Labor authorities in China's Guangdong province announced recently that province-wide minimum wage levels will soon be raised by as much as 30%. Current regulations divide the province into five minimum wage categories, ranging from 450 yuan (about US$65.58) per month in some rural areas to 780 yuan (about US$113.67) per month in developed areas.

Guangdong Province's special economic zone of Shenzhen, which borders Hong Kong, has already implemented provisions for minimum wage increases effective July 1, 2008. The minimum wage will be 1,000 yuan (about US$145.73) per month in Shenzhen's downtown and 900 yuan (about US$131.16) per month in the suburbs. Minimum wage in Shanghai is currently 960 yuan per month (effective April 1, 2008). The rate was raised this week in Beijing from 730 yuan to 800 yuan per month.

The minimum wage increases throughout China are partly the result of rising consumer prices. Inflation in China has been over 7% for the past several months, reaching a 12-year high of 8.5% in April 2008. By comparison, the 2007 inflation rate was only 4.8%.

The combination of minimum wage increases, more stringent labor regulations, and a weakening dollar have proven costly for multinational companies (MNCs) operating in China. Foreign manufacturing companies operating in the heavily industrialized Guangdong Province have been especially hard hit. A recent survey of MNC executives showed that only around half expect to increase hiring in China over the next year, while nearly 15% expect a recession in China during the next 6 months. Three-quarters of those surveyed also cited recruiting and retention as the greatest current challenges to doing business in China.