Archives 2008

Responding to the New Labor Law

New Chinese employment legislation, the Labor Contract Law (LCL), is due to be promulgated on January 1st 2008.

The response to the law so far has been a kind of fearful anticipation but all of this hand wringing is not going to change the fact of the law’s promulgation. The best way to deal with any new issue is to make decisions about responses, and start implementing now. The key question centres on the specific things HR should be doing to keep itself on the right side of the new law.

Here are a few suggestions:

Employee Handbook or Policy Manual – Regardless of your company size, this needs to be set up now, as it is mandated in the new law. It should set out the internal rules and regulations that deal with employee relations, and specify procedures for dealing with conflict situations like termination. Under the new law you would be best advised to have a paper trail to deal with difficult situations, such as firing staff, and the end of the line for this paper trail is your Employee Handbook.

Salary Ranges – If your policy is to specify salary ranges to job applicants then review your advertising and make sure to state the range very clearly in advertisements. In addition to the new labor law, there is also the Employment Promotion Law which also takes effect on January 1st. It specifies that recruitment information in advertisements published by employers should be the same as that mentioned in job interviews. Again you have the paper trail issue.

Overtime – As an exercise, calculate the cost of overtime to your company. The logic is that you may be required to pay amounts that you had not considered before. Under the new law employees in China cannot work longer than forty hours a week. Any time worked over that is liable for overtime pay and the new law makes this enforceable.

Discrimination – Look for a new trap: discrimination. The new Employment Promotion Law says that applicants for employment will be entitled to sue employers for discrimination. This is based on ethnicity, age, gender, race, religious belief or physical disability. Although multinational companies have tended to be on the right side of this issue for a long time, it is still worth reviewing your current advertising and hiring procedure. You don’t know what lurks under rocks until you turn them over. (Oddly, the government will issue a list of ‘jobs unsuitable for women’ to assist companies stay on the right side of the law.)

Job Descriptions – Review your process, if you have one, for creating Job Descriptions. If you don’t have one, create one. The new law says that employees cannot be sacked at will anymore. You have to have well-defined reasons with a paper trail back to documents that the employee has signed, along with measures that support your claim that they are incompetent.

Documentation – Review every document that you sign with an employee, including NDAs and non-compete agreements. The new law makes you liable for any negative outcome because the assumption (mine) is that you hold all the cards, and have superior power within the employer/employee relationship. Any slip-ups will cost your company money, not the employee or the job candidate. (Note: Under the new law employees cannot be forced to sign non-competitive agreements. This belongs only to the realm of senior management.)

Temporary Staff – Deal with all and any temporaray staff that you have in your office or factory. You need to either hire them on a contract or let them go. You may have some leeway on this but any delay is at your own risk. Employees, backed by willing and well-prepared employment lawyers, will be able to claim double salary for months worked without a contract. The limit is 12 months’ salary but that’s not much comfort.

Permanent Staff – The use of employment contracts in China has been the norm for multinationals in China. At the end of the contract they have often been renewed without much thought because the impact of that decision was low.

Under the new law the employer is permitted to enter into only two employment contracts with the employee. After that they are on an open-term contract, which means they leave or stay largely at their own discretion, and of course excepting breach of contract. So every permanent employee needs to be reviewed. Or not. (This should have been dealt with some time ago and can only be seen as a legal loophole. One that you might not want to go through. Chinese professional staff have choices, and under the new law they also have power.)

Employee Council – The new rulings on the issue of unions is still not clear, but what is clear is that companies cannot bar employees from setting up unions.

An alternative is to set up an employee council that represents the employees and solicits their opinions. This body does have a say on issues like your Employee Manual, and it is advisable to have one because it can make the approval of this kind of document easier. If you don’t have an Employee Council you have to get every-single-staff-member to agree to each issue one by one. (The jury is still out on this one.)

It would also be advisable to create an Employee Council as a way of beginning a new kind of conversation with employees. Not having had previous experience of this issue, most Chinese employees do not have the language of employer/employee cooperation, and this council would give them the breathing space to develop that ability.

Public Relations – This may not seem like an obvious department to be involved in anything to do with the new labor law, but according to Image Thief the underlying narrative in China is “Chinese employee vs. callous multinational employer or foreign boss”.

