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Article -Commentary: China’s economic troubles run deeper than civil servants’ pay hike
With the Chinese New Year festivities, a pay raise is certainly good news for millions of China’s civil servants. But it’s far from sufficient to rejuvenate the economy, says political observer Bo Zhiyue.
An on-demand autonomous shuttle bus during the official launch of a public trial run at Sentosa on Aug 20, 2019. (Photo: AFP/Roslan Rahman)
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This is reported to be the first time since 2015 that China has adjusted government worker salaries. Then, about 40 million civil servants and staff of government-sponsored institutions received a monthly salary increase of about 300 yuan each on average.
The timing looks to be deliberate.
At the Central Economic Work Conference in December 2024, China outlined boosting consumption and domestic demand as its key tasks for 2025. “A special campaign dedicated to stimulating consumption should be implemented, and efforts should be made to increase the incomes and alleviate the burdens of low- and middle-income groups”, it said.
With trade tensions expected to escalate following the return of Donald Trump to the White House, expanding domestic demand is seen as an effective strategy.
A TIMELY PAY HIKE
The civil servant pay hike aligns with this strategy, arriving just before the Chinese New Year - a period synonymous with spending. Multiple cities have launched new rounds of consumption vouchers to stimulate demand during the festive season. By putting money in the pockets of government workers, perhaps China hopes to boost morale and ignite a much-needed spark in consumer confidence.
Last year, the world’s second-largest economy achieved 5 per cent gross domestic product growth, driven largely by strong exports and policy stabilisation efforts. While this met the annual target, warnings are mounting that China's economy could face a slowdown in 2025. Trump has threatened to impose more tariffs on Chinese goods. Already, 2024’s GDP growth was the slowest since 1990 outside of the COVID-19 pandemic.
Adding to these concerns is the notable slowdown in retail sales, a key gauge of consumer sentiment. Retail sales expanded by just 3.5 per cent in 2024, a sharp decline from 7.2 per cent the previous year. This underscores the urgency of Beijing’s measures to stimulate domestic demand, but whether they will be sufficient to offset mounting external and internal challenges remains an open question.
Civil servants represent only a fraction of China’s 1.4 billion population. Given the size of the Chinese economy (US$17.52 trillion in 2023), any extra spending by the civil servants is unlikely to provide the broad economic boost Beijing needs.
