, respectively. More eye-catching though is that, compared with the emerging ASEAN countries, Taiwan pays approximately 65% of those in Indonesia and similar levels to the lowest paying country, Thailand.

For senior management, although Taiwan pays much more than the lowest paying ASEAN countries, such as Malaysia, the Philippines and Vietnam, it only pays approximately 81% that of Indonesia and 97% that of Thailand. However, at a professional level, the tables are turned to an extent with base salaries in Taiwan approximately 40% higher than in Indonesia.

“Taiwan has an adequate supply of qualified managers for senior and top management, whereas the availability of such managers is relatively low in ASEAN’s emerging countries and that’s why salaries in these markets are higher than in Taiwan. In addition, despite the lower base pay, performance-based variable bonuses tend to be higher in Taiwan compared to the other markets,” added Rakyan.

Singapore Base Salaries Remain Far Higher than in Greater China

Although Indonesia stands out among ASEAN’s emerging economies for having the highest base salaries, it lags far behind the most developed economy in the region, Singapore.

Across the job grades from professional level to top management, base salaries in Singapore are approximately 3%-10% higher than those of Hong Kong, which is the highest paying economy in Greater China.

Singapore pays 28% to 52% more than China, at the middle management to senior and top management levels. The largest gap is at the professional level where Singapore pays more than twice that of China.

“Singapore has always been a leading economy in the region. As it continues to enhance its competitiveness in the international arena, it wants to bring in top talent with knowledge of best practices from all over the world, so offering globally competitive salaries is an important part of that process,” Rakyan emphasised. “In terms of Greater China, Hong Kong has long been a hub for international talent; its gap with Singapore narrows once Hong Kong’s more favourable tax rates are taken into account.”

Rakyan also added that base salaries in China are likely to stay high to attract talent given that China is putting greater emphasis on quality and sustainability in its products and services. Furthermore, the integration of its financial markets with the rest of the world means that salaries in that sector will need to be globally competitive to attract and retain the best talent.

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