Coronavirus outbreak

China's private firms cut, delay or stop wages for staff

People wearing protective masks walk in a shopping mall decorated for Valentine's Day in Beijing, on Feb 12, 2020.
People wearing protective masks walk in a shopping mall decorated for Valentine's Day in Beijing, on Feb 12, 2020.PHOTO: EPA-EFE

HONG KONG • A growing number of China's private companies have cut wages, delayed pay cheques or stopped paying staff completely, saying the economic toll of the coronavirus outbreak has left them unable to cover their labour costs.

To slow the spread of the virus, the Chinese authorities and big employers have encouraged people to stay home. But what is good for containment is lousy for business.

With classes cancelled at a coding and robotics school in Hangzhou, employees will lose 30 per cent to 50 per cent of their wages.

In Zhuhai, the Lionsgate Entertainment World theme park is closed and workers have been told to use up their paid vacation time and get ready for unpaid leave.

"A week of unpaid leave is very painful," said Mr Jason Lam, 32, who was furloughed from his job as a chef in a high-end restaurant in Hong Kong's Tsim Sha Tsui. "I don't have enough income to cover my expenses this month."

Across China, firms are telling workers that there is no money for them. The salary freezes are further evidence of the economic hit to China's volatile private sector - the fastest-growing part of the world's second-biggest economy.

It also suggests that the stress will extend beyond the health risks to the financial pain that comes with job cuts and salary instability.

"The coronavirus may hit Chinese consumption harder than Sars (severe acute respiratory syndrome) 17 years ago," said Ms Chang Shu, chief Asia economist for Bloom-berg Intelligence. "And Sars walloped consumption."

At Foxconn Technology's factory in Shenzhen, workers returning from the Chinese New Year break are quarantined in the dorms before they can return to work. They are getting paid, but only about one-third of what they would earn if they were working.

 
 

Without full, regular pay cheques, Chinese consumers could cut spending in some categories to zero, said Ms Shu.

With limited reserves, the smaller companies that underpin China's vast private sector are particularly vulnerable. Among broader efforts to help firms stay afloat, policymakers have called on state-run banks to make loans at cheaper rates to small businesses in particular.

In the case of Mr Pei Binfeng, co-founder of the coding and robotics academy in Hangzhou, the outbreak forced it to suspend all in-person classes for students.

"What we teach isn't a must-have for a lot of parents, so expenses like this are usually the first to go when things get tough," said Mr Pei.

In the south-eastern city of Fuzhou, hotel manager Robert Zhang said all but two or three of his 100 rooms are vacant on average nights. Two-thirds of the employees are effectively on furlough.

"When there is no business, there is no performance-based salary," he said. "For a month or two, the impact isn't immediately obvious. But if the epidemic lasts and tourism doesn't recover for three to four months, our employees will feel the crunch."

BLOOMBERG

 
A version of this article appeared in the print edition of The Straits Times on February 20, 2020, with the headline 'China's private firms cut, delay or stop wages for staff'. Print Edition | Subscribe