Sun Rising in the East – How to Approach the 

WED, FEB 27 2:00 PM AUGUSTA
Concurrent Session: Sales & Marketing Track
Sun Rising in the East – How to Approach the
Chinese Staffing Market
Speakers:
 Jas Chong, Founder, Ascent Human Capital Consulting
 John Nurthen, Executive Director, International Development,
Staffing Industry Analysts
© 2013 Crain Communications Inc
Agenda
 China overview
•
•
Economy
Society and Culture
 Doing business in China
 The Chinese Staffing Market
•
•
•
Legal Issues
Market Landscape
Risks & Opportunities
©
2012by
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CrainCommunications
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2012by
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CrainCommunications
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China Overtaking the US
1999
Steel consumption
Mobile phones
Net foreign assets
Exports
Manufacturing output
Patents granted
Retail sales
Imports
Fortune 500 Firms
GDP at PPP
Stockmarket capitalization
Consumer spending
Defence spending
2012
2025
1999
2001
2003
2007
2010
2010
2014
2014
2016
2016
2020
2023
2025
Source: The Economist Estimates
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2012by
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Impending Chinese Ascendancy
2050 GDP Forecast (USD Trillion)
60
50
40
30
20
10
Germany
France
UK
Indonesia
Mexico
Japan
Russia
Brazil
India
USA
China
0
Source: Goldman Sachs Global ECS Research
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2012by
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Introduction to China
 Officially the People’s Republic of China (‘PRC’)
•
‘Mainland China’
 World’s most populous country and second largest by
land area
•
55 Ethnic minority groups
 4,000 years of civilization
•
Numerous historical incarnations
 Communist State since 1949
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2012by
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Economy
 GDP $7.318bn
•
•
•
•
9% growth in 2013
GDP per capita: $5,445
World’s fastest growing economy since 1978
State owned enterprises (‘SOE’s) are responsible for 50% of all
goods and services
• The government makes no secret of its support for state-owned enterprises.
Foreign companies should not expect a level playing field
 Labour Force:
•
•
Diversity by Province
Agriculture  Manufacturing  Services
Unemployment Ratio: 4%
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2012by
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Chinese Employment by Sector
90%
80%
70%
60%
Primary Sector
50%
40%
Tertiary Sector
30%
20%
Secondary Sector
10%
0
1952
2011
Source: National Bureau of Statistics of China
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2012by
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Five Year Plan
 12th Five Year Plan (2011–2015) is currently being
implemented and includes strategies to:
•
Rebalance the economy between coastal cities and rural areas
•
Modernize the agricultural sector
•
Encourage innovative research and development
•
Develop greater resource efficiency and focus on environmental
impacts and conservation
•
Create a better infrastructure
•
Generate greater openness to attract foreign investments
especially in high tech areas
•
Deliver continual economic growth and curb inflation
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2012by
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China is Big!
Province
Guangdong
Population
Comparable-sized
Country
104.3m
Mexico
Shandong
95.8m
Philippines
Henan
94.0m
Sichuan
Province
Population
Comparable-sized
Country
Shanxi
35.7m
Algeria
Guizhou
34.8m
Canada
Vietnam
Chongqing
28.9m
Malaysia
80.4m
Germany
Jilin
27.5m
Venezuela
Jiangsu
78.7m
Iran
Gansu
25.6m
Saudi Arabia
Hebei
71.9m
Thailand
Inner Mongolia
24.7m
North Korea
Hunan
65.7m
France
Shanghai
23.0m
Mozambique
Anhui
59.5m
UK
Xinjiang
21.8m
Australia
Hubei
57.2m
Italy
Beijing
12.9m
Cameroon
Zhejiang
54.4m
Myanmar
Tianjin
12.9m
Senegal
Guangxi
46.0m
Spain
Hainan
8.7m
Sweden
Yunnan
45.0m
Ukraine
Hong Kong
7.0m
Bulgaria
Jiangxi
44.6m
Colombia
Qinghai
6.3m
Paraguay
Liaoning
43.8m
Tanzania
Ningxia
6.2m
Papua New Guinea
Heilongjian
38.3m
Argentina
Tibet
3.0m
Mongolia
Shaanxi
37.3m
Kenya
Macao
0.5m
Solomon Islands
Fujian
36.9m
Poland
TOTAL
1,316.5m
Source: When China Rules the World, Martin Jacques – 2010 Census
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2012by
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Chinese Society & Culture
 Endemic corruption
•
•
Key focus under Xi Zinping’s leadership
The most severe financial crimes carry the death penalty
 Human rights abuses and political freedom restricted
•
Heavy restrictions on the Internet, the press, freedom of
assembly, reproductive rights, and freedom of religion
 Lack of respect for intellectual property rights
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Chinese Society & Culture
 292 living languages!
