Recently, rumors of a second wave of salary cuts for civil servants in Shenzhen, one of China’s first-class cities, have caused wide unrest and stress. The expected salary could decrease below 24,000 dollars, and workers are allegedly requested to sign a form to confirm that they ”agree” with the salary reduction. This severe economic downturn caused by a decrease in revenues and extreme epidemic prevention and control measures reportedly reflects that the good situation of China’s economy has become a thing of the past. 

Located in southern China, Shenzhen is one of the wealthiest cities in the world, and it is also known as China’s Silicon Valley. According to the local government’s website, the cỉty has a GDP of 474 billion dollars in 2021, higher than Austria’s 428 billion dollar GDP in the same year.

Last year, the first wage cut was when the Shenzhen government reduced wages from 45,000 to 37,500 dollars.

According to Chief Economist and Senior Statistician Xiaowei Macro, the economy has entered a weak cycle: consumption is sluggish, supply chains are disrupted, and production and demand have been greatly impacted. One reason is the impact of the epidemic on the economy. In April 2022, the national fiscal revenue had a sharp drop of 41.3% from the same period last year. 

The main reason for the decrease in civil servant salaries in Shenzhen is attributed to the decline in budget revenue during the period of economic adjustment and tight epidemic measures.

Zhihu account Xiaowei Macro also said the pay cuts are not only targeted at civil servants but also at teachers and other positions. Not only Shenzhen but also coastal cities such as Hangzhou, Suzhou, and Qingdao report the same situation.

He also said that the wave of pay cuts for civil servants started last year. It has spread to some of China’s wealthiest provinces. Especially in December, civil servants in Jiangsu, Zhejiang, Guangdong, Fujian, Shanghai and other regions received notices of salary reductions, respectively. The deduction is about 20-30%, but he thinks rumors of a wage cut below 24,000 dollars could be an exaggeration.

Netizen “Xile Yangchun,” who claims to be a Chinese teacher of a junior high school in Shenzhen, posted on Weibo on May 26 that the unit submitted a form that morning, asking employees to fill out. In principle, it claims that they will voluntarily reduce their salary. If they do not want a pay cut, they must clearly explain the reason.

The form’s content is as follows:

My total starting salary/my present salary is…yuan. Every month, I voluntarily reduce it to…yuan (including overtime and voluntary overtime). The new salary will be implemented as of May 2022.

At the bottom, an additional line reads, “If you do not want to reduce your salary, your reasons are…”

Wage cuts also highlight China’s sluggish economy

On April 27, 2022, the Statistics Bureau of Shenzhen Municipality released the economic development situation of Shenzhen for the first quarter of 2022. According to the Bureau’s data, the local economy grew by 2% (in the first quarter), hitting the lowest level in 42 years.

Weibo user “Geng Baixingjun” said the pay cuts would affect the local real estate market, giving a simple calculation that a pay cut leads to difficulty paying off a home loan.

The annual salary of Shenzhen’s civil servants is 45,000 dollars. Thus, the combined salary of two persons is 90,000 dollars. A house costs 900,000 dollars. Usually, the down payment is 270,000 dollars, which equals a five-year salary. Homebuyers still have 630,000 dollars in mortgage payments for 30 years. If wages drop to 37,500 dollars, they can still pay off the debt. But if their salary drops to 24,000 dollars, they won’t be able to repay the loan anymore.

Geng Baixingjun” said that most borrowers with unsecured loans are middle and low-level civil servants, and their average salary is lower than all civil servants”.

Xiaowei Macro pointed out that the pressure on civil servants with mortgages will increase sharply after the pay cut. Real estate is closely tied to the economy and household wealth, which will result in increased financial risk.

The most significant personal financial risk is debt. And those with home mortgages are the most stressed-out people, as they need the house the most; they are not speculators.

The economist cited Han Fuling, a professor at the Central University of Finance and Economics. He claims that investors and home buyers and sellers should prepare for a worse-than-expected bond default by real estate developers, stock market volatility, and abandonment by homebuyers or speculators.

According to Xiaowei Macro, large-scale wage cuts in Shenzhen, Shanghai, Pearl River Delta, and Yangtze River Delta, areas with the highest financial turnover in China, have made the outside world speculate that the Chinese government is running out of money.

China News also said that this year’s financial revenue had dropped significantly, so government revenue is less than the expenditure.

In April, only 6 out of 21 provinces and cities increased financial revenue over the same period, accounting for 28.5%, most of them rich in mineral resources.

Fourteen cities had an income decline, accounting for 66.7%. Most of them are towns and provinces with developed production economies and services.

Experts say the first step is to reduce wages and benefits and reduce administrative costs. If the authorities cannot balance, the next step is to fire the employees.

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