Archives January 2013

China’s university graduates stumped over jobs, life and politics

Employment prospects are looking increasingly grim amongst many “post-80s and 90s” university graduates and students across the country according to a recent report by the Chinese Academy of Social Sciences.

The CASS Blue Book of China’s Society revealed that only 76 per cent of 2012 graduates had been able to find jobs, Caijing reported on Monday.

The CASS conducted a survey on 2,000 students and graduates from 12 colleges and universities across China.

When asked about their outlook on jobs, only 30 per cent of university students felt they would be able to find work successfully and most students said they lacked confidence in the job market.

Even among those who have found work, job satisfaction has been low, with about two-thirds of 2011 graduates claiming to have worked at least 1 to 2 different jobs since graduation. Job hopping has become commonplace, according to the report. Only 1.6 per cent of university graduates felt satisfied with their employment situation.

Analysts believe satisfaction among graduates is linked to home ownership and marriage, as those in this category reported higher levels of personal satisfaction.

Meanwhile, as out-of-reach property prices make homeownership increasingly difficult, more than 70 per cent of college students now feel they belong to the “lower” or “lower-middle” class demographic.

A dismal outlook on employment and life among post-80s and 90s youths tied in rather fittingly with an increase in sociopolitical awareness.

More than half of all those polled in the CASS survey said they were “interested in political affairs” and about two-thirds of university students and university graduates felt they “had the ability to participate in public affairs decision making”. A similar number felt they were “qualified to evaluate government actions”.

Social security and private property also appear to be of high importance to Chinese youths. The survey showed 64 per cent of university students and 70 per cent of university graduates “strongly favouring” private property over state-owned property. The number of students and graduates who agreed that “sacrificing personal interests for state interests was outdated” was split evenly with those who disagreed.

According to the Ministry of Education, Chinese universities produced 6.8 million university graduates in 2012, all vying for work in an increasingly competitive job market.

Recent figures published by the Chinese Household Finance Survey also revealed a 16.4 per cent urban unemployment rate amongst youths aged 21 to 25.

Chinese agency workers will be entitled to equal employment rights from July

Changes to Chinese employment law will limit the use of agency workers by companies, as well as guaranteeing those workers the same rights as those hired directly.08 Jan 2013

An amendment to the Labor Contract Law (Chinese) will limit the use of ‘labor contracting agents’ by companies to “temporary, supplementary or back-up jobs”. The change, which has been adopted by the National People’s Congress Standing Committee, is due to take effect on 1 July 2013 according to national press agency Xinhua.

The Labor Contract Law is one of China’s main sources of employment legislation. It came into force in 2008 and is administered by the Ministry of Human Resources and Social Security. Among other provisions, the law requires employers to pay employees’ health insurance and social security contributions, and includes protection for employees on probation and working overtime.

According to Xinhua, the amendment was proposed in June to prevent employers hiring long-term workers through agencies. According to Ministry figures, China had 37 million agency workers in 2011.In practice, companies can pay these workers much less than those recruited directly as they are categorised as ‘dispatched employees’.

The amendment reiterates a right for agency workers, or “dispatched workers”, to receive “equal pay for the same work” carried out by a company’s “formal employees”. Employers must “adopt the same remuneration distribution measures of its formal employees at the same position for such dispatched worker”.

Employers will also be required to hire the majority of their workforce directly, rather than via contractors, and to strictly control the number of ‘leased workers’ they hire. The amendment also clarifies those roles that can be filled by agency workers. ‘Temporary’ jobs are those lasting no longer than six months, while ‘back-up’ jobs are those that can be taken over while permanent workers are on maternity, study or holiday leave.

The amendment also creates new administrative rules for labor contracting agencies. The minimum amount of registered capital that an agency must hold has been increased to 2 million yuan, while agencies will also be required to obtain administrative approval before they can begin arranging employment contracts.

At a press conference to introduce the changes Kan He, vice chair of the committee’s legislative affairs commission, told Reuters that the changes were intended to “prevent abuse”.

“The regulations control the total numbers and the proportion of workers that can be contracted through agencies and companies cannot expand either number or proportion at whim,” he said. “The majority of workers at a company should be under regular labor contracts.”

High Turnover Keeps Haunting Chinese Employment Market

Salaries will grow 9.1% while turnover will remain high at 18.9% this year in China, according to a report released by Aon Corp, a London-based provider of risk management services and human capital consulting.

