Public sector payday could bolster consumption

Over the past week, reports have poured in from civil servants across China about an unexpected salary bump.

Details have not yet been confirmed by officials or state media, but international media is reporting that:

• Public sector employees like officials, teachers, police, and doctors at public hospitals got unexpected raises – a group that could total over 48 million people. (Reuters)
• The raise hikes were between RMB 300-500 per month (roughly USD 40-70) and were retroactive from July. (Bloomberg)

That equates to a lot of cash for (some) households.

• The one-off back pay bonus totals between RMB 86 and 144 billion.
• The ongoing increase in salary will equal somewhere between RMB 172 and 288 billion in 2025.

This is long overdue: Many public sector employees have taken pay cuts in recent years as localities tightened belts in the face of decreased revenues from land sales and an increase in pandemic-related expenses.

But the results will vary from jurisdiction to jurisdiction.

• Many public sector employees told us they were unaware of the increase, or still waiting to learn if they would receive it.
• Local fiscal budgets are already overstretched, and some officials in eastern regions told us they will need to cut spending elsewhere in order to make the salary increase possible.

Get smart: Public sector employees are already reasonably compensated and enjoy strong social security benefits.

• That means they're less likely to have urgent consumption needs than lower-income households.

The upshot: This will support consumption at the margins, but won't be a game changer for the economy.