Category Candidates & Labor market

Developing a Jobs Market In a Fast-Changing China

As chief executive of China’s third-biggest online recruitment company, Liu Hao makes a living off the demand for talented people eager to prosper in the nation’s dynamic economy.

Zhaopin.com Ltd. has 18 offices across the country and more than 1,000 employees. At any given time it typically posts 200,000 to 300,000 jobs, ranging from drivers to salespeople to senior executives. Mr. Liu says that is 10 times the number of offerings in 2002, when he took over Zhaopin, in which he was a major investor.

Both the company, whose name means “recruitment” in Chinese, and the industry are still small. Market-research firm iResearch estimates that China’s online job-recruitment market was worth about 800 million yuan, or about $100 million, last year, and puts Zhaopin’s 2005 revenue at 70 million yuan and its market share by registered users that year at 9.8%. Mr. Liu puts its market share by revenue at 20% to 25%.

But the industry is growing fast. And Zhaopin, which started up in 1994 and now counts such regular clients as the China units of Microsoft, Unilever, Alcatel, BMW and Hitachi, is growing with it. The online recruitment market was up 46% from 2004, iResearch reckons, and Mr. Liu says earnings, which he won’t disclose, are, like his job postings, 10 times what they were in 2002. In April of last year, Monster.com, a major U.S. online recruitment company, spent $50 million to buy 40% of ChinaHR.com, one of Zhaopin’s two larger rivals. (The other is 51job.com.)

Mr. Liu, 37 years old, takes pride in having propelled the company to its current position. His co-investors include the venture-capital arms of computer maker Lenovo Group and Taiwan’s Acer Group. He says Zhaopin could go public, perhaps next year.

But Mr. Liu also takes pride in his own metamorphosis, from Beijing University physics major to Yale University law-school graduate and attorney at New York-based multinational law firm Davis Polk & Wardwell to California venture capitalist to entrepreneur, believing that in the end it’s better to commit to one vision than to make a run at many projects.

Mr. Liu spoke from Beijing with Juying Qin in Hong Kong about that principle and about connecting China’s leaders and workers with jobs in a fast-changing economy.

WSJ: How does Zhaopin.com mediate between prospective employer and job hunter?

Mr. Liu: We usually sign contracts with our clients or the employers. We check the veracity of the company as well as the job positions they want to post. Job hunters can put their own information into our database .

WSJ: Have you ever found your jobs online?

Mr. Liu: Well, no.

WSJ: What was your first job and what was the most important lesson you learned from it?

Mr. Liu: Practicing tax law. I was extremely impressed. The law firm is like a university or a learning machine, passing along knowledge to junior associate lawyers like me. Law students still tend to be less practical, especially Yale law students.

WSJ: Why did you turn from physics student to lawyer to venture capitalist and then to corporate executive?

Mr. Liu: Being a physicist was my childhood dream. But after a few years, I had a lot more discoveries about myself. I call this process rediscovery.

I went to law school not because I wanted to be a professional lawyer but because in law school, students could be exposed a lot more extensively to society. From a venture capitalist to the manager of this company was quite a natural choice for me. I was managing the company at the time as an investor, the company was not doing well, and I thought it was kind of an obligation for me to go in.

Most of my friends were against my choice, in part because they thought the risk was so high. Being a venture capitalist or being a lawyer is really kind of a cushy job. Lawyers do not really take that much risk. You do give advice to your clients, and you do have to make judgment calls, but those judgment calls do not eventually affect you.

To be a lawyer, you need to restrain your passion and be unemotional. To be a manager, you have to have some passion. If you don’t have it, you can’t do it.

Fundamentally I felt like were all kind of passive. In my life, I have always wanted to point to something that I really built.

WSJ: You didn’t go to business school and had no real managing experience before. What made you so confident you could turn this company around?

Mr. Liu: I actually asked myself the same question when I took this position. But I think personality is the most important thing that leads to success. I was always able to manage the transitions well, from physicist to lawyer and then to venture capitalist, so I should be able to manage another transition well.

WSJ: In your industry, are there big differences between China and the rest of the world?

Mr. Liu: The American job market is more like a seller’s market, while China, with a larger labor base, is more like a buyer’s market. But the job market in China is nascent. Fundamentally, its problems reflect the problems stemming from the educational system.

Many fresh college graduates don’t have the skills to cope with real work. They don’t have enough career training. So it can be quite hard for them to find their niches in the first couple of years after graduation.

There are two main problems. First, some people, especially fresh college graduates, make fake résumés by exaggerating their experiences. Second, people change jobs very frequently.

WSJ: Can you describe China’s leadership potential?

Mr. Liu: The quality of managers in China has been improving quite obviously in recent years, but there are still far fewer experienced managers than the market demands. Back in 2000 to 2002, people without much management experience could easily get around by carrying some master-of-business-administration degree from some big-name university like Harvard, although some were really not very capable.

