Widespread pay cuts in China drive down consumer spending, fuel deflationary fears

American Military News

5 hours ago

This article was originally published by Radio Free Asia and is reprinted with permission.
Chinese workers across industries are facing salary cuts and layoffs as mounting economic woes engulf China's public and private sectors, sources tell Radio Free Asia.
That's forcing families to slash spending. It is also triggering deflationary concerns as businesses enter into desperate price wars.
From Beijing's central government offices to provincial agencies across China, as well as major state-owned enterprises like investment bank China International Capital Corp (CICC), employees have faced substantial pay reductions that have reduced household budgets and fundamentally altered consumer spending patterns.
'I used to earn 6,000 yuan (or US$835) a month but now I only get 5,000 yuan (US$696), and some allowances have been removed too,' Li, an employee at a Beijing-based state-owned enterprise, told RFA. Like many others interviewed for this story, Li wanted to be identified by a single name for safety reasons.
'Some people in my wife's company have also had their salaries cut and some have received layoff notices, saying they will only work until July-end,' said Li.
In Zhejiang, regarded one of China's most prosperous provinces, ordinary civil servants have had their annual salaries slashed by 50,000 to 60,000 yuan (or US$6,964-US$8,356) this year, Zheng, a resident of the province's Zhuji city, told RFA.
Civil servants in more senior positions have seen deeper reductions to their annual pay of around 80,000 to 100,000 yuan (or US$11100-US$13900) and others in still higher levels by about 150,000 yuan (or US$20,890), Zheng said.
'There was already a reduction two years ago. This year's salary is reduced again,' he added.
The cuts indicate the financial strain on local governments, as domestic economic challenges lead to tepid consumer demand and price pressures. That's impacting businesses' ability to pay taxes. Additionally, local governments are grappling with a decline in land transfer sales revenue amid weak property market demand.
For 2025, China's provincial regions have set cautious fiscal revenue estimates, with an average growth target of 2.8% for their general public budget revenue, which is the sum of tax and non-tax revenue. That's down 1.6 percentage points from 2024's target average, as revenue generation challenges continue to weigh on local governments, economists say.
For example, in Shandong, many real estate projects have been suspended for the past two years with no land sales recorded, impacting the local government's already large fiscal debt levels, said one blogger based in the northeastern coastal province, according to texts and pictures posted on X account @whyyoutouzhele, also known as 'Mr. Li is not your teacher,' who posts content on that platform to circumvent Chinese government censorship.
Another Shandong resident, named Geng, told RFA, that county and township level officials in the province have had their salaries slashed by 30%, with payments frequently delayed.
'Now the county-level finances have been depleted, and the benefits for police officers have also been reduced,' Geng, a resident of Qingdao city, said.
Police officers in many other regions have also seen significant cuts to their annual salaries, down to 200,000 yuan (US$27,856) this year from 300,000 yuan (US$41,784) a year ago, said a legal professional based in southeast China's Guangdong province.
Employees of major Chinese state-owned commercial enterprises, such as investment bank CICC and China Development Bank, have not been spared either, with companies executing cost-cutting 'optimization measures,' including wage reductions and layoffs, amid a government campaign to cap pay ceilings at financial institutions and bring it more on par with other civil servants
But an employee at CICC said the salary cuts have affected virtually all staff levels. 'Almost everyone in our building has had their salaries cut. The lowest-level employees have also had their salaries cut by 5%. I heard that the reductions for mid- and high-paid employees are even greater,' he said.
According to a report from Beijing-based Caixin media group, 27 government-owned financial enterprises have begun to implement salary cuts, mainly aimed at reaching the goal of capping annual income of staff at these firms at 1 million yuan (US$139,180), as Beijing moves forward with a campaign, known as 'common prosperity' drive, to narrow income and wealth inequality.
Ma, who works at a Beijing-based state-owned enterprise, said his company has already conducted two rounds of salary cuts and layoffs since 2023. 'The basic salary has shrunk, and the company has also cancelled meal and transportation subsidies,' Ma said. 'The work that used to be done by two or three people now has to be done by one person.'
Another employee of a state-owned bank based in Guangdong's Dongguan city said his salary had been reduced by 30% in the past two years, with performance bonuses 'almost completely cut.'
The salary reductions have sparked a sharp decline in consumer spending, creating deflationary pressures across the economy, as businesses engage in aggressive price cutting in a desperate bid to attract cash-strapped consumers.
'The price war has become the latest struggle for many small businesses,' Meng, a Shandong resident, told RFA.
'For example, the good ribs here only sell for 12 yuan (or US$1.67) a pound, and the purchase price of live pigs is only a few yuan … restaurants are desperately offering discounts to survive. This is not competition, but dragging each other down.'
In Beijing, small supermarkets are 'slashing prices like crazy,' said Su, a resident of the city's Haidian District. 'I'm afraid they will all go bankrupt in a few months at this rate.'
In her own home too, Su has observed major changes in spending patterns, with fewer family gatherings and less frequent restaurant meals, as household budgets tighten.
Economist Wu Qinxue warned that the current situation highlights continued decline in local governments' fiscal levels and is not just a temporary belt-tightening.
'The (local) government has no money to manage people, and no one is willing to spend money,' he said. 'From salary cuts within the system to the collapse of consumption among ordinary people, the entire society is quietly forming a top-down (consumer belt-) 'tightening chain.''