Foreign companies are easy targets, with deep pockets and an aversion to negative publicity. He suggests that you consider the various possible negative PR scenarios that could happen, and prepare a response. It’s all about managing risk.

Clearly the power has shifted in favor of the employee in China. This is not to be feared, as fear tends to be immobilizing. The new labor law really only brings China in line with many other countries around the world. The bonus is that the establishment of the rule of law is an absolute good in itself.

That doesn’t mean you shouldn’t be prepared for the change because the new law may overreach on behalf of employees for a period of time, until employers push back.

Largest Russian bank opens first China branch in Shanghai

SHANGHAI, Feb. 26 (Xinhua) — Venshtorgbank, Russia’s biggest bank, opened its first Chinese branch in Shanghai on Tuesday, marking the start of a new era in Sino-Russian finance.

“China’s banking service industry is the fastest-growing and most promising in the world economy. I believe the Shanghai branch will grow as energetically as China’s economy,” said Andrei Kostin, Venshtorgbank Group (VTB) chairman and president.

VTB has entered into credit granting agreements with a number of Chinese banks and the China Export and Credit Insurance Corporation to provide Russian importers with long-term financing and insurance services when purchasing Chinese goods and services.

Clients can receive up to 1.3 billion U.S. dollars in financing from Chinese banks.

According to Kostin, the Shanghai branch will cooperate with China UnionPay system to provide banking card services to both domestic and Russian clients. It also plans to apply for offering RMB services within three years, and will broaden the business scope of the branch for a larger operating scale “very soon”.

VTB even plans to issue its own union cards in China.

The lender is the largest international banking group in Russia. It has branches and financial firms in 17 countries, with assets of 80 billion U.S. dollars.

While it established a Beijing office 20 years ago, VTB is a latecomer to China’s lucrative banking sector, now crowded with more than 300 foreign banks.

Robert Walters opens headhunting in China

Robert Walters, the recruitment specialist, is buying its first business in China, a headhunter that provides a range of jobs in the commercial sector.

Walters, which also today announced operating profits up by a third to £26.1 million, is paying RMB 20 million (£1.4 million) for a 70 per cent stake in Talent Spotter, a consultancy with 49 staff and a head office in Shanghai and another in Suzhou, a city with a population of ten million, 75 miles inland from Shanghai.

Robert Walters, the chief executive, said that 62 per cent of fee income was generated outside the UK last year.

The company has a growing presence in the Far East and an office in Hong Kong. Alan Bannatyne, the finance director, told Times Online that the Chinese market was especially lucrative, paying fees representing 25 per cent of annual salary. “Shanghai is a very strong and growing market.”

Talent Spotter typically provides a variety of commercial jobs such as sales and marketing and human resources, with a small involvement in accountancy.

During 2007 Walters opened offices in Madrid and Osaka, and an office in Kowloon was opened this year.

The trading statement for 2007 said that activity levels remained strong, with a healthy balance between permanent and contract recruitment.

A final dividend of 3.35p makes a total raised from 4p to 4.7p.

New individual tax threshold to go into effect March 1

China’s amended individual income tax law, which raises the tax levy threshold from 1,600 yuan (about US$220) a month to 2,000 yuan, will go into effect on March 1, accompanied by some regulations on its implementation.

Individuals who earn money from contractual operations and contract to lease businesses will also enjoy a raised tax threshold from 1,600 yuan to 2,000 yuan, according to the regulations.

This was out of consideration that the living costs of those individuals and their family members had increased, said a joint explanation on the regulations made by the Legislative Affairs Office of the State Council, Ministry of Finance and the State Administration of Taxation.

Individual tax payers who have housing in China but work overseas, or live overseas but earn income in China, will keep their tax threshold of 4,800 yuan a month unchanged, according to the regulations.

This will help reduce the gap between tax thresholds of different taxpayers, the joint explanation said.

The raised individual tax threshold will reduce government revenues by 30 billion yuan annually, according to official statistics. It will also mean that 70 percent of income earners will be exempt from income tax, against 50 percent now.

The individual income tax cutoff point was raised from 800 yuan a month to 1,600 yuan starting in 2006. This was based on consumption expenditures for basic living costs at the time.

However, the consumer price index rose several times last year, further burdening low- and medium-income earners.