WSJ: What is the most important piece of technology you use?

Mr. Liu: Basically I talk on the cellphone 24 hours a day. Sometimes people call me at 3 a.m., and they don’t even ask whether I was asleep. If I didn’t have a cellphone with me, I would start to worry about what I am missing. This really has become part of my body.

China needs more overseas experience, says Yao

BEIJING (Reuters) – Houston Rockets center Yao Ming believes more of his Chinese team mates need to gain experience abroad for the national team to be competitive at the 2008 Beijing Olympics, state media reported on Tuesday.

China finished a disappointing 11th at the world championships in Japan after being knocked out 95-64 by eventual runners-up Greece last week.

Yao, who averaged a tournament-high 25.3 points and virtually carried China into the second round, told state TV that several of his team mates should join more competitive leagues overseas.

“As the 2008 Olympics are drawing near, we should send abroad the likes of Yi Jianlian and Wang Shipeng as soon as possible in a bid to raise our level in the short term,” the 7ft 5in NBA All-Star center said.

“Even if our basketballers fail to play as regulars, we still could benefit at least from their training. I played as a substitute 10 minutes per game initially, too. It depends on your will and work.”

Yao lamented his team mates’ lack of strength and courage after China crashed out of the worlds, and remarked in media reports last week that Chinese basketball was too inward-looking.

But he conceded it was “impossible” for domestic clubs hungry for national success to send key players to foreign leagues, Xinhua news agency reported.

China’s basketball officials, concerned that foreign careers might interrupt national duty, have also been reluctant to allow young talent to seek their fortunes in overseas leagues.

Yi Jianlian, touted as China’s next Yao Ming and courted by several NBA clubs, declined to enter this year’s NBA draft after China Basketball Association (CBA) Director Li Yuanwei voiced concerns about young Chinese players warming benches in the NBA.

Menk Bateer and Wang Zhizhi, the other two towers in China’s NBA “Great Wall,” were characterized by regular transfers and little game time.

His NBA aspirations clashed with China duties, leading to his sacking after failing to join the national team during the Asian Games in 2002. Wang returned to China earlier this year.

Wang and the rest of Yao’s team mates will return to domestic league clubs for the kickoff of the CBA 2006/2007 season in October, before being called up for November’s Asian Games.

Yao has been exempted from the Asian Games, Xinhua reported.

Large numbers of low quality talent hurt China

Source: CRI
09-14-2006 16:05

China needs to take action against the large number of poorly qualified and low quality professionals with university or college certification, Chinese Talents Society Vice President Wang Tongxun said.

China Youth Daily reports Wang Tongxun issued his warning at a forum on human resources development held recently in Beijing.

Record numbers of Chinese citizens have received higher education in recent years. Over 66.5 million people have college degrees or above and around 17% of high school graduates enrol at university. There were 2.8 million graduates in 2005, nearly 9 times the number of graduates in 1985.

But Wang Tongxun said that as universities and colleges grow from institutions that cater to an elite group of students to institutions that education the masses, several problems have been created.

Degrees and titles are easy to obtain in China. Some universities or colleges issue diplomas recklessly, even providing them to people who have not attended the university courses. The lack of a sound qualification system allows poorly skilled Chinese professionals to receive titles more easily than their foreign counterparts.

Wang Tongxun also said the academic research at Chinese universities and research institutes is often carried out in a poorly planned and impatient manner. The resulting papers are rarely cited by foreign researchers and rank below 120 in the world in terms of citations. As a result, most of the research has no value and can’t be put into practice.

To compound the problem, the tendency for employers to value people according to their degrees rather than their talent and work experience has led to a culture of degree-hunting where people neglect to improve their talents in a measurable way.

Finally, Wang Tongxun said the phenomenon has led to a brain drain. Around 930,000 Chinese have traveled overseas to study since 1986, but only 230,000 have returned

Editor:Sun Luying

Finding talent challenging for China tech firms

By: Steven Schwankert

Tao Sixuan sighed when asked about hiring people for her start-up, Beijing Rose Technology Ltd. “It took a lot longer than I expected, to say the least,” she said, recounting difficulties finding staff to perform basic tasks such as Web design with hosting and back-end support.

“One girl wanted 5,000 renminbi (US$627) per month as a personal assistant–and I had to show her how to use the fax machine,” said Tao, who passed on the interviewee. Someone at that level would normally receive a salary of about 2,000 renminbi per month.

Technology industry employers face a number of problems finding good workers in China, including the spoiled, “Little Emperor,” attitude among young people in many parts of the country, a by-product of the government’s one-child policy.

Raised as only children under China’s population control policy, they are seen as spoiled, lacking any practical experience, and unwilling to endure even basic work-related discomforts such as long commutes or occasional overtime, executives say.

