In the early 1980s, as China began to economically liberalize and hundreds of millions of citizens rose out of poverty, one high-ranking Communist Party official, Deng Liqun, expressed concern. Deng, who was not related to the leader Deng Xiaoping, noticed a surge in hiring by rural businesses and, citing Karl Marx’s Das Kapital, warned of potential exploitation of the Chinese workforce by “greedy capitalists.”
Deng’s warnings proved prescient. Official Chinese statistics show that the share of labor compensation relative to economic inputs—including raw materials and capital—fell from 21 percent in 1987 to 15 percent in 2023. In other words the relative economic position of Chinese farm and factory workers is now worse than it was before China joined the World Trade Organization in 2001.
While incomes and living standards have dramatically increased since the 1980s and China has achieved a remarkable record of poverty reduction, Chinese workers have not seen gains comparable to those of capital owners and the government. This situation, while not the “abject labor extraction” Deng Liqun predicted, still represents a form of labor extraction.
Overworked, Underpaid
As China became a global manufacturing hub, the share of economic output going to workers shrank. In 1992, wages accounted for 6.3 percent of total manufacturing output; by 2024, that figure had fallen to 3.3 percent. China’s wage share trails behind many poorer countries. In 2016, Chinese manufacturing workers received only four percent of total output as wages, ranking second to last out of 87 countries tracked by the United Nations Industrial Development Organization—ahead of only Indonesia.
Concerns about worker treatment have even reached international levels. In 2025, Brazilian authorities sued a Brazilian subsidiary of the Chinese electric-vehicle manufacturer BYD, alleging labor law violations described as “analogous to slavery,” including passport confiscation, withheld pay, and restrictive living conditions.
Low wages are not simply a byproduct of China’s manufacturing success; they are a fundamental driver of it. By suppressing wages, the state, firms, and investors have accumulated capital for investment in infrastructure and production. In 2016, China’s manufacturing output equaled that of the next nine largest economies combined, and after accounting for lower wages, matched the output of the next twelve.
Despite perceptions of high productivity, China’s output per hour worked was $20 in 2025—lower than the global average of $23 and comparable to Brazil and Mexico. China’s production volume is achieved through scale and expanded working hours, a practice Deng Liqun warned against decades ago.
A Ceiling Without a Floor
The cause of wage compression is not free-market capitalism, as Deng Liqun feared, but rather the Chinese state. Since the mid-1990s, local governments have issued guidelines limiting wage increases for workers, while exempting civil servants from these restrictions. Civil servant wages have more than doubled as a share of China’s payroll between 1978 and 2024.
A 1997 directive from the Beijing municipal government stipulated that wage growth should remain below productivity growth, with penalties for exceeding guidelines and restrictions on wage freezes or reductions for poorly performing firms. This created a system with a ceiling on wage growth but no floor.
While guidelines have relaxed since 2010, the effects of decades of wage compression are still felt, particularly as China’s economy slows. The minimum wage in China was $543 in 2024, while Vietnam’s was $692, despite being a poorer country.
Workers of the World, Unite?
China’s wage compression has enabled it to amass capital and compete across manufacturing sectors, from high-tech to labor-intensive goods. This has given China significant leverage in trade and geopolitics, dominating industries like electric vehicles and rare-earth elements.
However, this has come at a cost. Cheap Chinese imports have led to factory closures and job losses in other countries, and Chinese wage compression has negatively impacted workers globally. It similarly contributes to domestic economic imbalances, with low wages hindering consumption and leading to overproduction and trade surpluses—reaching $1.2 trillion in 2025.
Addressing this imbalance, analysts suggest, requires policies that prioritize worker welfare, including encouraging collective bargaining, providing social security, removing wage caps, and raising the minimum wage. This could boost domestic consumption, ease trade tensions, and allow Chinese citizens to fully benefit from the country’s economic progress.
Frequently Asked Questions
What was Deng Liqun’s concern in the early 1980s?
Deng Liqun, a high-ranking official in the Chinese Communist Party, was concerned that the economic liberalization policies would lead to the exploitation of Chinese workers by capitalists, echoing concerns raised by Karl Marx in Das Kapital.
How has the share of labor compensation changed in China since 1987?
According to official Chinese statistics, the share of labor compensation relative to the value of all economic inputs fell from 21 percent in 1987 to 15 percent in 2023.
What is the current status of wages for Chinese manufacturing workers compared to other countries?
In 2016, Chinese manufacturing workers received four percent of total manufacturing output as wages, ranking second to last out of 87 countries tracked by the United Nations Industrial Development Organization, ahead of only Indonesia.
Given these trends, what steps might China take to address wage compression and promote more equitable economic growth?
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