Recruiter Robert Walters goes shopping in China

Robert Walters, the recruitment consultants, will tomorrow announce an expansion into mainland China through an acquisition designed to increase its exposure to one of the world’s fastest-growing job markets.

The company, which already has operations in Hong Kong, Malaysia, Singapore and Japan, has bought Talent Spotter, a specialist recruitment business headquartered in Shanghai, for around £1.4m.

Although the deal is relatively small – Talent Spotter has 49 staff and one other office in the prosperous nearby city of Suzhou – it reflects the growing importance that professional services companies are placing on China.

Despite the country’s rapid economic growth over the past few decades, the recruitment sector is still in relative infancy. Nevertheless, the demand for such services is expected to rise as the country becomes more integrated into the global economy and Chinese businesses and organisations face calls for increasing professionalism.

Several recruitment companies have set up offices in China or established joint ventures, but Robert Walters’ move is believed to be the first foreign takeover of a domestic firm and is the first it has made in more than 10 years.

The acquisition is expected to be a platform for growing the business throughout the country. The acquisition comes as Robert Walters’ full-year results are expected to show a 17 per cent increase in net fee income to around £127m and a 30 per cent increase in pre-tax profits to £24.5m, despite the economic turmoil.

One Bank, Two Systems: Reforming China’s Agro-Finance ?

By Yuan Zhaohui, Li Liming

The Agricultural Bank of China (ABC) has plans to become a commercial banking group and seperate its policy-oriented agricultural financing services from its main operations, according to sources.

Sources familiar with the Bank’s reform plan said it would be splitting its services into agriculture and non-agriculture, with both having independent managements.

Sources close to the reform plan said it received preliminary approval before the Spring Festival but would ultimately need approval from China’s two highest legislative conventions in March.

Meanwhile, lawmakers are still ironing out differences over the splitting of commercial and policy functions within the bank.

Scheme Gradually Unveiled
At a national financial conference held one year ago, the fundamental priorities of ABC’s reforms were set as: to deal with the “three agricultural problems”, namely, rural areas, farmers and agriculture; to introduce overall structural reforms; to operate in a commercial mode; and go public when appropriate.

According to a senior official who was engaged in drafting the reform, the ABC would be turned into a banking group. He added its subsidiaries would include a commercially operated holding company to be named Agricultural Bank of China Company Limited and another institution focusing on agricultural and farmers’ needs in the rural areas.

The source said under this framework, the former would be targetting for market listing, while the latter’s chance to become publicly listed was still under debate considering that it enjoyed government subsidies.

The agricultural-based services would also be reformed, added the source, saying that agro-financing would be developed in accordance with market economy instead of the government-administered model of the past.

The ABC’s 2006 annual report showed that 60% of its branches and 51% of its employees were located in county-level administrative regions, and by the end of 2006, agriculture-related loans and those offered by county-level branches totaled 1.7 trillion yuan–55% of all loans that year.

The ABC’s management believed that it was on par with the other three major state-owned banks to compete in the more developed coastal regions. For example, in Suzhou of east China’s Jiangsu province, ABC has had more market share and higher profits than the other three.

As the backbone of China’s rural banking system, the ABC would require approval from various related agencies before it could implement the reform scheme, including the Ministry of Finance (MoF), its former investor; the central bank, the coordinator of state bank reform; the China Banking Regulatory Commission (CBRC); the National Development and Reform Commission (NDRC), the Ministry of Agriculture (MoA), and the Central Huijin, which would inject 40 billion yuan into the ABC.

A source close to regulators said the above agencies had given preliminary approval to the scheme before the Spring Festival, and that it would be publicized if passed by the two highest legislative conventions in March–the National People’s Congress and the Chinese People’s Political Consultative Conference.

After all the Efforts
When he visited Gansu province in late November last year, the Bank’s president Xing Junbo noted that it was their obligation to support agricultural issues. By October, the Bank had already established “trial bases for agricultural banking services” in seven provinces, including Gansu and Sichuan.

Chen Xiwen, head of China’s rural work office, said recently Chinese banking institutions were focusing more on the urban areas. He stressed the needs for ABC to have a special mission in developing rural areas.

However, commercial banks could not ignore profits, he said, as the ABC needed to maintain solid performance in order to satisfy its shareholders after the reform. He added the government should provide preferential policies for ABC in view of the demands placed on the bank to promote agriculture.