“The attitude is ‘me, me, me, me… and now,'” said Cyrill Eltschinger, chief executive officer of Beijing-based Information Technology United Corp. (I.T. United), a software development outsourcing firm. Eltschinger referred to the attitude of many entry-level employees, who, unlike some of their Western counterparts, couldn’t care less about non-salary benefits like retirement packages.

Other serious issues include a lack of skills and creativity, breaches of business ethics, and a dearth of understanding of how to function in a Western or other type of multi-cultural work environment.

Unlike their parents, who often spent their entire lives at a single employer, regular job changes in China’s tech sector are common enough that spending even two years at one position or company can be seen as too long. Demand for workers is so high that employees regularly seek higher bidders for their services, one reason they change jobs frequently.

Finding workers with basic IT skills is not a big problem for companies in need, but asking them to do more can be difficult.

“If you need someone who understands and can use the software or hardware, that’s no problem,” said Tao. “But if you need them to do something with it on their own, something creative, that’s entirely different.”

Several employers interviewed for this article complained about workers who show up completely unprepared for interviews, who start off by asking questions about what the company does and what the job entails.

“Not so much now, but earlier we got applicants who never looked at our Web site, never Googled us, and came in without the slightest inkling of who we are or what we do,” said Sam Flemming, chief executive officer of Shanghai-based CIC Data LLC, which monitors Internet-based public opinion via bulletin boards and blogs.

Business ethics have also become a major hiring concern, with everything from theft of intellectual property all the way up to more enterprising workers forming their own companies based around their employer’s infrastructure.

One technology executive in Beijing, who spoke on condition of anonymity because of a pending legal investigation, told of an employee he just fired this week.

“He had a full-time employment contract with another company while working full-time for us,” said the executive, adding that the man, “registered with our company using his Chinese ID card. He never told us he was a Canadian citizen.”

For foreign companies, hiring workers in China can be particularly difficult due to language and cultural barriers.

Offshore companies often find plenty of talented IT workers in China but face difficulties finding such talented workers who also have excellent English or Japanese communication skills, Eltschinger said. While language skills are improving, hiring people who understand the needs of Western or foreign clients, what he called a “cultural market perspective,” is still difficult, he said.

Eltschinger said retaining people is also a major challenge for small companies. Brand-name corporations carry greater prestige, and therefore give “face” to the people who work for them. As such, smaller firms have a tougher time holding onto employees for periods beyond two years, even with incentives such as advancement and training.

But being a foreign company with a big name can also work against an employer. When one candidate requested a salary four times more than his previous position, Eltschinger asked why he felt he deserved such an increase. “Because you’re a foreign company. You should pay more,” was the reply.

With boom, China faces work force shortages

In the three years since receiving his engineering degree in Shanghai, Jason Zhang has switched jobs twice and quintupled his salary as overseas companies scour China for professional workers.

“If you have language skills, if you have technical skills, it’s very easy to find a job,” says Zhang, 26, who speaks fluent English and now writes software for International Business Machines. “There are more jobs than even two years ago because of the outsourcing from Europe and the U.S.”

Employers like General Electric, Freshfields Bruckhaus Deringer and Ernst & Young are struggling to find engineers, lawyers and accountants as Chinese universities fail to turn out qualified professionals, especially those who speak English. The shortage is threatening expansion plans and driving up salaries in the world’s fastest-growing major economy.

“We could argue that more than water, energy and infrastructure, talent is the greatest constraint on China’s growth,” said Andrew Grant, who heads the greater China office of McKinsey, a consulting firm that advises two-thirds of the Fortune 1000 companies.

Fewer than 10 percent of Chinese job seekers are qualified for accounting, finance and engineering jobs at overseas companies, according to a November report by McKinsey that was based on interviews with more than 80 human resources officials. Most lack English skills and a “cultural fit,” the report said.

Ernst & Young, which plans to expand its work force in China fivefold to 25,000 in the next decade, has turned down clients because it cannot hire enough accountants, said Anthony Wu, a senior adviser and former chairman of the firm’s China office.

China lifted a one-year ban on share sales this year, and public companies are required to meet international accounting standards by next year, spurring demand for accountants.

The country has 69,000 licensed accountants and needs more than 300,000, said Chen Yugui, secretary general of the Chinese Institute of Certified Public Accountants. China did not have a university major in certified public accounting until 1994.

“The gap between the need and the supply is still huge,” Chen said.

Other professions are suffering, too. Even though a third of China’s university graduates receive engineering degrees, international companies cannot find enough engineers. Many graduates are not qualified because they are steeped in theory and have not learned to handle projects or work in a team, McKinsey said in its report.

Freshfields, a London-based law firm that has offices in 18 countries, is searching for qualified lawyers as it plans to add as many as 65 attorneys in China over the next five years, said Mary Wicks, human resources director for Freshfields in Asia. Freshfields is recruiting lawyers who are fluent in Mandarin and have international law degrees.

China has 120,000 lawyers, or one for every 10,800 people, compared with a ratio of one to 375 in England and Wales.