•
Standard Chinese (Putonghua) is the official spoken language
•
Simplified Chinese (Hanzi) is the official written language
•
Autonomous regions such as Mongolia and Tibet have their own
official languages
•
English is taught from aged 10 and is a required subject for those
attending University
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2012by
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Communism
 Communist Party is the only party in the PRC
•
•
•
•
Communism equated to liberation and nationalism
Unitary government and centralized state, military and media
No free elections
“Socialism with Chinese characteristics”
• Enduring traditions and values maintained
•
•
Important reform towards market economy since 1980’s with
ownership of private businesses permitted
Government popularity
• Public support for the government is among the highest in the world
• 86% of Chinese express satisfaction with their nation's economy
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2012by
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Influence of Kong Tse (Confucius)
 Once the core of the political and social system, the
philosophy still has an impact on Chinese society despite
Mao’s efforts to kill it off
•
•
•
•
•
•
•
Belief in humane authority, practical humanity and ritual
harmony
Benevolent leadership with government selected on
achievement and ability, not heredity
Belief in hierarchy and the proper order of social
relationships, especially within the family
Filial piety, obedience, loyalty and righteousness
Collectivism over individualism
Importance of education and scholarship
Small government and limited taxation
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2012by
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The Art of War
 Ancient Chinese military treatise attributed to Sun Tse
•
•
•
Strategy and implementation for success
Influence on business tactics and legal strategy, not just military
thinking
Situation, Timing, Landscape, Advantage, People (天时地利人)
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Highly Educated Workforce
Science
PISA Score
Reading
PISA Score
Math
PISA Score
China (Shanghai)
575
China (Shanghai)
556
China (Shanghai)
600
Hong Kong
549
Hong Kong
533
Singapore
562
Singapore
542
Singapore
526
Hong Kong
555
Japan
539
Japan
520
Japan
529
Australia
527
Australia
515
Netherlands
526
Netherlands
522
Netherlands
508
Australia
514
Germany
520
Germany
497
Germany
513
UK
514
France
496
AVERAGE
497
USA
502
USA
500
France
497
AVERAGE
501
UK
494
UK
492
France
498
AVERAGE
494
USA
487
Source: OECD PISA Survey in Educational Attainment 2009
©
2012by
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© 2013
CrainCommunications
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Agenda
 China overview
•
•
Economy
Society and Culture
 Doing business in China
 The Chinese Staffing Market
•
•
•
Legal Issues
Market Landscape
Risks & Opportunities
©
2012by
Crain
© 2013
CrainCommunications
Communications Inc
Inc
Ease of Doing Business
Australia
15
Japan
20
Mexico
53
Regional Average (East Asia & Pacific)
86
China
91
Russian Federation
120
Brazil
126
India
132
1
183
Source: Doing Business Project, The World Bank
©
2012by
Crain
© 2013
CrainCommunications
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Risks in Offshore Provision
 Direct rendering of recruitment services from offshore
without a legal entity creates risk
•
Permanent Establishment (‘PE’) risk from Tax Bureau
• Pursuant to taxation agreements between China and most countries, the
furnishing of services, including consultancy services, by a foreign company
through employees or other personnel, where such activities continue (for the
same or a connected project) within China for a period or periods aggregating
more than 6 months within any 12 month period will create a PE
•
Foreign company’s business operation in China without legal
presence (AIC and other government authorities)
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Forms of Doing Business
Wholly-Foreign
Owned Enterprise
(WFOE’s)
Level of
involvement in
China’s economic
and legal system
correlates to the
range of activities
and degree of
control and degree