In the top four cities, Guangzhou will lead the way in manufacturing salary growth with 10.1%, followed by 9.8% in both Shanghai and Beijing and 8.9% in Shenzhen. Beijing’s 9.5% will be the fastest when it comes to non-manufacturing salary growth, followed by 9.3% in Shanghai, 9.1% in Guangzhou and 8.9% in Shenzhen, the report says.

Salaries of manufacturing workers in second and third-tier cities are catching up with those in the top four cities, with the average difference narrowing to less than 5%. The report warns that employment risks are surging in smaller cities as local turnover keep running high. Turnover in Chongqing and Nanjing, two leading second-tier cities, is expected to be 22.3% and 19.4% respectively, well above 9.6% and 7.3% in 2006.

Spiraling living costs in coastal China have prompted plenty of manufacturers to move to the inland, causing regional labor shortages and higher salaries, according to Aon China vice president Zhang Hong.

In terms of industries, the highest turnovers are seen in retail (31%), hi-tech manufacturing (26.6%), fast moving consumer goods (19.5%) and healthcare (19.2%), which can expect faster salary growths of 9.1%, 9.6%, 9.7% and 9.5% respectively. The four industries are undergoing structural changes in the labor market, Zhang argues.

The Aon report is based on a survey of more than 4,000 firms across China engaged in the real estate, finance, healthcare, hi-tech, retail, chemical, logistics and manufacturing industries.

Chinese students joining Communist Party for job-hunt perks

BEIJING–A growing number of Chinese college students are joining the Communist Party of China, attracted by the preferential treatment given to party members in finding employment and gaining promotions.

“Young people are joining the party because they are having difficulties finding jobs,” said a 23-year-old female worker in Beijing. “Many students want to work at stable state-owned companies.”

The woman said she joined the party while she was a university student. She said she had an advantage because of her membership when she worked at a state-owned enterprise.

A 24-year-old female worker at a private company in Shanghai also joined the party during her college days.

She was concerned that party membership may work against her acquiring visas, but she eventually joined the party because she thought that membership would be proof of her abilities.

Some government offices and public institutions require job applicants to be party members.

According to a survey by a staffing agency, many companies also give priority to party members when recruiting.

China is said to be in an “ice age for employment,” where 1.5 million college students annually fail to find jobs after graduation. In such a harsh hiring climate, the preferential treatment associated with party membership has attracted an increasing number of students applying to become members.

According to Xinhua News Agency and other sources, the Communist Party accepted only 14 percent of applicants for membership in 2010. But members age 35 and under are increasing by more than 1 million each year, and they now account for a quarter of all memberships.

At the end of 2011, 82.6 million people were party members.

Bai Zhili, associate professor of personnel management at Peking University, conducted a survey with other researchers from 2008-2009 to investigate why people joined the Communist Party. The researchers received replies from 823 people.

The results showed that 51 percent of respondents age 50 and older cited that they support “the idea of communism” as a reason, compared with 21 percent of those in their 20s.

Respondents who replied that they joined for “self-realization” or achieving successful careers, accounted for 18 percent of people in their 20s, compared with only 5 percent of those age 50 and over.

“Young people are joining the Communist Party as if to get admission tickets to enter a competition for jobs,” said another faculty member at Peking University.

China moves to improve workers’ employment rights

China amended its labor law Dec 28 to ensure that workers hired through contracting agents are offered the same conditions as full employees, a move meant to tighten a loophole used by many employers to maintain flexible staffing.

Contracting agencies have taken off since China implemented the Labor Contract Law in 2008, which stipulates employers must pay workers’ health insurance and social security benefits and also makes firing them very difficult.

WORKFORCE

“Hiring via labor contracting agents should be arranged only for temporary, supplementary and backup jobs,” the amendment reads, according to Xinhua news agency. It takes effect on July 1.

Contracted laborers now make up about a third of the workforce at many Chinese and multinational factories and in some cases account for well over half

EMPLOYMENT AGENCIES

Some foreign representative offices, all news bureaus and most embassies are required to hire Chinese staff through employment agencies, rather than directly.

In theory contracted workers should be paid the same, with benefits supplied by the agencies who are legally their direct employers.

However, in reality many contracted workers, especially in manufacturing industries and state-owned enterprises, do not enjoy benefits and are paid less.

Employment agencies have been set up by local governments, and even by companies themselves, to keep an arms-length relationship with workers.