“Competition is tough,” Wicks said.

Companies are increasing pay and benefits to attract talented workers. The average salary for accountants at firms such as Ernst & Young and Deloitte & Touche Tohmatsu rose 30 percent to $9,000 last year, according to a survey by Mercer Human Resource Consulting, based in New York.

Ernst & Young is offering more vacation time and flexible work schedules, said Catherine Yen, head of human resources for China.

In the first half of this year, average annual wages in urban China rose 14.3 percent from a year earlier to $1,160, the National Bureau of Statistics reported.

Many companies are responding to the shortage by expanding internship programs and sponsoring university training programs.

General Electric has forged relationships with 17 of China’s 50 top universities, including Fudan University in Shanghai and Peking University, said Heather Wang, personnel director for GE in China. “China has a significant imbalance of supply and demand for talents,” Wang said. “It’s still tough to find people who are strong in technical expertise and bilingual.”

The search for talent has led to rapid turnover. Manpower, one of the world’s largest providers of temporary workers, said in June that 24 percent of the more than 300 employees it had surveyed in China planned to leave within the next year.

Ernst & Young, one of the biggest U.S. accounting firms, has watched its own clients lure away auditors.

“Everyone is striving very hard, so they poach,” Wu, the former chairman, said. “Who better to pinch than the auditors working on your company?”

The loss of senior employees is especially costly in China because of the concept of “guanxi,” or relationships based on mutual interests, said Victor Apps, Manulife Financial’s general manager for Asia. Manulife, the biggest Canadian insurer, has 12 offices and 4,500 workers in China, and is preparing to open offices in the cities of Jiaxing and Jiangmen, as well as in Shandong province.

“Guanxi and relationships are very important to business,” Apps said. Workers are the winners in this competition.

Zhang, who has been at IBM for a year, said that his first job at a software developer paid 2,000 yuan, or $251, a month. Within six months, Citibank hired him away for twice as much. Now he earns 10,000 yuan a month.

“For young people today, job security is really not a problem,” Zhang said.

Expatriate Individual Income Tax in China

Individual Income Tax (IIT)
There has unfortunately been a lot of nonsense spoken about registering for individual income tax in China, how much to pay, being paid partially overseas, actually working here but consistently on tourist visas and so on that the real picture over registering for, assessing liabilities and the payment of IIT in China has become rather muddled. Ask one expatriate, then ask another, and they’ll give you different opinions. However unfortunately, China’s tax regulations are not decided by expatriates. Neither is the situation short of clarity in the eyes of China’s tax bureau, who are quite clear on the subject and who are progressively clamping down on abuse of non-working visas and the under-declaration of income by foreigners in China. In this article we outline the circumstances, liabilities and procedures for registering for Individual Income Tax (IIT), explain the rationale and hope to take some of the pain away from being a tax payer in the PRC. Assessment of IIT can be very complex. You should also do your homework well in advance to assess your personal tax situation with the related authorities and ensure you are in compliance — China’s tax authorities are increasingly targeting expatriates who evade or only partially declare their IIT, with painful consequences for them and the international companies who employ them if tax is found to have been under declared.

Tracking Liabilities
Up until recently, China has been able to effectively track potential tax abuse only by inspecting foreigners’ passports and crosschecking with the tax bureau over whether or not registration had been completed. In practice such inter-government bureau co-operation never really transpired, with the Immigration and Tax bureau worlds apart. This has now changed and more information-sharing activities are taking place between different bureaus in the country. Entry/exit forms are computerized with the data compiled and made available to the tax bureau who now, at a glance, can ascertain visa types, length of stay, numbers of entries / exits and other information to assess whether IIT is applicable or not. This effectively means that the Chinese authorities can track properly movements of aliens through the country and retrieve data pertinent to tax assessments, as is routinely common in most Western nations. New regulations have also specified how to count the days in China and specifically the arrival date and departure date. These will all be counted as days effectively spent in China and are actively used for computation of IIT purposes.

Who Has to Pay?
China has a multi-tiered system of tax liabilities for foreigners, which has lead to some confusion, particularly over the so-called “90 or 183 days rule”. We identify the more likely scenarios and the tax liabilities as follows:

Expatriates on extended business trips to China
If you are sent by your organization to China and your salary is paid off-shore (probably in your home country) and you spend more than 183 days in China in a calendar year, than you have to pay IIT in China based on the days you effectively spend in the country. This means that if you spend in China, let’s say, 184 days within a calendar year, than you would have to pay taxes on all income sourced from China (meaning income related to your work performed in China).

Foreigners working for legal enterprises in China
Without going into too many complicated calculations and theories, if you hold positions such as the Chief Representative (CR) of a Representative Office (RO) or the General Manager of a Chinese Limited Company, Wholly Foreign Owned Enterprise or a Joint Venture anywhere in China, then you are subject to IIT from the first day you commence work in the country.

