Summary of Key Points
The wages in the small towns of Jiangsu, Zhejiang, and Shanghai have not reached a “collapse” level, but they are indeed stuck in an awkward position. Statistical data shows that residents’ incomes are still increasing. However, in most industries where ordinary people work, such as traditional foreign trade manufacturing and general services, wages have either not increased or have decreased due to reasons such as skyrocketing freight costs, differentiated order structures, and declining profits. This creates a contradiction where “statistical figures show growth, but real incomes feel tight.” The essence of this situation is that we are in a period of industrial transformation. The growth of emerging industries has not benefited the majority of people, while the profits of traditional industries have been squeezed, leading to a stagnation in the income growth of ordinary workers.
1. Freight Costs Have Soared, Eroding Corporate Profits
In August this year, the price of a 40-foot container shipped from the Shanghai Port to the Middle East rose to $10,200, an increase of over $3,000 compared to half a month ago, and a year-on-year increase of 287%. What does this mean? The cost of just one container consumes the entire profit of many small factories. For example, in the furniture industry in Zhejiang, production increased by 7% in the first half of the year, but revenue only increased by 2.2%, while profits fell by 66%. Freight and raw material costs keep rising, and product prices cannot be increased, resulting in all the money being swallowed up by costs. The profits of the national furniture manufacturing industry also fell by 52.7%, and profits in traditional industries such as non-metallic minerals and wood processing have also declined significantly. Naturally, wages in these industries have not increased.
2. Export Growth Is There, but It Doesn’t Help Small Factories
Jiangsu and Zhejiang both saw decent export growth in the first half of the year (9.2% and 24.8% respectively), but the growth came from “new products” such as electric vehicles, lithium batteries, robots, as well as high-tech products like ships and new materials. For instance, high-tech product exports in Zhejiang accounted for only 9.3%, with the remaining 90% coming from traditional products like hardware, knitting, and home textiles. Orders for these traditional products have either been taken by Vietnam (Vietnam’s wood exports increased by 4.9%) or are being sold at reduced prices in the US market (US imports of home textiles decreased by 12.7%, while ours increased by 13.2%), resulting in very thin profits. Factories in small towns that produce hardware and home textiles cannot benefit from the growth of emerging industries; with few orders and low profits, how can wages increase?
3. More Production, but Less Profit
Taking the furniture industry in Zhejiang as an example, production increased by 7% in the first half of the year, but operating costs rose by 3.7%, and financial expenses (loan interest, exchange rate losses) increased by 282%! Profits dropped by two-thirds. Why? Raw material prices have risen (industrial purchase prices increased by 2.5%), but factory prices have not (only increased by 0.6%). Coupled with freight and capital costs, companies are basically “losing money while still operating.” Factories dare not lay off employees, nor do they hire new ones or increase wages, so the income of ordinary workers remains stagnant. Those small factories that cannot withstand the pressure simply close down and do not appear in the statistical data, making the real situation even worse than the numbers suggest.
4. The Service Industry Accounts for a Large Proportion, but Ordinary Workers Benefit Little
The service industry accounts for over 55% of the economy in Jiangsu and Zhejiang (59.8% in Zhejiang specifically). However, the growth is in high-end sectors such as finance, software, and business services, with most jobs located in places like Hangzhou’s Future Science and Technology City and Shanghai’s Lujiazui. The service industry in small towns consists mainly of catering, retail, and logistics, which are tied to the orders of nearby factories. If factories have few orders, workers have no money to spend, and the service industry’s business is sluggish, wages naturally do not increase. For example, retail sales in Shanghai turned negative in the first half of the year, and although they increased by 3% in Zhejiang, the income of ordinary service industry workers is still tight.
5. Different Industries in Jiangsu and Zhejiang: Some Can Survive, Others Cannot
Most counties in Zhejiang have traditional industrial clusters (such as textiles and furniture), which have lower technological content and are more vulnerable to profit squeezes. In contrast, counties in Jiangsu have a stronger focus on technology-based clusters, such as Kunshan, where the electronics information industry accounts for over 60% of the economy, and high-tech output accounts for 51.8%. They have even established smart computing centers to attract additional investment. Textile companies in Wujiang are moving up the value chain (for example, Hengli Group is involved in refining and heavy manufacturing). In these areas that have transformed early, company profits are stable, and wages can remain steady. In contrast, those that only engage in manufacturing and compete on low prices are stuck with stagnant wages.
Conclusion
Wages in the small towns of Jiangsu and Zhejiang have not collapsed, but the current situation is quite uncomfortable: the statistical figures look good, but the income of most ordinary workers has not increased; in fact, it has even decreased. This is a necessary part of industrial transformation. Emerging industries are growing, but they have not yet benefited everyone, while traditional industries are being squeezed and need to move up the value chain. There is no quick fix for this transformation. Only those areas that can seize opportunities for technological and industrial upgrading will see hope for wage increases in the future.