Archives 2013

Income inequality on the rise in China

Although statistics are sketchy, the chasm between rich and poor seems to have widened in China.

Shanghai, China – This country’s economic boom has lifted millions of its citizens out of poverty and led to predictions it will become the world’s largest economic power by 2030. However, while China’s GDP has increased, so has the gap between its wealthiest and poorest citizens, placing the country among the most unequal nations in the world, according to a study by a Chinese institute.

China’s Gini coefficient, a widely accepted measure of income distribution, reached 0.61 in 2010, according to findings by the Survey and Research Centre for China Household Finance. A score of zero represents perfect equality while a score of one represents total inequality, with one individual possessing 100 percent of a country’s income.

Inequality is starkly visible in large cities such as Shanghai, where Lamborghinis and Porsches are a regular sight outside expensive restaurants, while beggars sit on the pavement with plastic cups looking for change. In the shadow of looming skyscrapers lie cramped dormitories for migrant labourers who work on some of the world’s most expensive properties.

“There is a huge gap between rich people and ordinary people in China,” said Yang Zhang Yi, a retired worker, as he was waiting for a subway train in Shanghai. “Maybe the government should pay more attention on … how to tax the rich people and reduce the taxes for the poor people.”

The Chinese government has not released official Gini coefficient figures since 2000, when they put the figure at 0.412. In 2012, the National Bureau of Statistics said it was “slightly higher than 0.412” in 2010, but didn’t give an exact figure, reported Xinhua, the Chinese state news agency. In March, Bo Xilai, the now ousted former Communist Party secretary of Chongqing, said that the figure had exceeded 0.46.

The World Bank, in a report published in February, cited income inequality as one of the main challenges facing China. The report stated that “the sustained increase in income inequality places China at the high end of income inequality among Asian countries”. The World Bank hasn’t issued Gini coefficient figures for China since 2005, when it estimated it to be 0.425.

Chinese estimates of the country’s Gini coefficient have varied considerably. For example, in September, the International Institute for Urban Development in Beijing calculated China’s Gini coefficient to be 0.438 in 2010, much lower than the Survey and Research Centre’s result. Professor Gan Li, the centre’s director, said he could not explain the differing figures but added that their study, which surveyed 8,400 households, was the first to publicly release all its data.

In an interview with the Communist Party-owned Global Times newspaper, Zheng Xinye, a professor at Renmin University, said the real figure may be even higher than 0.61 – as it is difficult to survey the super-rich in China. He blamed the widening income gap on “restrictions that kept small and medium-sized companies from entering high-profit sectors, as well as by employment discrimination”.

However, Professor Martin Whyte, a sociologist at Harvard University who has carried out research on attitudes towards inequality in China, said he found the figure of 0.61 hard to believe. “The best survey research on income gaps leads to the same conclusion that the figure [Gini coefficient] is rising but is nowhere near these sort of figures,” he said.

Regional differences

Inequality may also have increased between the country’s wealthy east coast, where the major cities of Shanghai and Beijing are located, and the rural interior. Earlier this year, the gap between urban and rural areas was highlighted with the news that students in an area of Hubei Province had to provide their own desks for school, in stark contrast with the air-conditioned schools in the country’s largest cities. The gap between urban and rural incomes is about 26 percent higher than in 1997 and 68 percent higher than in 1985, according to a report by the Chinese Academy of Social Sciences.

More than half of China’s workers now live in urban areas, as rural migrants move to cities for better employment options. According to official figures, there are now 252 million migrant workers, many of whom now live in the country’s cities. They usually are not entitled to healthcare, a pension or free education for their children under China’s household registration system or hukou, which divides citizens into urban and rural residents and allocates public services accordingly.

Whyte said one of the reasons for inequality in China is the divide between rural and urban Chinese. “Other countries don’t have a system like the hukou and the caste-like system it produces,” he said.

The Chinese authorities have made pledges to reduce the gap between rich and poor and to address corruption. In his opening address during the Communist Party Congress in November, President Hu Jintao made an ambitious target for 2020 to double per capita income from 2010 levels for both urban and rural dwellers. And in October, the State Council said it would draft a plan to reform the current income distribution system.

The level of income inequality is “largely because China has very little income transfer. The government used resources to build investment infrastructure,” Gan said. “It is time for the Chinese government to change its spending priority from infrastructure to income transfer and social welfare programmes.”

In an article for the Economic Observer, Sun Liping, a professor at Tsinghua University, reffered to research estimating that there were 180,000 protests, riots and other mass incidents in China in 2010. However, it is not known if any were directly related to income inequality, and Gan said he had found no evidence that the figure of 0.4 was a warning line for social unrest. But he added: “There is lots of research saying that it is not income inequality per se that affects social instability, it is unequal opportunities. If there [are] vastly unequal opportunities, people will feel unsatisfied.”

