Recruiting in China

CHINA has cut the maximum allowed margin of wage rises in state-owned companies for this year to keep pay growth, especially in monopolistic sectors.

State enterprises which paid employees twice as much as the average level of local urban wages in 2005 can increase total pay not more than 0.6 percent for each percentage of profit growth this year, according to a circular on the Website of the Ministry of Labor and Social Security late on Wednesday. The original cap was 0.75 percent.

The ministry said the government will stringently inspect the linkage between corporate profits and wage payments in state-owned companies where wages are too high and increasing too fast.

"Such a link-up mechanism is of great importance to help create a healthy relationship between growth in wages and profits," the circular said.

The adjustment came amid a backdrop of intense public calls, starting in the second half of this year, for a wage reform in state firms where employees are considered outrageously overpaid than the average worker, widening the gap between the rich and poor segments of society.

"The latest move is a step forward to increase state control in reining in wage growth," said Hou Ning, a columnist for several business newspapers. "But I think there is still a long way to go."

Workers in state companies, typically in highly regulated industries such as telecommunications, energy and tobacco, usually earn much more than they deserve based on the profit they produce.

The monopolistic nature generates complacency resulting in these state firms operating at lower efficiency than global counterparts, thanks to competition. State firms are accused of contributing lower profit while holding a huge amount of state assets and reserves.

Several reports and surveys have indicated average wage for employees in monopolistic industries is up to three times the national average. The gap could be widened to as much as 10 fold if non-wage income like bonuses and pensions are included.