Early in mid 2007, the Central Huijin had decided to invest 40 billion dollars in the Bank, but to wait for the latter’s reform scheme to be publicized before going ahead with it. In the first half of 2007, regulatory bodies, including the central bank, the NDRC, the MoF, the CBRC launched an investigation into the reform and wrote research reports to serve as the basis for reforms.

After resigning from the central bank and being appointed as president of Agricultural Bank last July, Xiang Junbo shifted the Bank’s first priority to jumpstarting reforms as soon as possible. Late last year, the central bank president Zhou Xiaochuan revealed that the Bank’s reforms had entered a decisive phase. As rumors about the reform spread, Bank spokesman Zhou Qingyu replied on February 3rd that the scheme was still being studied.

Based on the experiences of the other three state-owned banks, which have already been reformed into holding companies, if the scheme was approved by the two sessions, ABC would be able to restructure its financial mechanism, introduce the shareholding system and strategic investment, and go public.

Sources said the bank had employed Central Huijin, CITI Securities and two auditing teams to prepare for its domestic IPO; while Morgan Stanley had been shooting to work on its overseas IPO.

Disagreement Remains
Sources said disagreements remained, mainly on how to ensure both commercial operations and support for agriculture.

To better serve agricultural issues, the banks worked out the “Implementation Scheme of Serving the Three Agricultural Problems” last year. According to that scheme, funds raised by county-level branches would mainly be used for agricultural purposes and economic development of the county; with main services covering agricultural production, small and medium rural companies, modern agriculture, infrastructure of rural areas, and development of small towns.

The above-mentioned senior official voiced his concern, saying, “whether there will be risks after a separate agricultural service is established remains an unsolved question.”

There have been relatively few customers in rural branches. In recent years, with many branches having focused on deposits, debt collection, and intermediary services, their credit management teams have been dismissed, leaving most of them simply “deposit institutions”.

“It’s still not clear how the agricultural service will operate,” said the above source. In their opinion, wholesale services may be an option, as “there are already many grassroots organizations, such as rural credit cooperatives, small banks at the village and town level, and micro-credit companies. The bank could provide them wholesale loans and let them do the job instead.”

“The biggest problem lies in strategy rather than management,” said an official of one supervising agency, adding that even if the decision makers agreed on the scheme, the contradiction between agricultural issues and commercial operations persisted. Its goal of “serving the three agricultural problems” might lead to losses, making the Bank a burden for the government.

Million dollar bonuses in China

By Geoff Dyer in Shanghai

The million-dollar bonus has arrived in China’s financial services industry as local firms, buoyed by the boom in the country’s markets, compete to hire from a small pool of experienced staff.

Fierce competition has forced companies to start offering Wall Street-type compensation, especially in the fund management industry, according to industry executives, headhunters and consultants.

The surge in compensation underlines the dramatic resurgence of China’s securities and asset management companies, many of which were making large losses three years ago, just as several Wall Street firms are running into serious problems. Executives report a big rise in CVs received from US-based professionals with a China connection.

“There were several bonuses over a million dollars last year,” said Peter Alexander, head of fund management consultancy Z-Ben Advisors. “Retaining assets is no longer the top priority for the funds industry, it is getting and retaining good people.”

Although a small group of well-known dealmakers has been paid large compensation packages over the last decade, the seven-figure bonus is relatively new for most of China’s financial sector. The surge has been dramatic in the fund management industry, which has seen an explosion in assets under management from $40bn (€27bn, £20.5bn) at the start of 2005 to $450bn by the end of 2007, the result of rising share prices and massive inflows of retail money.

“I personally know of at least half a dozen managers who made more than a million dollars,” said an executive at a Shanghai-based fund management firm who asked not to be named.

China has some 60 approved asset management companies, half of which are joint ventures or have foreign shareholders. Leading firms include Harvest Fund Management, in which Deutsche Bank has a 30 per cent stake, Invesco Great Wall, a joint venture, and China Asset Management, owned by Citic Securities.

David Li resigns from Hong Kong’s executive council

The chairman of the Bank of East Asia has bowed to public pressure and resigned from Hong Kong’s top policy-making body.