Interestingly, should you not actually visit China within a calendar year but are still acting as the Chief Representative of a Representative Office, then zero tax filings should still be made monthly to the local authorities.

According to the law you should declare the full salary for the position and pay IIT accordingly. In practice, however, it is common to see foreigners declaring an “arranged” fixed salary for their China position (with the rest being paid off-shore) and pay taxes accordingly, lowering to a great extent their full tax liability. This practice is illegal so be careful should you decide to pursue this route. While this has been common practice in the past, it also puts the employer out of compliance — fines of several million RMB have been levied just recently to FIE’s engaged in such practices in China — and the risk of being caught — with the issue now highlighted at audit — is increasing.

Foreigners holding concurrent posts both in China and elsewhere.
Firstly, you should be arriving in China on a business visa, and are subject to IIT based on the number of physical days you are in China. This is assessed upon the total salary you are claiming from your local employment position and from the parent company overseas — the Chinese tax bureau may want to see proof of earnings from your parent (tax slip, payment voucher etc) to support your case. At the end of each month, your China office should take copies of your passport, together with the entry/exit stamps for that month, and file and pay for taxes based upon the number of days spent in the PRC. The tax bureau will issue a receipt showing this has been paid, this can be credited against the tax paid in your resident location (ie: you won’t have to pay tax both in China and your resident location for the time spent in China).

China residency status and IIT on your worldwide income
Be aware that if you are regarded as tax resident by the Chinese government, which means you have stayed in China for more than 5 years (without residing outside the PRC for more than 90 days cumulatively each calendar year or 30 consecutive days always within a calendar year), you have to pay IIT on your worldwide income without limitation of source. This means that shall you have income elsewhere related to property rentals or interests, these shall also be declared to the Chinese tax authorities. The taxes paid overseas can be deducted from the taxes payable to the Chinese tax authorities. To be fair, we did ask the State Administration of Tax if they had ever collected such revenues, and the honest (and slightly bashful) answer was “No” — however why expose yourself to such a law without reason ? It’s easy to avoid so count those days and give yourself a month out of China every 5 years.

Work Permits Registration Procedures
If you are based in China and working here, then you should apply for working visa, working permit and residence card.

Please be aware that constant checks in residential areas are conducted by the local Public Security Bureau and one of the first things you should do when you arrive and rent an apartment in the country is to get registered with the local Pai Chu Suo (local police responsible for your area).

Before you obtain all the documents mentioned above you should also go through a medical examination at the appointed local hospital. It should not take you more than a couple of hours to get through the exams with the results normally being issued the day after (or if you pay more on the same day!).

Your spouse and children (if any) would also have to register with the local authorities.

Tax Rates & Liabilities
The first RMB4,000 of your earnings in China are tax free. That does not mean you can rush out and declare salaries of RMB4,500! The tax bureaus are wise to this and will demand to see concrete proof of your earnings elsewhere. If you can’t provide this they may refuse to register you, effectively immediately making your presence in China illegal.

China’s IIT rates are high compared to neighbouring countries. The following table demonstrates salary brackets and tax rates, plus the quick tax deduction system. Your Total Liability can be calculated as follows:

Salary minus 4000 x Tax Rate, less Quick Deduction Figure = IIT Tax Bill
Monthly Taxable Salary—–Tax Rate—–Quick Calculation Deduction

From RMB500 to RMB20,000—–20%—–RMB375
RMB20,001-40,000—–25%—–RMB1,375
RMB40,001-64,000—–30%—–RMB3,375
RMB60,001-80,000—–35%—–RMB6,375
RMB80,001-100,000 —–40%—–RMB10,375M
In excess of RMB100,000—–45%—–RMB15,375

There are some implicit or explicit benchmarks at local tax bureaus on what a reasonable salary is in certain industries and this could vary with your position, your education background and the country you come from. Local authorities have the power to increase your declared salary. Should this be manifestly low or inadequate to your position, they shall assume and obtain the proved confirmation that you are deliberately reducing the figure to escape from a higher IIT threshold. This can be enormously damaging for you and your employer who would be placed under far greater tax scrutiny in the future for potential tax evasion issues within the business.

Deductible Allowances
China is also pretty reasonable as regards non-taxable elements as part of an expat package, however some attention may need to be paid to the structuring of the inclusive package with certain items needing to be properly defined in the employment contract.

As a rule of thumb, if you pay for the expenses yourself (against local official invoices) and the company provides you cash allowances, then these are considered taxable. However, if the company pays for certain expenses on your behalf (for ex. Your apartment rental), then this kind of allowance is not taxable and can be deducted from your company FEIT computation basis.