He believes that while there is room to improve, there “is a lot of social infrastructure in China that still works … It is getting worse but the situation is not at the tipping point”.

Income inequality will be one of the main challenges facing the country’s new leaders, who will formally take power in March. The wealth of China’s elite is controversial, and has recently been the subject of several foreign media investigations.

In December, Bloomberg exposed the vast fortunes of the offspring of China’s founding fathers, while earlier last year it also published an investigation on the business interests of the extended family of Xi Jinping, the soon-to-be president of China. The New York Times also published an investigation into the wealth of the family of prime minister Wen Jiabao.

While income inequality is a major issue for Chinese citizens, commuters in Shanghai had confidence in the Chinese government’s ability to solve the problem. “There is now a limitation of the top salary,” said Sun Xue Hong “For the poor, the government is trying to increase their salary at the same time. So this way the gap can become smaller and smaller.”

And one young professional who gave her name as Alice said that, while the chasm between rich and poor has grown, she believed “the new government will take measures to narrow this gap”.

“I am not sure about all Chinese people,” she said. “But I am more confident now and I get more confident that these problems can be sorted out.”

Building on his article in the month’s Global Recruiter, Max Price, Partner at Antal International, China gives a view on the recruitment sector in 2013

We all know there is plenty of information in the international and local press about how the economy and therefore the jobs market is slowing down. 2012 saw the lowest rate of GDP for some time and of course this will concern people. What we need to remember that a GDP of well over seven per cent is huge, and that over Q4 GDP rose again, so all of the signs are positive that growth will continue. Foreign direct investment in China is also expected to remain steady. As recruiters we are in a unique position to be in regular contact with the hiring departments within multinational and local business as well as being in contact with the local talent pool and this piece is based around the feedback from both sides.

China is a completely candidate driven market still and this will continue in 2013. What seems to be different is the company and candidate will value each other differently based on the previous few years in China, and this is where problems can occur. Candidates at the moment have lots of questions that need to be addressed before we get to the employers side of 2013. The Chinese workforce is still active in the employment market and is still one of the most active candidate markets in the world. By active I mean that the majority of employees out there will be interested in speaking to companies about their opportunities and are approaching companies and recruitment consultancies directly to see what is available for someone with their skillset and experience. The average recruiter in China will receive well over 100 applications a day from candidates directly or through mediums such as Zhaopin.com. Candidates are looking for exciting new challenges at all times and this will have a huge affect on the 2013 job market, as it has done towards the end of 2012.

Over the last six months there have been two main candidate observations during their interviews with companies. First of all, companies are taking longer in hiring decisions and secondly, companies are not offering the salary increases that are expected. There are other observations but these two are most prevalent and a lot of candidates say the same. Both of the above mentioned points are true, companies are taking longer to make decisions and companies aren’t offering the same salary increases as before as will be address later in the article. The fact that a lot of candidates are experiencing this adds to the impression that there is some looming financial crisis in China and that everyone should be panicking about their job security. Job seekers talk to each other regularly, candidates that are being headhunted let their friends know that they have been approached for a great new job, it is human nature. As these interview processes talk longer or the packages aren’t what candidates expect this information doesn’t just stay with them, it spreads around their circles, and then their friend’s circles like a virus. A virus spreading the self fulfilling prophecy of a crash in the jobs market in China which simply isn’t true. There will be changes in 2013 but change is good providing companies and candidates are well educated about the change.

Our job is to speak with hiring managers and HR professionals every day and the good news is that the vast majority of companies that actively engage with recruitment companies are expecting headcount growth in 2013. These companies range from multiple industry sectors, from Automotive to Luxury goods, from technical IT to Banking, from Retail to Construction. Certainly some of these industries are expecting lower growth than others, the construction industry is going to be relatively slow whereas the retail market, especially middle to high end luxury retail, is going to boom, but the common theme here is that all will be hiring, increasing headcount, and they all expect to have significant replacement recruitment to do as their employees move on to pastures new. As you can see it’s so far so positive for the job market, however there are snags. The points that candidates raised are valid, decisions take longer and the same increased salaries aren’t being offered and it is going to take some time with the two groups to come to agreement with that. Over the past few years the market has boomed in China, jobs outnumbered skilled employees and as candidates were originally underpaid their new companies were happy to give 30-50 per cent salary increases in order for a talented individual to move to them. The problem with that was that this war for talented individuals meant that professionals were moving again 9-12 months later for another 30-50 per cent increase and the cycle repeated itself again and again. It is not uncommon to see a CV with six different companies in an eight year career, the problem for candidates is that this is no longer acceptable to a rising number of companies.

