8 - Staffing and personnel
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8.1 Staffing and personnel
8.2 China's financial environment
8.3 Financial rules for foreign companies
Staffing and personnel
Any foreign company, which
successfully establishes itself in China, will not only
have Chinese partners, but Chinese employees. This raises
a number of cross-cultural issues around Western and Chinese
styles of doing business, workplace management and mutual
expectations between employees and employers.
Under Chinese law, employers entering the market are free
to set the terms and conditions of employment in such matters
as pay and other benefits, working hours and job descriptions/requirements.
Employers can hire staff through a familiar range of means,
including newspaper and other advertisements and through
the growing numbers of specialist hr firms in the market.
One very popular means of finding Chinese employees is through
employment fairs, which take place frequently in China's
Foreign invested companies in the Chinese market have unique
attractions to local workers. They usually offer higher
pay, are regarded as more prestigious and offer a better
platform for successful careers. Additionally, growing numbers
of graduates, including many who have studied in the UK,
US or Europe, provide foreign investors with a large labour
pool from which to find suitable people.
Most companies venturing into China start by employing expatriates
to head their projects. But as a general rule, foreign invested
companies should seek to localise employment as far up the
management chain as possible as soon as they can. Aside
from demonstrating the necessary commitment to China, this
also enables more effective management of the inevitable
frictions that arise between Chinese and Western ways of
doing business as well as getting round the language barrier.
There are also cost advantages. Local compensation packages
are increasing rapidly, but are not yet at the level of
those required by expatriates.
Some companies choose to import overseas Chinese managers,
often from Hong Kong, Singapore or Taiwan on the grounds
that they will share the language and wider culture local
staff and the market in general while being competent in
English and grounded in Western business practices. However,
overseas Chinese staff may have as little detailed knowledge
of conditions in mainland China, and are sometimes perceived
as arrogant or "too westernized" by local Chinese
China itself is producing growing numbers of people with
the skills and experience to take up management roles in
foreign invested enterprises. What people in this category
may lack is experience in Western business, and the key
here is to look for people with experience in other foreign
owned or invested firms.
In many respects, Chinese returnees offer the best option
for local management. Returnees in this context are people
who have studies and/or worked abroad for a limited period
of time. At one time, a chance to study abroad was looked
upon as a ticket to prosperity - and a one-way ticket at
that. But with opportunities in China now burgeoning, the
tendency is increasingly for Chinese students to graduate
abroad and then return at the earliest opportunity. The
appeal of Chinese graduates of foreign universities to employers
lies in their mix of Western and Eastern skills and competencies.
After a few years immersion in non-Chinese educational establishments
they have experienced and adapted to the West as Chinese
people, and so are well equipped to help others make the
While the number of highly qualified and experienced local
staff is growing in China, demand still outstrips supply,
with the result that wages are rising rapidly and many foreign
invested companies find themselves with high employee turnover
as staff "job hop" looking for the best terms
Combatting this tendency requires more than just the right
compensation package. It underlines the necessity of culturally
aware management and on forging a good reputation amongst
potential employees and in the community at large. Many
companies in China affiliate to charities or support business
in the community programmes offering training or providing
services to disadvantaged groups. While the days when businesses
offered their employees an "iron rice bowl" are
now over, people in China are habituated into thinking of
businesses as social as well as economic enterprises
China's financial environment
The majority of financing
necessary for investment into or trade with China comes
from the foreign companies taking this path. Traditionally,
they have provided most of the financing for joint ventures,
for instance. And this money has in turn come from the companies
themselves, as bank debt or from venture capital and similar
sources. Even as China's market reforms gather pace, it
is still almost impossible for foreign companies to raise
money for their activities in China itself.
Under the unreformed communist system the banking structure
was rudimentary, consisting of four state-owned banks -
the Bank of China, the Agricultural Bank, the Industrial
and Commercial Bank, and the Construction Bank. These were
"policy banks", operating under political guidance,
mostly using public money. At lower levels, banking decisions
were - and are still, to some extent, responsible to the
demands of local officials.
China began to reform the system in 1993, but progress has
been comparatively slow because the financial system still
retains political obligations. 70% of loans go to the state
sector, which only produces 30% of output, and many of these
loans are non-performing. The slowness of the reform is
deliberate. It avoids the mass unemployment and social dislocation
that happened after the former Soviet Union was subjected
to "shock therapy" market reforms. However, it
also threatens the integrity of the financial system as
a whole and undermines attempts to create a modern social
security network that would finally free the banks from
their political obligations.
Nonetheless, China has encouraged the creation of many new
banks at regional and local level, along with developing
important non-banking financial services. Many foreign owned
financial institutions already have a presence in the market
in anticipation of further liberalization of the sector.
Since joining the WTO, China has quickened the pace of reform
across the financial sector, with the following stated aims
• to create a fully independent banking structure
which can allocate capital in response to market needs.
• to encourage the growth of private banks and non-banking
financial institutions and create diverse and mature capital
• to allow the full participation of foreign banks
and financial institutions in the Chinese market.
Many of these reforms will come on stream in the next few
years, in accordance with China's WTO obligations. Once
established, they will probably lead to the decision to
make the Yuan fully convertible with foreign currencies.
Foreign companies in China can look forward to a much wider
range of financing options once these reforms begin to establish
themselves on the ground.
Financial rules for foreign companies in China
Foreign enterprises have
in the past been encouraged to come to China by the offer
of preferential tax treatment, which is in the process of
being phased out. Taxes payable by enterprises in China
include the following:
VAT payable on two scales. "Small scale taxpayers"
whose sales total less than 1.8 million yuan, and "general
taxpayers", whose annual sales exceed this figure.
Essential commodities are charged at a VAT rate of 13%.
All other commodities are charged at 17%.
Consumption Tax is paid by companies involved in the production
and sale of luxury and leisure commodities including cosmetics,
cars and motor vehicles, cigarettes, and alcoholic drinks.
It ranges from 3-45% of transaction value, depending on
Business Tax is levied on the revenue generated from the
provision of taxable services. These include communications,
transport, finance, and entertainment. Business tax is also
payable on property dealings and the transfer of intangible
Income Tax is charged to foreign owned and invested enterprises
on income derived from their business operations inside
Individual Income Tax is charged to all persons domiciled
in China at progressive rates from 5-45% of individual income.
China also has a variety of property taxes, including a
Land Appreciation Tax, Urban Real Estate Tax and Stamp Duty.
Foreign exchange receipts and payments are divided into
current and capital accounts.
Current accounts cover trade and labour receipts and payments
and one-way foreign exchange transfers. No controls are
exercised on current account transactions, and repatriation
of profits is allowed under this measure.
Capital accounts cover all forex investment capital in a
business, together with loans and external profits from
share issues. The capital account should be used as the
conduit for all additional foreign investment capital that
an enterprise receives. Forex loans are also repayable through
the capital account.
The financial standards and procedures required by foreign
enterprises in China are formulated in the Financial Principles
for Enterprises, produced by the Ministry of Finance. These
rules cover: revenue and expenditure, asset and cost management,
approval procedures for expenditure, foreign currency management,
and internal financial controls and audits.
For more details of all China's business related taxes,
exemptions and regulations see: http://www.tdctrade.com/chinaguide/index_e.htm