After several years of volatility, China's economy is entering a period of stability. This is causing employers to rethink their approach to salary distribution.
China's economy is showing signs of stability after several years of ups and downs. Last year, the country's economy grew at a rate of 5.2%, and it is projected to remain within the 4% range this year and in 2025 (Figure 1). Moreover, the economy is expected to outpace inflation for the next two years.
This economic stabilization is reflected in salary budget increases across industries in China, according to the WTW Salary Budget Planning Report – July edition. Every industry saw a 5.1% salary budget increase this year, and organizations are projecting 2025 to be similar (5%).
These numbers are close to the three industries that have the highest salary budget increases in 2024:
- Biopharmaceutical and life sciences (5.5%)
- Consumer products and retail (5.5%)
- Technology, media and gaming (5.1%)
However, the gap in salary-increase rates among industries widened this year. From only 1% in 2023, the difference among the industries with the highest and lowest salary-increase rates doubled to 2% in 2024 and is likely to remain at 2% in 2025 (Figure 2).
We also are seeing a general pattern of transition for most organizations in China. The salary budget increase rate slightly decreased (-0.7%) from 2023 to 2024 in most industries. This rate is likely to remain stable or will gradually decrease in 2025 for most sectors. The biopharmaceutical and life sciences (BPLS) is an exception, as this sector is projected to increase slightly (0.1%) in 2025.
These changes in salary budget increase rates reflect increased diversity in how organizations in different sectors are managing their budgets, with some spending more and others managing cost constraints.
Organizations rethink salary distribution
An examination of 2023 employee compensation data in Shanghai companies shows that many organizations are revising their approach to salary distribution. The market movement for total guaranteed compensation (TGC) increased by an average of 3.8%. However, roles in lower grades enjoyed higher compensation budgets and increased market movements.
Salary budget increases more than tripled in roles for survey grade 9 (12%), making it the grade with the highest market movement. Survey grade 10 (SG10) and SG8 followed SG9 with budget increase rates at 6% and 5%, respectively. These findings demonstrate that employers are investing more in the cultivation and development of junior professionals.
Compared to 2022, the pay range for TGC (difference between the 75th and 25th percentiles) for all industries combined increased by 8%. However, the bonus range grew by 53%, indicating that Shanghai organizations are acknowledging and distinguishing between employees' individual performance.
Salary increases will continue to vary across industries
Biopharmaceutical and life sciences
A heightened focus on healthcare after the pandemic gave considerable advantage to the BPLS industry. The pharmaceutical sector expanded rapidly with increased profitability and salary budgets.
Salary budget increase rates also have consistently outperformed other industries in recent years, and they are stabilizing between 5.5% to 6%. Clinical development, marketing and medical affairs were the most in-demand functions in first quarter 2024, according to HR OmniSight, an interactive platform that provides compensation market trends and workforce effectiveness information in China.
Consumer products and retail
The 5.5% salary budget increase rate in the consumer products and retail sector is a close second to BPLS. Digitalization is a primary factor for this rate, as the 2024 Consumer Industry Pay Action Pulse Survey found that 46% of industry organizations have established online sales channels. Many consumer product organizations have developed a strategic balance between their online and offline sales channels, thus propelling the industry's growth and recovery from recent disruptions.
Technology, media and gaming (TMG)
The TMG industry saw 5.1% actual 2024 salary budget increase that is projected to decrease to 5% in 2025. Based on data from annual reports for Chinese companies, the average revenue per capita for TMG companies decreased by 4.5% in 2023, and companies are being cautious about their budget decisions because of weaker financial results. However, in-demand roles still drive an increased financial investment. For example, the actual total annual compensation for career level P3 data science and business intelligence increased by 28% in 2023 compared to 2022.
Energy and natural resources (ENR)
The actual salary budget increase rate in ENR likely will remain stable at 5% this year and in 2025. Industry employers are emphasizing sales roles in their salary distribution, as 15.4% of compensation resources are allocated to sales, distantly followed by engineering (8.9%) and supply chain and logistics (6.7%).
Financial services
Organizations in financial services saw their salary budget increase rate drop to 4% this year. Additionally, the actual performance bonus as a percentage of base salary also decreased by 6.4%, from 33.7% in 2023 to 27.3% in 2024.
Budget constraints have led many companies to take or plan for more non-monetary actions to retain talent: 58% of organizations are improving the employee experience, and 55% are increasing training opportunities. Some companies experiencing salary freezes or limited salary increases this year are optimistic about 2025, with a planned salary increase rate of 4.5%.
Real estate, construction and engineering
In 2024 and among all industries, the real estate, construction and engineering sector had the lowest salary budget increase at 3.5%. This reflects an increasingly cautious approach that industry organizations are adopting. This year, 18% of organizations chose to freeze salaries, nearly double the December 2023 projection of 9.4%.
General industry
This year, salary budget increases in China have remained at about 5% across all industries, marking an era of transformation. There is an increasing disparity in salary adjustments among industries, with some experiencing lower salary increase rates (3% to 4%) that are still fluctuating. As such, organizations need to monitor the salary dynamics of their respective sectors to make informed salary management decisions.
What employers can do
Clearly, different industries approach pay management in a variety of ways, typically in response to economic dynamics, competition for talent and limited budgets. Some organizations are choosing to allocate more resources to base salary, while others are emphasizing variable pay to encourage performance and value creation. Among organizations managing resource constraints, salary budget allocation differentials of two to three times between positions have decreased to one to two times between roles.
Digitization has had an affect on compensation, with tech roles (e.g., AI, machine learning) seeing double-digit salary growth. Additionally, pay for performance remains a hot topic. Given these factors, comprehensive compensation data is crucial for employers to make informed pay decisions.
We know that no two companies are the same; each has its own story. As such, organizations should consider full compensation reviews, whether for all employees or specific employee groups. This provides view of your organization's approach to pay developed through historical data analysis and external benchmarking. With this information available, you can establish your organization's true market position and determine the HR direction that fits your unique needs.
As China's salary increase rates hover around 5%, vigilance against cognitive inertia is crucial. HR needs to modernize their approach to total rewards management, basing decisions on reliable data to help adapt to a new environment. As always, communicating these changes in a timely manner to employees will support and align the workforce's mindset and expectations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.