Workers who are underpaid, fired or suffer injury often find it very difficult to pursue compensation through the agencies.

SAMSUNG SUPPLIERS

Korean electronics giant Samsung Electronics said last month that it would require its 249 supplier factories in China to cap the number of temporary or contracted workers at 30 percent of regular full-time employees.

It announced the corrective measure after Chinese labor activists reported violations of overtime rules and working conditions as well as under-age workers at Samsung suppliers.

Samsung says its own audit did not find workers under China’s legal working age of 16 and therefore it had not violated any of China’s employment regulations..

Use of student interns highlights China labor shortage

(Reuters) – In September, the largest factory in the northeastern Chinese coastal city of Yantai called on the local government with a problem – a shortage of 19,000 workers as the deadline on a big order approached.

Yantai officials came to the rescue, ordering vocational high schools to send students to the plant run by Foxconn Technology Group, a Taiwanese maker of smartphones, computers and gaming equipment.

As firms like Foxconn shift factories away from higher-cost centers in the Pearl River Delta in southern Guangdong province, they are discovering that workers in new locations across China are not as abundant as they had expected.

That has prompted multinationals and their suppliers to use millions of teenage students from vocational and technical schools on assembly lines. The schools teach a variety of trades and include mandatory work experience, which in practice means students must accept work assignments to graduate.

In any given year, at least 8 million vocational students man China’s assembly lines and workshops, according to Ministry of Education estimates – or one in eight Chinese aged 16 to 18. In 2010, the ministry ordered vocational schools to fill any shortages in the workforce. The minimum legal working age is 16.

Foxconn, the trading name of Hon Hai Precision Industry, employs 1.2 million workers across China. Nearly 3 percent are student interns.

The company “has a huge appetite for workers”, Wang Weihui, vice director of the Yantai Fushan Polytechnic School, told Reuters during a recent visit to the city.

“It tightens the labor market,” said Wang, whose school sends its students to work at Foxconn and other firms.

Local governments eager to please new investors lean on schools to meet any worker shortfall. That’s what Yantai, in Shandong province, did in September when Foxconn had trouble filling Christmas orders for Nintendo Co Ltd Wii game consoles.

“It has been easier to recruit workers in the Pearl River Delta than some inland locations,” Foxconn told Reuters in written comments in late December.

Some companies cite rising wages in southern China for the shift elsewhere. Wages are a growing component of manufacturing costs in China, making up to 30 percent of the total depending on the industry, according to the Boston Consulting Group.

Wages began to rise around 2006 as the migration of rural workers to Guangdong ebbed. China’s one-child policy, plus a jump in higher education enrollment, further depleted the number of new entrants to the workforce, forcing up wages.

That prompted American carmakers, Korean electronics manufacturers and private Chinese firms to look for new sites. Cheaper electricity, land and tax incentives as well as a growing consumer class in regions beyond the booming southern coastal provinces were other reasons to relocate.

Minimum wages in Yantai can be as low as 1,100 yuan ($180) a month compared to 1,500 yuan in Shenzhen, a city near Hong Kong.

What makes vocational students attractive is they can be paid less than full-time workers, although some firms – including Foxconn – pay the same base wages.

Even if they pay the same base salary, employers can save 10-40 percent per person because legally they do not have to pay health insurance or social security benefits for student interns.

Yantai was not the only local government to help Foxconn.

Two months earlier, Foxconn’s 100,000-worker factory near the city of Zhengzhou in Henan Province was racing to meet a deadline for Apple Inc’s iPhone 5.

Henan authorities told its cities to find 30,000 more workers for Foxconn, according to a Zhengzhou city government notice reprinted by the Hong Kong-based labor rights group, Students & Scholars Against Corporate Misbehaviour, or SACOM.

THE YANTAI MICROCOSM

Yantai shows how much China’s labor market has changed.

Zhang Weifang, head of human resources at the Yantai factory of LG Innotek estimates the city’s employable 16- to 18-year-olds has halved since her firm began production in 2004. LG Innotek is the components unit of South Korea’s LG Electronics Inc.

“It’s really hard to find people nowadays,” she said.

About 2,400 young workers staff Zhang’s factory, of which one-third are vocational students or workers contracted through agencies.

Students are sought after by plants which need extra workers during peak production periods, especially since China’s 2008 Labor Law makes firing employees cumbersome.