of risk
Joint
Venture
Establishing a
Representative
office
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Representative Office
 No separate legal person status
 Lawful activities: Indirect business activities such as:
•
•
•
Conducting research and gathering market information
Promoting the business and products of the parent company
Facilitating contracts, transactions and relationships
 Prohibited activities:
•
•
•
•
Conducting any direct business activities
Entering into contracts with customers
Issuing bills or invoices
Collecting or receiving payments in local currency
 There are no capitalization requirements
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2012by
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JV’s and WFOE’s
 Joint Ventures come in two forms
•
•
Cooperative JV
Equity JV
 Establishment of JVs or WFOEs subject to Catalogue for
the Guidance of Foreign Investment Industries (Effective
from Jan 30, 2012)
•
•
•
•
•
Subject to distinct, but similar laws and regulations
Limited, specific business scope
Documents submitted to MOFCOM/local counterpart for approval
Parties must file for business license from SAIC
Once licensed, the FIE exists as an independent legal entity with
limited liability
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Economic and Technological Development Zones
 Special areas where foreign direct investment is encouraged
•
•
•
Currently over 120 national Development Zones throughout China
Better infrastructure/more environmentally friendly
Hubs for multinational firms
 Top five Zones (ranked by MOFCOM)
•
•
•
•
•
Tianjin Economic-Technological Development Area
Suzhou Industrial Park (Jiangsu)
Guangzhou Economic & Technological Development Zone (Guangdong)
Kunshan Economic and Technological Development Zone (Jiangsu)
Qingdao Economic and Technological Development Zone (Shandong)
 Also Provincial and Municipal Level Development Zones
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Getting Paid
 The primary risk of doing business in China is the difficulty
of collecting full payment on time
•
“Contempt for the intangible”
 Government fundamentally hostile to payments made by
Chinese companies to foreign service providers
•
Rules are unclear and all foreign payments deemed suspicious
 You can repatriate up to 90% of profits
•
A portion (at least 10% for WFOEs) must
be placed in a reserve account
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2012by
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Business Taxes
 Enterprise Income Tax: 25%
• Preferential rate of 20% for qualified enterprises with “small profits”
 Business Tax for services: 5% for staffing services
• or Value Added Tax for products: 3% or 17%
• New harmonisation initiative in Shanghai sets VAT for staffing at 6%
 Withholding Tax for Capital Gain: 10%
• Imposed on dividends paid to a nonresident company unless rate is
reduced under a tax treaty
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Income Tax and Social Payments
 Progressive income tax system from 3% to 45%
•
Top rate for those earning RMB 80,000 (approx $12,810)
 Complex social payments varying by Province/City and
calculated depending on the average local monthly wage
•
•
•
•
•
•
Pension (usually 8% for employers)
Basic Medical Insurance (typically between 7% to 12% for employers)
Work-related injury insurance (usually 0.5% to 2% for employers)
Unemployment Insurance (between 1% and 2% for employers)
Maternity Insurance (between 0.5% - 1% for employers)
Housing Provident Fund (at least 5% for employers)
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2012by
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Contract Law in China
 Chinese Courts do respect contract law
•
•
•
•
Most principles under international law are applicable
Proper execution is important including company seal/chop
Chinese party will normally insist on local PRC law
Normally, only actual damages will be awarded by Courts for
losses (other than death or personal injury)
 Contract negotiations take longer
• Focus on building the relationship, not just getting a signed
contract
• Eating and drinking are part of the negotiation process!