Bank of East Asia chairman David Li has bowed to mounting public pressure over insider dealing-related charges and resigned from Hong Kong’s cabinet Exco (executive council).

Exco advises the chief executive on policy. Li’s resignation comes two weeks after agreeing to pay the US Securities and Exchange Commission (SEC) a fine of $8.1 million to settle insider dealing-related charges, though, as is usual with these cases, Li has neither admitted nor denied the charges.

Hong Kong’s chief executive, Donald Tsang, said in a statement announcing the resignation that Li, “regretted that the matter had caused public concern and thus wished to resign from the council”. Tsang said he had asked Li to reconsider his resignation, adding, “I will miss him greatly and hope that he will continue to serve Hong Kong in other areas.”

Shareholder rights activist and editor of webb-site.com, David Webb, who has played a prominent role in drawing attention to the issue, told FinanceAsia: “It’s a good first step but I think the chief executive should have taken the initiative rather than resist his resignation.”

Li’s resignation is a setback for Tsang. It’s the first resignation from his Exco since taking over from Tung Chee Wah in 2005. Li is a close friend of Tsang’s and an important politically ally, having run Tsang’s election campaign in both 2005 and 2007.

The reputational blow to Li is immense since he heads a highly influential family in Hong Kong and sits on the boards of numerous listed companies in Hong Kong and abroad. He is also on a number of important government advisory committees. Li was knighted by the Queen of England in 2005 for services to British education, though he gave up his British citizenship to join Exco that same year.

The SEC charges related to the leaking of insider information about News Corporation’s takeover bid for Dow Jones. The SEC says that Li, who was a Dow Jones board member, leaked information of the takeover before it became public to his friend and business partner Michael Leung, who made a profit of $8.1 million after trading on this information. Leung, his son-in law KK Wong, whose Merrill Lynch account was used to buy the shares, and Leung’s daughter Charlotte, who is married to KK Wong, have also agreed to settle with the SEC and give up their trading profits.

The SEC civil complaint states that Li “knew or was reckless in not knowing” both that he had passed non-public information to Leung, and that Leung would try to profit from this information.

Li said in his resignation statement that the public discussion following his agreement to settle with the SEC, “is now becoming an increasing distraction to the chief executive and the executive council”. He said that under the terms of his agreement with the SEC he was unable to respond to questions from the public or the media and this had put pressure on the chief executive and other Exco councillors.

“It would be highly unfair to the chief executive and my fellow executive councillors for me to allow the current situation to continue,” he added.

Li who represents the financial services sector in the legislative council (Legco) said he intended to continue with his duties as a legislative councillor. But he may find that he will come under pressure to resign from that body as well.

“The focus should shift to the legislative council. It is time for the banks to select someone more appropriate to represent them and for David Li to resign from that position,” says Webb.

Rumours of the SEC settlement surfaced in January, but were denied by Li. Final agreement to the terms of the settlement appears to have been stretched out so that the eventual announcement occurred on February 6 when local newspapers had stopped publishing for the Chinese New Year holiday.

When the newspapers resumed publishing, the Li story was kept off the front pages by a scandal involving the publication of hundreds of nude pictures of Hong Kong starlets on the internet which has transfixed the territory for the past fortnight.

However, the Li affair was kept alive by Webb who polled members of his website on the issue. Out of the 1,200 participants in the poll, 93.4% voted that Li should resign from Exco, 89.4% that he should step down from Legco, and 67% that he should resign as chairman and CEO of Bank of East Asia.

Webb sent the poll results together with an open letter to Donald Tsang. “If you wish your administration to have the respect of the public and international community, then you must require Mr Li to step down from the executive council without further delay. Good governance demands it. Please put Hong Kong’s reputation as an international financial centre ahead of your personal friendship. We cannot allow a perception that the elite can buy their way out of allegations (at a cost greater than most citizens will earn in a lifetime) and retain public office,” he wrote.

Li has been a Legco member for the financial services functional constituency since it was set up in 1985. During that period he has been challenged once – in 2000 – though he won with a wide majority.

The feeling among some commentators is that if Li stays in Legco and ignores the views of the public then this simply undermines the lack of accountability inherent in functional constituencies.