And students are plentiful. Vocational school graduation has surged 26 percent in the last five years, to 6.6 million students in 2011. Parents whose children cannot compete in China’s exam-driven high schools look to vocational schools.

Such students made up such a large percentage of a Honda Motor plant in southern China that when they went on strike for better pay in 2010, they crippled Honda’s production chain. A Honda spokeswoman said the ratio of students to regular employees had significantly declined, but would not give a figure.

About 2.7 percent of Foxconn’s workforce in China comprises vocational students, the company said in October. That works out to 32,400 teenagers.

“This program gives Foxconn an opportunity to identify participants who have the potential to be excellent full-time employees should they wish to join our company upon graduation,” Foxconn said in a statement at the time.

That month, Chinese state media said 56 minors under the legal working age were among students sent to work at Foxconn in Yantai. Foxconn removed the underage students from the plant after the reports.

Chinese law limits students to eight hours of work a day, with no night shifts. Vocational students in Yantai told Reuters they had worked up to 12 hours a day, and routinely did night shifts at Chinese and foreign-invested factories.

Foxconn has a program with Apple, one of its main customers, to pay interns the same wages as other workers, limit their work to eight hours a day, five days a week and allow them to quit if they want.

More than a dozen students interviewed by Reuters in Yantai had a mixed view of their internships, ranging from relatively positive to outraged. Many said it taught them to look for something other than assembly line work after graduation.

Most three-year vocational programs require a two-month internship in the second year, while the third is spent entirely at work. Even though students know they need factory experience to graduate, the assembly line comes as a shock to some.

“At the beginning I was really excited. I thought I could get experience and help out my family with some money,” said Yu, 17, an intern in Yantai. She asked that her full name not be used.

“To suddenly encounter 12-hour work shifts, standing, with only 40 minutes to rest and eat, our legs can’t stand it.”

Some students said they hoped the work would improve their prospects.

“Electronics is our major and so this will help in finding jobs,” said vocational student Sun Chuangjiao, a former Foxconn intern.

Companies defend the internships as educational as well as a useful recruitment strategy.

“The vast majority of our interns and the schools that sponsor them find their experience with us relevant and meaningful, and an important first step in their career development,” Emerson Electronic told Reuters.

It employs 40 interns for eight-month stints, out of a workforce of 1,063 at its air conditioner compressor plant in the Yangtze Delta city of Suzhou. All are over 18, it said.

LOOKING FARTHER AFIELD

The shortage of labor means companies often search far and wide for vocational schools to supply workers.

Zhang of LG Innotek said she had contacted schools across China to find interns while Mok Jangkyun, an auditor with Samsung Electronics, told Reuters he drove a full day after flying to Guizhou province in southwest China to vet a vocational school sending interns to its supplier factories.

Samsung did an audit of factories after activists found underage workers with fake IDs at one of the electronics giant’s 250 supplier factories in China. The South Korean company said it did not find underage workers at any of its suppliers.

Supplying vocational students can be lucrative.

Some students in Yantai said their school took 500 yuan from their monthly wage. Their school declined an interview request.

Some companies pay teachers directly to keep students in line in dormitories and on the factory floor, SACOM has found. In other cases, companies pay management fees or set up extra facilities at schools.

Foxconn says while it pays teachers who supervise students, it usually does not compensate schools.

“However, in some cases, we do provide compensation to meet their overall administrative costs,” it said. ($1 = 6.2335 Chinese yuan)

China’s Foxconn Worker’s Still Aren’t Earning Enough Money

Foxconn, one of China’s biggest electronics manufacturers and the maker of most Apple products, has been at the center of a number of labor scandals in recent years. However, employees at factories are hoping to work even more hours than they already do as they seek to make a decent wage.

According to the Wall Street Journal, last year the Fair Labor Association went to Foxconn factories to take an audit of the manufacturing giant’s work shifts and found that employees there were working 12-hour shifts, and sometimes even longer. According to the Atlantic, the regular work days of employees exceeded the legal limit in China of 40 hours per week and a maximum of 36 hours of overtime per month. As a result, Foxconn pledged to reduce available hours for workers to a maximum of 49 hours per week, including overtime.

Now, Foxconn employees are asking to be allowed to work more overtime hours because they claim they are not making enough money, even when working the new maximum number of hours. More than 15 Foxconn workers were interviewed, and they all claimed they already work between 10 and 15 overtime hours a week, exceeding the legal limit, and would work even more if given the opportunity.