• Involve a lawyer
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2012by
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Labor Unions
 All-China Federation of Trade Unions (ACFTU) is the sole
national trade union in China
•
31 regional federations and 10 national unions making it the
largest union in the world
•
Responsible for over 1.4 billion collective agreements covering
2.4 billion enterprises and 185 million workers
• Aims to enforce collective bargaining at any Fortune 500 companies in China
•
The only legal trade union in China – any other set up is illegal
•
Less government control in recent years allowing ACFTU to better
represent workers’ interests
• Labour disputes and strikes now more common
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2012by
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Agenda
 China overview
•
•
Economy
Society and Culture
 Doing business in China
 The Chinese Staffing Market
•
•
•
Legal Issues
Market Landscape
Risks & Opportunities
©
2012by
Crain
© 2013
CrainCommunications
Communications Inc
Inc
The Chinese Staffing Market
 Chinese staffing market revenue = $4.8 billion in 2012
• 18% larger than the New Zealand staffing market
• Market grew by +14% in 2012
• Staffing Industry Analysts forecast growth of +14% in 2013
 Largest Staffing Firms
Company
1
CIIC
2
Fesco
3
Fesco/Adecco
Source: Staffing Industry Analysts’ estimates
©
2012by
Crain
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The Chinese Staffing Market
 Blue Collar
•
Mainly migrant workers from rural cities
•
•
The era of low wages is ending as wages demands are rising
•
•
Subject to very low wages and harsh working conditions
Union more active in protecting workers
Changing ambitions of youth towards white collar work
 White Collar
•
•
Rising level of education to feed demand for white collar roles
Lack of good managerial skills compounded by high attrition rates
•
•
•
Low level of job loyalty
Currently, the most challenging issue
Attrition above 20% in most industries (and above 30% in recruitment industry)
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2012by
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The Chinese Staffing Market
 Temporary staffing is mostly quasi-outsourcing/payrolling
•
Third of workforce on temporary contracts
•
Referred to as ‘dispatch’
•
Foreign companies cannot directly hire workers
•
Licensing by Province
•
Brokers source labour in villages and charge a commission to
agencies
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2012by
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Labor Contract Law
 Staffing companies must employ temporary
workers on two-year fixed contracts
•
Early termination requires compensation
• One month’s salary after six months, two month’s salary after one year
•
Minimum salary must be paid between assignments
 Assignments must be ‘temporary’ in nature
 Capital requirement of RMB 500,000 (approx €60,000)
 Internal agencies not allowed
 No fees charged to workers
•
But common practice in the manufacturing sector
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2012by
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Proposed Revisions to
Labor Contract Law
 Draft amendment to Labor Contract Law
announced to counter abuse and tighten loopholes
to come into effect in July 2013
•
Capital requirements increased to RMB 2,000,000 (approx
€240,000)
•
Temporary workers to enjoy payments, including all welfare and
benefits, equal to permanent counterparts
•
“Dispatched workers” can only be employed in positions which are
temporary, auxiliary or substituting in nature
•
Temporary work should last no longer than six months
•
Local governments in Shanghai and Guangdong have issued
regulations or draft regulations of their own
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2012by
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Other Employment Law Issues
 Minimum Wage varies considerably by region
•
Minimum hourly and monthly rates revised every 2 years
 Normal 5 day working week
•
•
•
Standard working time is 40 hours per week
Three National Holidays (one week each)
Parental leave
 Firing costs = 91 weeks of wages*
 Discrimination
•
•
Prohibited on the basis of ethnicity, gender or religion
No discrimination on the basis of sexuality or gender identity
*Source: World Bank (The cost of advanced notice requirements, severance payments, and penalties due when
terminating a redundant worker, expressed in weekly wages)
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2012by
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Other Employment Law Issues
 Independent Contractors
•
•
•
•
Very limited concept of independent contractors and not
typically practiced
Legally difficult to set up as independent contractor
Risk of intellectual property infringement by independent
contractors
Risk of being sued for employment when hiring independent
contractors
 Intellectual Property Law
•
•
Law established since 1979 but enforcement has been difficult
Low awareness and local protection meant that infringement is
common and punishment not equivalent to loss
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2012by
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MSP/VMS in Asia
Program Count by Country
Rest of
World
1363
Source: Staffing Industry Analysts – VMS/MSP Landscape Report 2012
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2012by
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© 2013
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Risks (危机）
 Setting up your Chinese office is not easy
 Competition from State Owned Enterprises and local
operators who evade the law
 Evolving legislative environment
 Getting paid and getting your money out of China
 Complex legal and tax environment with wide regional
variations
 Corruption
 Shrinking cost advantage of low wages
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2012by
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Opportunities （危机）
 High growth economy with excellent long term potential
 Continuing evolution of economy from manufacturing to
services
 Economic reform may lead to the adoption of more
Western business practices and more democratic
government
 Support from government on key industries
 Better regulation will benefit foreign companies and limit
competition from local non-complying companies
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2012by
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Any Questions?
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2012by
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