Benefit Taxable as Part of Overall Package?
Hardship Allowance – Yes
Housing at Cost – No
Fixed Housing Allowance – Yes
Free Use of Vehicle – No
Fixed Expenses Paid in Cash – Yes
Reasonable Expense Reimbursed – No
Reasonable Home Leave Allowance – No
Reasonable Education for Dependents – No

Enterprises are obligated to withhold employees’ IIT when paying salaries to them; failing to do so will cause penalties. Meanwhile, the enterprises can get 2% of the IIT withheld from the tax bureau as commission. Pay attention to the calculation of the IIT if the companies are paying IIT for the employees, in this case the income has to be grossed up for the purpose of calculating IIT.

Individual Income Tax calculations for standard salaries are fairly easy to assess, but get more intricate according to the complexity of the expatriate’s salary package. It makes sense to take professional advice when structuring expatriate salary packages to ensure liabilities can be planned, and catered for in the most tax-efficient manner.

Non-Compliance Penalties
No Government likes tax evasion and China is no exception to the rule. The penalties for late payments, non-payment and other transgressions (naivety is no excuse) can be severe — often up to five times the amount due, plus the original liability. In cases of blatant evasion, businesses can have their licenses withdrawn and assets seized. If you have any doubts, please seek professional advise immediately — this is the one area it is best not to mess about with, fees spent on decent advise are less than the amounts levied in fines and penalties!

Expatriates in China: Changing the Package

Though China has a vast workforce, the country is facing a severe shortage of skilled labor. ” [The shortage] is across the board,”says Stella Hou of Hewitt Associates, a human-resources consultancy. “[International] companies have a hard time recruiting ideal candidates to run their operations in China. The local workforce mainly lacks management skills, leadership, creativity, autonomy or risk-taking, marketing and research.”

Developing economies often encounter talent shortages as they take off, and China is no exception. Private business has flourished only during the past 15 years and most professionals are still at a junior level. Since most enterprises were previously State-owned and operated within a centralized economy, a sense of “corporate spirit”and “business initiative”has yet to take hold in the domestic workforce. Concepts, such as branding, project management and other skills involving international standards of corporate operations still need to be learned. “After more than a decade under State-owned enterprises, Chinese businesses lack the mindset to adopt Western working practices,”says Larry Wang of Wang Li & Asia Resources, a recruitment company based in Beijing.

However, economic growth is pushing most companies to develop higher work standards. It has also pushed them to expand domestic operations, and thus to increase their demand for employees with strong leadership and management skills. As a result, China is currently demanding a bigger talent pool that it can supply. Chinese professionals with experience working at the international level are highly sought after, and rare. Unable to find domestic workers with these qualifications, companies have thus continued to lean on experienced and skilled expatriates for management of regional operations. In fact, the dearth of a skilled domestic workforce threatens the competitiveness of companies in China, since the need to rely on skilled foreign (and therefore expensive) labor has increased operating costs.

Expatriate Demand
Multinationals have always relied heavily on expatriate executives to head their departments and organize business expansion. Foreign firms choose expatriates from their company headquarters because they represent a bridge from corporate office to the local market. “I was chosen because I already have the experience in expanding businesses overseas and can quickly adapt to diversity,”says Sheila Lester-Smith. former vice-president of Motorola for the Asian Region. Analysis by Hewitt on expatriate annual salaries for 2004 indicates that salaries are high and packages attractive. A country-level managing director receives US$250,000 to US$300,000 per year, while top executives can expect US$500,000 or more. “The salary is completed with bonus and compensation such as free housing and schooling for the children and company,”says Stella Hou.

According to Hewitt, the number of expatriates in China is rising and includes both Western foreigners and, increasingly, Asians from neighboring countries. “It is getting difficult to define what ‘expatriate’ actually means, since there are so many different kinds in China. We do not have a one-size-fits-all type,”says Hou. The Asia-Pacific region expatriate population represents fully 55.6 percent of China’s external recruitment channel. “There is a continuous transfer of Asia-Pacific headquarters to China. China is a growth in the multinational radar screen and companies are sending their employees there to ensure the development of their firms,”adds Hou.

Chinese returning from study overseas are filling up some of the shortages at the most senior levels. Confident in getting more rapid career advancement in China than in the Western countries where they studied or worked, returnees are also attracted by China’s fast business growth and improvement of quality of life. In 2004, the number of foreigners (from multinationals’ home countries) sent by their companies to China fell to 41.7 percent (from 52.9 percent in 2003). Conversely, the number of Asia-Pacific workers (Hong Kong, Taiwan and Singapore) and Chinese returnees continues to increase. “The Asia-Pacific workforce is more sensitive to Chinese culture, can often speak Chinese and English and is seen as ‘quasi-international’ by most employers,”says Larry Wang. “Their package is comfortable compared to the one they can have in their home countries and most importantly they can develop or sustain their career in the mainland.”

Recruiting, retaining and localizing
Human resource issues have become high priority concerns for companies in China. Recruitment, retention and localization of staff represent their top priorities. Georges Desvaux, director of China for McKinsey, says the key point is that the critical skills that are missing in many firms are not so much top management, where one can find highly qualified locals, but more often highly specialized functional skills at middle and supervisory levels where experience in organizations that have long-standing systematic processes is critical. Strong multinationals that want to operate at global performance levels hire expatriates for these jobs, and slowly build a cadre of skilled locals.

