The China syndrome

Since becoming a full member of the World Trade
Organisation, China has become a land of opportunity. But while low labour
costs and the lifting of trade barriers make the world’s biggest economy the
ideal place to set up shop, for China itself – and for HR in particular – the
move is a double-edged sword of positive challenges and difficult decisions.
Ames Gross and Caroline Tran report

Opportunities
and challenges

China’s
ascent into the World Trade Organisation (WTO) in December 2001 has created
tremendous opportunities for the country. With the lifting of trade barriers
and China’s further opening up to foreign companies, the country’s economy has
immense potential for new investment and growth. Membership of the WTO will
generate greater external trade for China and increased integration into the
global economy.

These
factors will bring greater recognition and proof that China is stepping up to
become a major economic power in the 21st century.

However,
along with these increased opportunities come daunting challenges. The
fulfillment of WTO conditions will require extensive overhauls of China’s
legal, economic, and social infrastructures. These include the expansion of
intellectual property rights protection and the development of a more
comprehensive social security system.

Increased
participation by foreign businesses in the Chinese economy will intensify
business competition. As inefficient and unprofitable state-owned enterprises
(SOEs) go out of business, unemployment will continue to rise. China’s ‘registered’
urban unemployed since the WTO was expected to rise to 8 million individuals in
2002 from 6.81 million in 2001. The Chinese Academy of Social Sciences also
estimates that three to four million people a year will lose jobs during the
first years of China’s membership in the WTO.

The
HR climate

Although
China’s WTO agreement does not specifically address changes in China’s HR
regulations, the country’s entry into the WTO will affect China’s HR climate,
by quickening the pace of certain HR trends.

For
example, as more multinational companies enter the country, competition will
increase between local and foreign firms for qualified staff. Many foreign
companies have already begun to ‘localise’ their workforces in China.

Economic
growth in China has averaged more than 8 per cent over the past 15 years, and
during this time, more Chinese people were given opportunities to work with
foreign companies. While working with these foreign firms, local Chinese staff
were able to receive valuable training and indispensable experiences of working
with foreign businesses.

As
a result, the number of skilled, qualified workers with Western business
experience in China has risen and companies that previously used expensive
expatriate staff are now replacing them with local Chinese candidates. But the
supply of such candidates has not been able to satisfy demands and this has led
to increased incidences of ‘poaching’ between domestic and foreign firms for
qualified candidates, who are also known to ‘job-hop’ to improve their pay
packages.

Retaining
skilled staff

HR
executives in China must learn to mitigate these problems and find new
strategies to retain their highly-skilled staff.

Besides
offering very competitive reward packages which include housing, healthcare and
retirement benefits, companies are also trying to increase their visibility and
reputation in China as caring, responsible employers. By establishing their
firms as trustworthy organisations, these companies are giving local employees
more reasons to remain in their employment.  

Many
companies are investing in public welfare activities, such as contributing
funds to build retirement homes for the elderly. And in 2001, 40
Chinese-foreign joint-venture firms invested in a professional training
programme to assist Shanghai’s young unemployed. Companies such as General
Motors, Volkswagen and Siemens were among those that provided internship
positions ranging from three months to one year.

China’s
WTO entry will contribute to the gradual levelling of compensation packages for
local and foreign hires. In recent years, for instance, more candidates from
Hong Kong and Taiwan have begun to accept more ‘localised’ (non-expat) benefits
packages, due to the sluggishness in their own economies and the increased opportunities
in China. Local Chinese candidates are also boosting their work experience and
skills through greater opportunities to work with foreign firms.

These
two trends will gradually bring together the compensation packages of foreign
and local hires. In the near future, it will not be necessary to distinguish
candidates from Hong Kong, Taiwan, or China to determine proper reward
packages.

Employing
returnees to China

Some
returnee candidates are also becoming more realistic options for firms in China
since its WTO entry. Previously, students or professionals leaving China for
education or career development in Western countries have been reluctant to
return due to a lack of better opportunities in China. But during the past two
years, the number of returnees has increased by 13 per cent each year due to
sluggish jobs growth in the West, and the fact that China’s WTO entry has
created greater job opportunities and career advancement.

