Pressure Mounts on Chinese Corporate Earnings as Salaries Rise

Labor costs in China are estimated to climb 20% this year after rising 15% annually on average from 2002 through 2011, Zhu Hongren, the spokesman for the Ministry of Industry and Information Technology, said at a news conference.

Most of the country's provinces and provincial level municipalities have hiked their minimum wage by at least 13% this year.

Coupled with burgeoning prices for commodities, electricity and oil, higher salaries will further weigh on businesses, Zhu warned.

China's industrial earnings dropped 5.2% from a year earlier to ¥606 billion in the first two months of 2012, figures from the National Bureau of Statistics showed.

The situations are particularly dire in the steel, electronics and equipment manufacturing industries, Zhu noted.

The nation's 77 largest steelmakers reported a combined ¥1.03 billion loss for the first quarter of 2012, standing in stark contrast to a ¥15.8 billion profit in the same period a year ago, according to the China Iron & Steel Association.

Output from the electronics and equipment manufacturing industries slowed due largely to weaker demand from overseas following, for instance, Europe's ongoing debt problems.

Although declining corporate margins are a cause for concern, China's macroeconomic risks are controllable overall and the economy will likely pick up with improvements in the United States and Europe during the second quarter, which is usually a productive season in China, Zhu added.