Many of the employees at Foxconn are originally from rural areas and have come to the factory located in southern China, near Hong Kong, to earn and save money quickly to send back home. However, limiting the amount of hours they can work also limits the amount of money they can bring home.

The best solution to prevent overworking employees, and thus hopefully avoid another spate of employee suicides, would to be raise hourly wages. Foxconn has reportedly increased hourly pay three times this year. Now, the base pay of an employee is around 2,200-2,500 yuan a month ($350-$400), up from the previous 2,000 yuan ($321). At that rate, working regular hours does not satisfy employees who end up still working brutal 15-hour shifts. The pay increases do not equal the potential earnings that employees used to have.

One worker identified only as Ma was quoted by the Wall Street Journal as saying that by working overtime, he was able to double his monthly wage to about 5,000 yuan ($800), exceeding the legally prescribed limit.

Now, the problem may become Foxconn’s. The electronics manufacturing company may have a tough time retaining its 1.5 million employees once the new hour restrictions are rolled out next year.

Ma is one of those people who does not think his increased regular pay will make up for the cut hours.

“We don’t know how much our salary will go up. But after being here three years, I don’t have much incentive to stay, since my wage probably won’t rise much,” Ma said in the report.

And Ma is not the only one who may leave. After all, the goal for many is to make as much money in a day they physically can, not necessarily having job security. Foxconn did not comment on what it planned to do to retain its employees, but Bernstein Research estimated that the base salary of employees would have to be increased by 50 percent to compensate for cut overtime hours.

For now, Foxconn has improved the facilities’ working and living conditions. With dormitories that room friends together, recreational facilities and mental-health professionals on-site to counsel employees, and even high school and college education courses on-site as well, the company hopes that these other benefits will be appealing enough to retain employees.

Angel investor gives wings to new firms

Mobile payment technology displayed at an international telecommunications exhibition in Shenzhen, Guangdong province. Innovation Works is focusing on the IT, software and mobile segments. Its founder Kai-Fu Lee said most mistakes are made in first 12 to 18 months in business.

If asked for three words to describe himself, Kai-Fu Lee, a high-profile information technology professional and former head of Google China, says they would be: “Make a difference”.

He certainly lives up to the motto. The 51-year-old has made a difference in terms of not only his career development but also his devotion to, and influence on, young people in China.

Born in Taiwan in 1961, Lee was the youngest child in his family and was sent to the United States to be educated at the age of 12. After getting a PhD degree in computer science at Carnegie Mellon University in 1988, his career progressed smoothly through a series of globally leading IT companies.

New career

Lee worked at Apple Inc from 1990 to 1996, where he started as a research and development executive.

The talented individual then moved to Silicon Graphics Inc, a global high-performance computing solutions provider, and spent a year as a senior executive.

At Microsoft Corp, he founded the company’s research facility in China, and helped Bill Gates deal with problems the company experienced in China. He also set up the Chinese business side for Google Inc, introducing the search engine to the nation.

However, after decades of success in leading multinational companies, Lee decided to start up his own business – Innovation Works – in 2009. It’s a company that acts as an incubator for entrepreneurial young Chinese people with innovative business ideas to initiate startups.

According to Lee, when he was heading Google China, he saw a lot of people who worked for him leave and start their own companies with passion and determination. Some succeeded, some failed. Lee then decided he would like to use his experience and social network to give people – not just former Google employees – the backing to start new companies.

“I think I can. I believe the elements that made Google, Facebook and Apple become great companies can be – and will be – duplicated in China,” said Lee.

What Innovation Works does is to find promising entrepreneurs early and provide them with all-round support, including recruiting people, product manufacturing, management, and financial and legal consultancy.

Lee’s company usually helps young entrepreneurs in their first 12 to 18 months in business. “That’s when most mistakes are made. That’s when people have the chance to succeed. If you make one mistake, everything can fall apart,” he said.

With initial funding of $500 million, Innovation Works focuses on the IT, software and mobile segments. It has made 50 investments over the past three years. The majority have so far survived and 18 of them have received a second round of funding averaging around $30 million. “But these companies still have a long way to go before they can go public,” said Lee.

He added that of the hundreds of companies Innovation Works has invested in, so long as one becomes an Internet giant in 10 years, the investment return will be considerable.

Two years ago, Jiang Fan, a 25-year-old engineer, decided to leave Google and set up his own company – Umeng Co Ltd – to provide services for mobile Internet application developers. Jiang described his business plan to Lee and immediately received support.

