Cut Staff, or Cut Salaries?

"Raise pay? Impossible!" Zhang Qiang (pseudonym), who runs a large chemical business in Yantai, Shandong province, told the Economic Observer.

A sharp decline in export orders were forcing him to make the hard choice between cutting staff or compensation.

His plight was not unique: An EO investigation revealed that the overwhelming majority of Chinese firms were facing pressure to reduce their labor costs as a result of the global economic slide.


Nineteen years ago, Mr. Zhang resigned from his engineering post at a State-owned chemical company to set up a bleaching powder company in Shandong. His company's assets recently exceeded one billion yuan, and his products can be found in markets in Japan, Korea, Singapore, Europe and the US.

But Zhang said the pressure had lately reached unprecedented levels. "The main oversea clients have either gone broke or slash their orders, which is a big blow to our sales performance," said Mr Zhang, adding that his total export orders have already declined by nearly 35%.

He said that only when absolutely necessary he would cut salaries, starting with top managers down to the production line. "If I started with the production line wages first, it would affect morale too much and hurt product quality and safety."

The EO learned that the same trend was also manifesting itself in private smelter, cement, textile, logistics, construction and real estate industries.

"Most chemical fertilizer, plastics and other petrochemical-concerned industries are facing the same ordeal. Under such conditions, it’s not easy for companies to retain staff," Feng Shiliang, vice-general secretary of the China Petroleum and Chemical Industry Association, told the EO.

State-owned companies are also feeling the pressure.
Shanxi Yangchang Petroleum Group, a state-owned oil firm in Shanxi province, recently published a salary cut scheme according to one staff member who wishes to remain anonymous.

That staff member's salary was reduced by a few dozen yuan per month. He told EO that compared with other departments, he was much luckier, as salaries for staff in the Group's sale department were slashed by an average of 500 yuan per month.

Wuhan Iron and Steel Group, also a state-owned enterprise, cut salaries between 15% and 50% in order to reduce costs by 2.5 billion yuan in the fourth quarter.

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Author: Li Ping Kang Yi
Original Source: Economic Observer
Date Published: Dec 1 2008
Web Source: http://www.eeo.com.cn/ens//Industry/2008/12/03/122365.shtml
Date Accessed Online: 2008-12-04