When the boom in China took place, MNCs didn’t seem to care so much about backgrounds, providing someone could do the job required they would be hired and companies paid what was needed. Now that salaries are at an all time high in the Tier 1 cities and there is a very slight pinch in growth in China, MNCs and local companies alike are looking for their growth to come from increased performance from their people, in order for companies to get this increase they need to have time to train and develop them and this is where the two candidate points come into play. As we all know the standard job cycle globally runs in three stages, Year One – Learn your job, Year Two – Get good at your job and Year Three – Get bored.

The problem in China is that employees have been completing year one, then moving on to start the cycle again. As an employer you don’t really get much return on the investment of hiring until after year 1 has passed and it’s something that can no longer be tolerated. The reason why interview processes and hiring decisions are taking longer is because employers want to be sure that this candidate is right for their business, the candidate will stay and develop, and eventually add value to the organisation. Companies will intentionally delay interview procedures because they want to see that a candidate is truly interested in the role and the company, not the paycheck. This reasoning is true for the lower salary increases. Increases are still good compared on a global scale, an average of 17 per cent salary increase when moving job is fantastic, but nowhere near the same amount it was one year ago.

Companies will pay for the right people, and some large increases are still being offered, but not to candidates that have moved three times in the last four years as there is a huge risk in hiring someone that is likely to leave in nine months. The disruption to the team and the monetary cost of a bad hire is potentially devastating. Another point to mention here, though slightly off topic is Year Two. This is the stage that most job seekers in China have not been completing over the last few years, this means that a staggering number of candidates have the title of manager, or director, or senior partner etc without actually completing the required tasks to be proficient at the job. Extra rounds of interviews are being brought into a standard process in order to check this ability on a hands on level rather than theoretical and things like assessment centres are now becoming common place.

Moving to a linked topic to this, if, as an employer, you are offering less than the job market expects and are taking longer than normal to make your hires how do you attract people? The answer is in training and development. 51 per cent of candidates are more interested in in-house development than salary because of the experience over the last few years where this hasn’t been evident. Over the last six months the increase in demand for training and development specialist from HR departments has been huge across China and large amounts of vacancies at Manager or Director level insist on having someone who has experience in training and developing subordinates, some companies will actively get references from previous subordinates before extending an offer to a candidate.

In summary, 2013 will still be a great year for the job market, but job seekers and employers need to understand the market is changing and it wont be going back to the way it was which is not a bad thing.

Aon Hewitt: Chinese Employees Saw Average Salary Increase of 9.1%, Turnover Rate of 18.9% in 2012

Release date- 03012013 – Aon Hewitt, the global human resource solutions business of Aon plc (NYSE:AON), recently released the research findings of its 2012 China Human Capital Intelligence Report that comprises indicators of remuneration trends by industry sectors and the latest developments in human resources.

The research involves more than 10 key industries, including real estate, financial, pharmaceutical and medical equipment, high technology, automobile, consumer products, retail, chemical products, logistics and manufacturing, covering over 4,000 foreign-invested and leading local enterprises in Beijing, Shanghai, Guangzhou and Shenzhen, as well as major second and third-tier cities.

Both the national average salary increase and turnover rate show increase trends

Aon Hewitt’s research showed increased trends in both the national average salary increase and turnover rate in China for 2012. The 2012 national average salary increase was 9.1 percent, which was closely mirrored by a high turnover of 18.9 percent. In the four first-tier cities, the average salary increase in the manufacturing sector was 10.1 percent in Guangzhou, 9.8 percent in Shanghai, 9.8 percent in Beijing and 8.9 percent in Shenzhen. Average salary increases for the non-manufacturing sector were 9.5 percent in Beijing, 9.3 percent in Shanghai, 9.1 percent in Guangzhou and 8.9 percent in Shenzhen. Both the average annual salary increase and turnover rate in second and third-tier cities were higher than the national average. Aon Hewitt’s research showed the gap between the inland and the coastal areas, where most investments are concentrated, is gradually narrowing. Salaries for front-line workers, for example, who are the object of an intense war for talent, saw less than a 5 percent differential between the second and third-tier cities inland and the second-tier cities in coastal regions.

Aon Hewitt’s China 2012 Human Capital Intelligence Report showed an overall salary increase of 7.9 percent for the real estate industry, slightly lower than in 2009 and 2010 when the new regulation was not yet in effect, Salary increases in this industry are expected to slow down in 2013. In 2012, the job category witnessing the greatest expansion was ‘Sales and Business Development,’ which has increased by up to 42 percent only in Shanghai. According to Aon Hewitt, this is mostly due to new strict regulations that push residential real estate companies to transform into commercial real estate businesses. It can be expected that the demand for this job title will remain high in 2013.