Some
returnees are ideal candidates for positions in foreign companies in China.
They have native fluency in Mandarin and at minimum, conversational abilities
in English. Most of those who have had work experiences in Western countries
also have an understanding of Western business practices.

In
the past two years, the Chinese Government implemented ‘preferential policies’
to encourage Chinese professionals living abroad to return home. One such
measure was the establishment of 60 industrial or high-tech parks across the
country, to encourage returned professionals to set up around 2,000
enterprises. Special funds have also been set up by provincial governments to
attract students back to China to develop businesses.

However,
the skill sets of returnees need to be carefully evaluated to determine whether
they merit higher pay than local candidates. And because the number of
returnees in China has increased, employers can now be more discerning when
choosing to hire these candidates. Having degrees from foreign universities no
longer immediately merits higher compensation.

HR
executives should look at the foreign work experiences of the candidates as
well as their foreign education. At times, local Chinese candidates with
degrees from prestigious Chinese universities with work experiences in foreign
companies in China may be more suitable than qualified returnees.

Employers
must bear in mind that returnees – or any foreign executive hires – should
display more or differentiated skills from local recruits to justify higher
compensation. If a returnee with a foreign degree is arrogant or outspoken, for
instance, this may lead to jealousies and disharmony in the workplace.

The
shift towards the services sector

Another
change that is currently occurring as a result of WTO entry is the shift of
China’s labour forces from the agricultural and industrial sectors to the
services sector. While the agricultural and industrial sectors still make up a
substantial amount of the country’s economy, the growth rates of jobs in these
sectors are slowly decreasing, while those in the service sectors are rising.

According
to the Ministry of Labour and Social Security, from September to December 2001,
the services sector saw a 2 per cent increase in job openings while labour
demand in the agricultural and the industrial sectors dropped by 0.5 per cent
and 1.2 per cent respectively.

This
shift towards the services sector is also causing the population to move from
more rural communities to urban areas.

Tackling
unemployment trends

As
mentioned before, unemployment is becoming a huge issue in China. Factors
contributing to it include the overhaul of many of China’s under-performing
SOEs and shifts in the labour forces.

The
Chinese Government understands the severity of the situation and implemented
measures to keep unemployment below 4.5 per cent. They included creating eight
million jobs by the end of 2002 and the provision of other employment services
such as re-employment training and career counselling services. The Government
also plans to encourage community-service related jobs such as housekeeping and
home deliveries of goods.

Increased
unemployment is unlikely to affect foreign firms. However, screening for
qualified candidates may become more difficult due to greater numbers of
enquiries for advertised positions. In such cases, it may be beneficial to
utilise the services of an experienced recruitment firm.

Creating
company loyalty

Another
strategy for employers during this time of high unemployment would be to hire
good candidates without much prior experience, but with high potential. For
example, Motorola provides employees with comprehensive services such as online
learning systems, translation and cultural training, and executive education
programmes through Motorola University.

By
giving inexperienced candidates training, the firm provides them with greater
skills and builds their loyalty towards the company.

Lack
of loyalty to foreign companies has caused significant problems in China,
resulting in ‘job-hopping’ and ‘poaching’. Loyalty can be built up by ensuring
that staff receive competitive compensation, see clear career paths, and obtain
good training and career development, as well as develop good relationships
with their bosses.

As
China continues to fulfill more and more of its WTO conditions, the country’s
workforce will undergo dramatic shifts and acquire new skills and experiences.

As
long as the Chinese Government is able to control unemployment rates and
continues to provide for its population in difficult times, China will be well
on its way to becoming a major global economic player. Foreign companies in
China will also benefit by observing the changing situations and responding
accordingly during this period of transition.  

Ames
Gross is president and Caroline Tran senior associate of Pacific Bridge, a
recruiting and HR consulting firm specialising in Asia.

www.pacificbridge.com

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