But most firms realize that they cannot replace their expatriate staff for local employees as quickly as they have planned. They are therefore customizing their expatriate packages and creating hybrid packages to attract skilled employees into their companies. “Most multinationals keep their expatriates and manage the process based on better selection, preparation, and mentoring of local successors,”says Hewitt. The agency indicates that 36.9 percent of companies in China have current formal localization plans and 61.3 percent plan to or are making a transition over one to three years. Since many firms are investing in training staff in leadership, management and talent development, the local skill base is rising quickly. More than 69.7 percent of companies in China have development programs to build local successors for expatriates.
But while expatriate compensation is shrinking as the workforce diversifies, the number of expatriates will continue to grow. Most firms can now find more foreign talent choices in the local market and will continue this recruitment strategy. Multinationals are also competing for talent with China’s domestic companies, which need to improve the quality of their people as their markets open to foreign rivals. Despite this demand, however, Western expatriates are still reluctant to work for local companies.”

Local companies have now started to offer decent packages for expatriate employees that can include an annual salary of US$80,000 to US$120,000 for manager and top executive levels. However, only a few local companies have successfully hired and kept expatriates in their firms. “I am extremely skeptical about local companies hiring foreign expatriates”, says Larry Wang. “Most of these companies are used to being in a more centralized economy and are uneasy about giving up control.”

Despite the high cost, foreign firms hope to keep their expatriates until the “localization”of their staff is completed. But some firms have difficulty retaining them within their companies after termination of their assignments. “I quit my job as the Motorola vice-resident because it was the end of my term in China and I preferred to stay in China and look for opportunities over the next few years,”says Sheila Lester Smith.

China’s shortage of talent has indeed given a bright future to expatriates but “they have to love the people and the country first to enjoy their work here,”says Stella Hou.

Lack of professionals hampers China

By Kelly Proctor and Tina Qiu Bloomberg News

Published: August 16, 2006, Shanghai

In the three years since receiving his engineering degree in Shanghai, Jason Zhang has switched jobs twice and quintupled his salary as overseas companies scour China for professional workers.

“If you have language skills, if you have technical skills, it’s very easy to find a job,” says Zhang, 26, who speaks fluent English and now writes software for International Business Machines. “There are more jobs than even two years ago because of the outsourcing from Europe and the U.S.”

However, Zhang is an anomaly in China and his successful job moves illustrate the large demand in China for qualified workers.

Employers like General Electric, Freshfields Bruckhaus Deringer and Ernst & Young are struggling to find engineers, lawyers and accountants as Chinese universities fail to turn out qualified professionals, especially those who speak English.

The shortage is threatening expansion plans and driving up salaries in China, the world’s fastest-growing major economy.

“We could argue that more than water, energy and infrastructure, talent is the greatest constraint on China’s growth,” said Andrew Grant, who heads the greater China office of McKinsey, a consulting firm that advises two-thirds of the Fortune 1000 companies.

Fewer than 10 percent of Chinese job-seekers are qualified for accounting, finance and engineering jobs at overseas companies, according to a November report by McKinsey that was based on interviews with more than 80 human resources executives. Most lack English skills and a “cultural fit,” the report said.

Ernst & Young, which plans to expand its work force in China fivefold, to 25,000, in the next decade, has turned down clients because it cannot hire enough accountants, said Anthony Wu, a senior adviser and former chairman of the Ernst & Young office in China.

The need for people qualified to work in the financial field shows no sign of decreasing. China recently lifted a one-year ban on share sales, and public companies are required to meet international accounting standards by next year, spurring demand for accountants.

The country has 69,000 licensed accountants and needs more than 300,000, said Chen Yugui, secretary general of the Chinese Institute of Certified Public Accountants. China did not have a university major in certified public accounting until 1994.

“The gap between the need and the supply is still huge,” Chen said.

Other professions are suffering, too. Even though a third of China’s university graduates receive engineering degrees, international companies cannot find enough engineers. Many graduates are not qualified because they are steeped in theory and have not learned to handle projects or work in a team, McKinsey wrote in its report.

Freshfields, a law firm based in London that has offices in 18 countries, is searching for qualified lawyers as part of an expansion that will add as many as 65 attorneys in China during the next five years, said Mary Wicks, human resources director for Freshfields in Asia. Freshfields is recruiting lawyers who are fluent in Mandarin and have international law degrees.

China has 120,000 lawyers, or one for every 10,800 people, compared with a ratio of one to 375 in England and Wales. “Competition is tough,” Wicks said.

Companies are increasing pay and benefits to attract talented workers. The average salary in China for accountants at firms like Ernst & Young and Deloitte & Touche Tohmatsu rose 30 percent to $9,000 last year, according to a survey by Mercer Human Resource Consulting, based in New York.