Talent availability in the second and third-tier cities tightened and human resources risk index rose sharply

Aon Hewitt’s research shows that the conventional talent pool in second and third-tier cities has been rapidly diluted by the high level of salary increases and turnover rates, resulting in continuously increasing risk affecting human resources. In Chongqing and Nanjing, for example, the voluntary turnover rate in 2012 was 22.3 percent and 19.4 percent respectively (up from 9.6 percent and 7.3 percent respectively in 2006). Another key industrial city, Wuhan, is highly coveted by investors due to the availability of abundant educational resources. However, with the war for talent intensifying, the turnover rate has climbed from 9.4 percent in 2004 to 14.2 percent in 2012. According to Aon Hewitt, such a high turnover rate leads to high recruitment and training costs for employers and stagnation of the talent supply chain, bringing new labor and business issues to enterprises invested in Wuhan.

According to Peter Zhang, Global Partner and Vice President of Aon Hewitt Greater China, ‘High salary levels pushed up by high cost of living in coastal cities result in the relocation of a large number of manufacturing Research & Development units to the inland, causing shortage of talent supply. On the basis of a constant pool of talents, the intense war for talents has directly led to a remuneration escalation and high turnover of employees. However, with the eventual saving in personnel costs and operations, it will be an irresistible trend to move to the inland for closer connection to various partners and integration with the supply chain. Likewise, in the process of moving to the inland, new considerations related to the local hiring of mid-level management positions (versus importing them from coastal cities) must be taken into account to keep the costs of salary and benefits under control.’

The high turnover rate impacts the sectors of domestic consumption
Aon Hewitt’s research shows that industries of domestic consumption, such as the retail and fast-moving consumer goods sectors are impacted by the high turnover rate in China. Turnover rates in 2012 were 31 percent in retail, 26.6 percent in high-tech/manufacturing, 19.5 percent in fast moving consumer goods and 19.2 percent in the health care industry. High salary increases keep in direct proportion to high turnover rates, at 9.1 percent, 9.6 percent, 9.65 percent and 9.5 percent respectively.

Peter Zhang said, ‘Remuneration is always the barometer of a sector. Our figures clearly demonstrate that these four industries are bearing the brunt of the evolution in the human resources market caused by the industrial expansion. According to Zhang:

In the retail sector, the change in sales channel and consumption habits forces major traditional retail businesses to try to expand online with an imminent demand for talent transformation.

The high-tech/manufacturing sector is also experiencing the pain of industrial upgrading. The development from low value-added OEM (Original Equipment Manufacturer) processing to the manufacturing of products with independent design patents has generated a battle for high-quality talent extending from the research and development of products to packaging design, to skilled front-line workers.

Fast moving consumer goods are particularly sensitive to the right pricing. With the soaring cost of raw materials, a greater importance needs to be place on employee productivity and on a strong understanding of the demand for talents in the market.

The health care sector is known as one of the hottest sectors in China. However, according to Aon Hewitt’s 2012 survey results, this trend is stabilizing. After years of rapid growth, the health care industry is looking at re-evaluating its structure and sales strategy. With the injection of more domestic and foreign funds in this industry, and the dependence of sales channels in the second and third-tier cities, the upgrading of sales means and localization of product development are bound to bring a new round of competition for talents.’

The generation born in 1980s (Gen Y) constitutes the main force of the talent market, while the demand for employees remains diversified

Aon Hewitt’s 2012 China Human Capital Intelligence Report found that the generation born in 1980s (or Generation Y), which has been known as the new force of the workplace for many years, has become the main age component in the current talent market. Compared with 2007, the proportion of employees born in the 1980s is growing at a rate of almost 40 percent. Currently, the average proportion in various sectors has exceeded 65 percent. In some industries and functions, such as production of the high-tech manufacturing sector, the proportion has reached up to 80 percent. The new generation born in 1990s also has grown to be another large group in the workplace. At management level, the diversified age structure of employees has also created new demands. Aon Hewitt believes selecting the correct means of communications and incentives to improve these groups’ engagement and optimize their performance has become an important area of concern for management.

Peter Zhang concluded, ‘As China’s economy has entered the stage of medium-speed development, the impact on the industry is also reflected in the slowdown in sales. For example, the health care sector which has always maintained a high growth in sales has seen its sales rate decrease by 5 percentage points in 2012 compared to 2009. However, enterprises will never stop seeking maximal profits. In the short-term with continuous increase in personnel costs, the improvement in productivity has become the only way to realize sustainable development in enterprises.’

About Aon Hewitt

Aon Hewitt is the global leader in human resources solutions. The company partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com/apac.

About Aon

Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 62,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit http://www.aon.com for more information on Aon and http://www.aon.com/manchesterunited to learn about Aon’s global partnership and shirt sponsorship with Manchester United.