“He had never done anything other than engineering. He is a great engineer but has no business experience, so we first had to mentor him to be a good manager,” said Lee, adding that he felt Jiang has good business sense.

Just 28 months later, Jiang’s company has grown from only one person – himself – to almost 100 people and become the leader in the niche market. The company received another round of funds of $10 million from venture capital firm Matrix Partners in 2011. Lee estimated that Umeng will be profitable by the end of this year.

“Without help from Lee, companies like us at the early stage may not survive and develop the business so well,” Jiang said. “More importantly, Lee has made ‘angel’ investments more widely recognized in China. As a result more rich people and successful businessmen are joining in the trend.”

Angel investors are wealthy people who help entrepreneurs they believe in to start businesses by funding them.

Xu Xiaoping, founder of the venture capital fund Zhen Fund and Lee’s friend, said: “Lee feels a strong social responsibility to help both young Chinese people and companies to list in the US market.”

Promising sectors

According to Lee, over the next five years, mobile Internet companies will come to prominence. “Today, you think of Baidu, Alibaba and Tencent as three giants. I predict that in five years there will be two or three other mobile Internet companies at the same level of power and value as these companies,” said Lee.

He specifically cited entertainment such as music, video, gaming, social networking and e-reading as aspects of the market young people are mostly interested in and that are most promising.

The value of the Chinese mobile Internet market totaled 14.8 billion yuan ($2.38 billion) in the third quarter of 2012, up 102.1 percent year-on-year, data from iResearch Consulting Group shows.

Lee also said he is personally keeping a close eye on digital television, enterprises selling software to corporate clients and big data businesses.

Against short sellers

Chinese software company Qihoo 360 Technology Co Ltd in August initiated legal action against Citron Research and its main contributor Andrew Left for the short seller’s “untruthful publications or statements regarding Qihoo 360”, the New York-listed company said in a statement.

Citron is blamed for affecting the share prices of 21 New York-listed Chinese companies since 2006, with 16 companies seeing their prices drop more than 80 percent, and seven being forced to delist. Qihoo was among those that suffered a fall in the value of their shares. Lee said he has also filed a lawsuit against Citron for alleged defamation, which will be held in Beijing.

The spat came after Lee rounded up more than 60 top Chinese technology executives to defend US-listed Chinese companies from being hit by short sellers in a joint letter in September.

In one of the alleged mistakes in the piece of analysis that Lee pointed out, a Chinese search engine is described as using a new search method that is simply illogical and that does not exist.

Lee said the “intentional” behavior of Citron has had several dangerous outcomes, including misleading US investors, damaging their confidence in Chinese companies and causing Chinese companies’ stock prices to fall when they are “completely innocent”.

Furthermore, the Chinese companies that were listed in the US market may choose to turn private and relist in Hong Kong or elsewhere while those waiting to list may defer that move.

“So all these could end up with the result that US stock exchanges, which could be perfect stock exchanges, may no longer have Chinese stocks,” Lee said, adding that he wanted to help US investors understand Citron and Muddy Waters, another short seller of stocks in Chinese companies, “are not to be trusted”, that warning signals need to be sent to short sellers so they can “no longer fool people”.

Lee said his action also gives the signal to Chinese companies that if a company is unfairly treated it should react immediately, especially by using the legal system to protect itself. Spending money for this purpose is worthwhile.

The most crucial thing is to have truthful and authentic financial data, said Lee. Chinese companies should have strong public relations with the media and attach importance to investor relations.

Citron has admitted some mistakes. “It’s just a step and they might be more careful in the future because they know they are being watched by Chinese companies,” said Lee. “Hopefully it could help Chinese companies regain the confidence to defend themselves.”

China Facing Increasing Competition from Asian Neighbors On Tax Rates and Costs

China is facing pressures concerning its foreign direct investment inflows as other Asian countries reposition themselves to take advantage of its increasing labor costs. China’s minimum wages are rising at an average 22 percent per year, while employers have to part with as much as 40 percent of that salary again through social welfare payments that are directly linked to wages. China’s corporate income tax rate is currently 25 percent, yet foreign investors are also subject to a further 10 percent tax on profits (dividends tax) should these be repatriated out of the country. Concerns are growing among many multinationals over the ongoing and increasing costs of doing business in the country.