Ernst & Young is offering more vacation time and flexible work schedules, said Catherine Yen, the firm’s head of human resources for China. In the first half of this year, average annual wages in urban China rose to $1,160, or 14.3 percent, from a year earlier, China’s National Bureau of Statistics reported.

SHANGHAI In the three years since receiving his engineering degree in Shanghai, Jason Zhang has switched jobs twice and quintupled his salary as overseas companies scour China for professional workers.

“If you have language skills, if you have technical skills, it’s very easy to find a job,” says Zhang, 26, who speaks fluent English and now writes software for International Business Machines. “There are more jobs than even two years ago because of the outsourcing from Europe and the U.S.”

However, Zhang is an anomaly in China and his successful job moves illustrate the large demand in China for qualified workers.

Employers like General Electric, Freshfields Bruckhaus Deringer and Ernst & Young are struggling to find engineers, lawyers and accountants as Chinese universities fail to turn out qualified professionals, especially those who speak English.

The shortage is threatening expansion plans and driving up salaries in China, the world’s fastest-growing major economy.

“We could argue that more than water, energy and infrastructure, talent is the greatest constraint on China’s growth,” said Andrew Grant, who heads the greater China office of McKinsey, a consulting firm that advises two-thirds of the Fortune 1000 companies.

Fewer than 10 percent of Chinese job-seekers are qualified for accounting, finance and engineering jobs at overseas companies, according to a November report by McKinsey that was based on interviews with more than 80 human resources executives. Most lack English skills and a “cultural fit,” the report said.

Ernst & Young, which plans to expand its work force in China fivefold, to 25,000, in the next decade, has turned down clients because it cannot hire enough accountants, said Anthony Wu, a senior adviser and former chairman of the Ernst & Young office in China.

The need for people qualified to work in the financial field shows no sign of decreasing. China recently lifted a one-year ban on share sales, and public companies are required to meet international accounting standards by next year, spurring demand for accountants.

The country has 69,000 licensed accountants and needs more than 300,000, said Chen Yugui, secretary general of the Chinese Institute of Certified Public Accountants. China did not have a university major in certified public accounting until 1994.

“The gap between the need and the supply is still huge,” Chen said.

Other professions are suffering, too. Even though a third of China’s university graduates receive engineering degrees, international companies cannot find enough engineers. Many graduates are not qualified because they are steeped in theory and have not learned to handle projects or work in a team, McKinsey wrote in its report.

Freshfields, a law firm based in London that has offices in 18 countries, is searching for qualified lawyers as part of an expansion that will add as many as 65 attorneys in China during the next five years, said Mary Wicks, human resources director for Freshfields in Asia. Freshfields is recruiting lawyers who are fluent in Mandarin and have international law degrees.

China has 120,000 lawyers, or one for every 10,800 people, compared with a ratio of one to 375 in England and Wales. “Competition is tough,” Wicks said.

Companies are increasing pay and benefits to attract talented workers. The average salary in China for accountants at firms like Ernst & Young and Deloitte & Touche Tohmatsu rose 30 percent to $9,000 last year, according to a survey by Mercer Human Resource Consulting, based in New York.

Ernst & Young is offering more vacation time and flexible work schedules, said Catherine Yen, the firm’s head of human resources for China. In the first half of this year, average annual wages in urban China rose to $1,160, or 14.3 percent, from a year earlier, China’s National Bureau of Statistics reported.

SHANGHAI In the three years since receiving his engineering degree in Shanghai, Jason Zhang has switched jobs twice and quintupled his salary as overseas companies scour China for professional workers.

“If you have language skills, if you have technical skills, it’s very easy to find a job,” says Zhang, 26, who speaks fluent English and now writes software for International Business Machines. “There are more jobs than even two years ago because of the outsourcing from Europe and the U.S.”

However, Zhang is an anomaly in China and his successful job moves illustrate the large demand in China for qualified workers.

Employers like General Electric, Freshfields Bruckhaus Deringer and Ernst & Young are struggling to find engineers, lawyers and accountants as Chinese universities fail to turn out qualified professionals, especially those who speak English.

The shortage is threatening expansion plans and driving up salaries in China, the world’s fastest-growing major economy.

“We could argue that more than water, energy and infrastructure, talent is the greatest constraint on China’s growth,” said Andrew Grant, who heads the greater China office of McKinsey, a consulting firm that advises two-thirds of the Fortune 1000 companies.

Fewer than 10 percent of Chinese job-seekers are qualified for accounting, finance and engineering jobs at overseas companies, according to a November report by McKinsey that was based on interviews with more than 80 human resources executives. Most lack English skills and a “cultural fit,” the report said.

Ernst & Young, which plans to expand its work force in China fivefold, to 25,000, in the next decade, has turned down clients because it cannot hire