How China Deals With Deflation: A 60% Pay Raise For 39 Million Public Workers
While the rest of the developed world, flooded with re-exported deflation as a result of now ubiquitous money printing, scrambles to print even more money in hopes of stimulating the economy when all it is doing is accelerating a closed deflationary loop (at least until the infamous monetary helicopter drop), China – which still has the most centrally-planned economy in the world even if the US is rapidly catching up – has a more novel way of dealing with the threat of deflation: a massive wage hike across the board for all public workers. Two days ago, at a press conference, the Chinese vice minister of human resources and social security Hu Xiaoyi said that China’s 39 million civil servants and public workers will get a pay raise of at least 60% of their base salaries as part of pension plan overhaul.
The hope is that just like in the US where the Federal government would love to be able to do just that and more, surging wages would stimulate the Chinese economy which over the past year has had to content with the double whammy of surging bad loans and the collapse of shadow banking, as well as the burst housing market.
The pay raise “will make sure that the overall incomes for most of these workers will not decrease after the reform, and some of them could actually earn a bit more,” Ziaoyi said, even if he did not provide details of the plan, which will cover civil servants and public workers, such as teachers and doctors.
According to Caixin, top civil servants, including President Xi Jinping and Premier Li Keqiang, will see their monthly base salaries rise to 11,385 yuan from 7,020 yuan (to $1,833 from $1,130), starting in October. Of course, both are billionaires with hidden money around the world, but the raise is all about optics and boosting confidence. The base salaries of the lowest civil servants would more than double to 1,320 yuan. It is unclear if the plans Caixin saw are final.
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