Many, however, assert that the creation of wealth in China is a positive issue, pointing out that the current middle class in China estimated at roughly 250 million is expected to rise to 600 million by 2020. The view is that foreign investors will be able to share in a mass consumer boom for products on a gigantic scale as increasing numbers of Chinese enjoy higher levels of disposable income. The key to this potential bonanza, though, relates to where these products will actually be made – and part of this conundrum relates to the continuing rise of Chinese labor.

Other Asian neighbors are eying China’s middle class consumer boom versus increasing labor costs predicament with their own strategic views. The Vietnamese Ministry of Planning and Investment has indicated that in 2013 it will employ a far more aggressive approach to attracting foreign investment. German, Japanese, Taiwanese and South Korean investors have all been lobbying for reductions in taxes, and the government appears to have been taking their cases seriously.

Vietnam’s corporate income tax rate is currently 25 percent, the same as China’s, yet moves expected to be ratified by Vietnam’s National assembly next year could see these reduced to 23 percent – a significant discount. In addition to this, the Vietnamese government has reduced corporate income tax rates to 10 percent for foreign investors increasing their existing investments in Vietnam. On a trial basis, Samsung has been given a 10 percent CIT level for profits arising from a new factory investment of US$830 million following an increase of this amount in their Vietnamese registered capital. Again, this policy is expected to be adopted as an FDI incentive by Vietnam at the National Assembly in the spring next year. Unlike China, Vietnam does not levy any dividends tax.

Taiwanese companies too are eying the potential. Foxconn, for example, has thousands of employees in China, and has invested heavily in strategic hubs of component manufacturers all based in one themed industrial park. Yet with those labor costs increasing, and a de facto (repatriated) profits tax rate of 35 percent, Vietnam’s lower labor costs, CIT rates and lack of dividends tax are starting to appear very alluring.

It is not just Vietnam that is aggressively looking at exploiting China’s labor, tax and consumer boom squeeze. Thailand and Indonesia are beginning to provide lower tax bases to attract FDI. India too, with its rather high corporate income tax rate of 40 percent is examining this situation. India’s politicians realize their CIT rate is too high, and significant tax reforms are expected to come in due course with a top rate of 30 percent CIT anticipated.

On top of facing competition from other Asian countries offering significantly lower income tax rates and incentives, the ASEAN free trade zone will unify in 2015. Existing and anticipated free trade agreements between ASEAN and China, such as the Regional Comprehensive Economic Partnership, will wipe out tariffs across the region on thousands on products come January 1, 2015. By that time, the costs of manufacturing in China may well have begun to look highly uncompetitive. Foreign manufacturers wishing to reach out to the Chinese consumer will have options regarding where to position that manufacturing capacity. It is to countries such as Vietnam and other ASEAN locations that the bean counters at corporate head offices will start to reach out to, as competition for foreign direct investment in the global manufacturing arena places China’s dominance thus far in some question.

Taiwan concerned over China high-tech talent poaching

Taiwan Wednesday voiced concern over “malicious talent poaching” in reaction to a report that a high-tech firm run by former Chinese president Jiang Zemin’s son was aggressively recruiting staff from the island. “The flow of talent has to follow proper procedures,” Economic Minister Shih Yen-hsiang, pictured in 2003, told a session of parliament.

“The flow of talent has to follow proper procedures,” Economic Minister Shih Yen-hsiang told a session of parliament. “We don’t approve of malicious talent poaching.”

Shih made the comment after the Taiwan-based CommonWealth magazine reported that Jiang’s son Jiang Mianheng was among a string of Chinese businesses going after the island’s high-tech talent.

According to the biweekly magazine, tech company He Hui operated indirectly by the younger Jiang allegedly had recruited 70 people from top research institutes and firms in Taiwan to the alarm of the island’s authorities.

“We hope recruitees will seriously consider the potential damage they could cause or the liabilities they could face when making any move,” Shih said.

He was referring to an industrial secret protection law recently passed by parliament which imposes tougher punishment on the theft or improper usage of trade secrets.

Taipei has long taken care to protect its high-tech sectors, imposing restrictions on local firms investing in China to avoid the risk of giving the Chinese side a technological advantage.

The government in 2010 relaxed the rules on some high-tech investment in China following calls by local firms, which pointed out their competitors from South Korea and Japan had been stepping up activity there.

China still sees Taiwan as part of its territory awaiting reunification, by force if necessary. However, ties have improved markedly since in recent years under Taiwan’s Beijing-friendly President Ma Ying-jeou.