In light of the SEC settlement, the Hong Kong Monetary Authority (HKMA), as part of its statutory oversight of the banking industry, is obliged to consider whether Li, who is both chairman and CEO of BEA, is a fit and proper person to continue in these roles under its guidelines. Standards for banking executives are considerably higher than for ordinary company directors as public money is involved.

The HKMA has so far remained silent on the issue, saying that the banking ordinance prevents it from commenting on individual cases.

It is possible that the HKMA may ask the bank to find another CEO. Although the BEA board has come out in support of Li, it could be that the bank may use the occasion to address the issue of succession since Li will be 69 in March.

In addition, the Li family is thought to have only about 15% of the bank’s shares though it is not clear how these will be voted given the disparate nature of the family. The family’s hold on the bank is fairly tenuous as was demonstrated some years ago when a general mandate to issue new shares without a rights issue was voted down by institutional shareholders. In recent years it has been regarded as a possible takeover target, though it took on significant minority shareholders last year with BOC (HK) acquiring a 4.9% stake and Spanish Bank La Caixa an 8.9% stake.

Li sits on a number of prominent government committees. These include the HKSAR Banking Advisory Committee, which advises the chief executive on banking and financial issues. Li, possibly because he is the legislative member for the sector, has been a member of this committee since 1981 while others have served no more than the normal six years. His current term is due to end in December this year. Rather than asking him to resign, the HKMA may take the more diplomatic approach of not reappointing him. Indeed this is likely to be the route that other organisations of which is a member will also take if they feel it is inappropriate for him to remain with their organisation.

Li is also on the HKSAR Land Fund Advisory Committee and the Mandatory Provident Fund Schemes Authority. He is chairman of the Chinese Banks Association, pro-chancellor of the University of Hong Kong and chairman of the Hong Kong Management Association.

He is either a director or non-executive director of the following listed companies: Cable & Wireless HKT, Hong Kong and China Gas, China Merchants China Direct Investments, China Overseas Land & Investment, COSCO Pacific, FPB Bank Holding Company, San Miguel Brewery, Sime Derby, SCMP Group, Vitasoy International and Henderson Cyber.

20% university graduates fail to find jobs in 2007

About 20 percent of university students in China, who graduated in 2007, have so far failed to find jobs, according to a blue paper issued by the Chinese Academy of Social Sciences.

Nearly five million university students graduated in 2007, but one million of them have still not found jobs, according to the blue paper released earlier this month.

“This is not because China’s policy to expand university enrollment has resulted in labor supply outweighing demand on the labor market,” Yang Weiguo, associate professor of Beijing-based Renmin University said.

“In fact, the gap between supply and demand reaches 13 to 14 million people annually in recent years,” said Yang, also the deputy director of the Employment Research Institute of Renmin University.

Only 270,000 students were admitted to study in universities when China resumed its university entrance exams in 1977. Thirty years later, the number of undergraduates and postgraduates surged to 5.7 million and 424,000 respectively.

However, official statistics show only five percent of China’s total population have the opportunity to receive higher education,

“One of the reasons for the difficulty in university graduates finding employment is that they are unable to satisfy the needs of employers,” he said.

“The other reason is that university graduates are unwilling to go to backward or remote areas, yet are unable to find jobs in metropolises such as Beijing and Shanghai,” he said.

He said the universities need to adjust their teaching methods and content quickly to conform to social development and demand.

He also called on the social security, educational and personnel departments to adopt more favorable policies or offer subsidies for university graduates working in relatively backward regions.

Salary for new graduates edges up

The average starting salary for new graduates in 2007 was 1,798 yuan per month ($250), 210 yuan more than that of 2005, a survey conducted by Peking University shows.

The Beijing News reported on Tuesday that the survey on postgraduate employment shows 50 percent of graduates received a starting salary of over 1,500 yuan, with higher salaries for more advanced degrees.

According to the survey, male graduates receive higher salaries than females. The median starting salary for male graduates was 1,500 yuan, while that of female graduates was 1,300 yuan.

Research institutions, foreign-funded companies and government departments offer higher salaries to graduates. Administration management, business management and professional technical work were ranked as the top three fields, in terms of entry-level salaries.

The survey also shows that each graduate submits an average of nine applications when searching for a job, and receives an average of 4.3 interviews and 2.3 offers.

The results of the survey are based on 16,388 questionnaires collected from students at 28 universities and colleges in eastern, central and western China.