China’s new pension rules hit foreign firms in the wallet

[Kadamba]

China’s new pension rules hit foreign firms in the wallet

Doing business in China is about to get more difficult for foreign companies.

Earlier this month the Chinese government quietly passed new regulations requiring all foreign employees and their employers to pay into its national social security benefits program.

Government officials say they’re only requiring the same as what any other government requires of foreign “guests” in their respective country. But with employers required to contribute up to 37 per cent of each employee’s salary, foreign chambers of commerce are warning it will be a significant expense for small companies already struggling to establish themselves.
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In addition to the employer contribution, foreign employees will be required to pay about 11 per cent of their income, on top of regular income taxes. Though numbers are still unclear, reports have suggested employee contributions in some cities will be capped at around 1,200 yuan, or about $187.50, per month, while the employer share will be a maximum of 4,300 yuan, or $672, per month.

For that, at least in theory, employees are offered a share in China’s pension plan, unemployment and disability insurance, maternity benefits and health care.

But in reality, an unemployed foreigner loses his or her work permit and thus is required to leave immediately, and it’s unclear how any foreigner would be permitted to stay legally in retirement. Maternity benefits are generally granted only to city residents with a permanent hukou, or residence permit -- which foreigners cannot obtain. And while foreigners would be entitled to the same health care as Chinese nationals, those who can afford it usually obtain private insurance to get around long queues and care that is generally well below Western standards.

“AmCham-China is concerned that foreign employees may have no practical means to collect the benefits outlined, due to the restrictions on residency and a number of other reasons,” reads an official statement by the American Chamber of Commerce in China. “In addition, the measure would create substantial new financial obligations that could in some cases threaten the competitive standing of our member companies.”

“For the foreigner to enjoy social insurance in this country meets common practice around the world as well as in their countries,” said Xu Yanjun, deputy director general of the national social security management centre at the Ministry of Social Services, who fielded questions for nearly two hours from foreign journalists -- also subject to the regulation -- at a briefing in Beijing on Friday. He acknowledged some “disconnect” between the regulation as written and how it can be implemented but said government agencies would work to rectify discrepancies. “There is a bit of a gap in terms of implementation and we cannot at the moment address all questions once and for all,” he said. “I hope you can trust that the Chinese government is a responsible government.”


There has been public speculation that the move is in part motivated by China trying to shore up its national benefits program in the face of an aging population -- a suggestion dismissed by Mr. Xu.

China’s new pension rules hit foreign firms in the wallet - The Globe and Mail

Looks like nice employee friendly move by the Government by putting breaks on companies who want to run their businesses like sweat shops. Can any Chinese member shed more light ?

 

[gpit]

Aren't foreign companies in US have to pay all those social security and medicare contributions to US government, in addition to income taxes?

Actually I feel bad for many foreign workers (H1-B holders, for instance) who pay these sums, as Americans can enjoy it when they retired, but those foreigners can’t enjoy it, except, I guess Canadians and perhaps Mexicans.

 

[Nomenclature]

Looks like nice employee friendly move by the Government by putting breaks on companies who want to run their businesses like sweat shops. Can any Chinese member shed more light ?

Domestic companies long had to contribute to pension & insurance. An employer is required to contribute the amount equal to 1/3 of the an employee's wages to his/her pension and social security account. This new regulation merely extend the same obligation to foreign companies.

The idea of wages in Chinese factories are different from some other countries. Besides contributing to pension fund, the employer also need to cover employee's basic living expenses, which is again distinct from wages.

So a Chinese factory worker nominally earning $200 a month, he/she will also get beside the $200 (there's no income tax at this low income level)
$66 contribution to his/her pension fund by the employer
Free accommodation and food from the employer OR a housing/eating grant which must be sufficient and separate from the wages and will not be counted in meeting minimal wage requirement (so if minimal wages is $150 per month, a package consisting of $120 wage and $60 housing/food grant will be illegal).

 

[fallstuff]

Domestic companies long had to contribute to pension & insurance. An employer is required to contribute the amount equal to 1/3 of the an employee's wages to his/her pension and social security account. This new regulation merely extend the same obligation to foreign companies.

The idea of wages in Chinese factories are different from some other countries. Besides contributing to pension fund, the employer also need to cover employee's basic living expenses, which is again distinct from wages.

So a Chinese factory worker nominally earning $200 a month, he/she will also get beside the $200 (there's no income tax at this low income level)
$66 contribution to his/her pension fund by the employer
Free accommodation and food from the employer OR a housing/eating grant which must be sufficient and separate from the wages and will not be counted in meeting minimal wage requirement (so if minimal wages is $150 per month, a package consisting of $120 wage and $60 housing/food grant will be illegal).

Giving it away to the workers, sounds like communists !! Oh well these guys are commies anyway !!!!

 

[Kadamba]

Domestic companies long had to contribute to pension & insurance. An employer is required to contribute the amount equal to 1/3 of the an employee's wages to his/her pension and social security account. This new regulation merely extend the same obligation to foreign companies.

The idea of wages in Chinese factories are different from some other countries. Besides contributing to pension fund, the employer also need to cover employee's basic living expenses, which is again distinct from wages.

So a Chinese factory worker nominally earning $200 a month, he/she will also get beside the $200 (there's no income tax at this low income level)
$66 contribution to his/her pension fund by the employer
Free accommodation and food from the employer OR a housing/eating grant which must be sufficient and separate from the wages and will not be counted in meeting minimal wage requirement (so if minimal wages is $150 per month, a package consisting of $120 wage and $60 housing/food grant will be illegal).

Thanks for clarification Sir.
You mean to say employer contribution towards pension scheme is 1/3 (i.e.37%)of 'employee wages'; plus employee contribution is 1/10 (i.e.11%) of 'employee wage'. Thus the contribution made by employer is more, unlike the system of matching contribution system . (example: Here in India both employer and employee contribution are i.e. 12% each of fixed component (called as Basic) of salary given to the employee)

Further One small clarification required, does the term 'employee wage' represents total salary given to the employee, including performance based incentives ? or it represents only fixed component (also termed basic) of employee salary ?

p.s: Here also we have Dearness Allowance which might be equivalent of Food Grant; and House Rent Allowance which might be equivalent of Housing Grant in Chinese System; apart from Fixed component (Basic) and Variable/(Performance based) component of the employee salary.

 

[Nomenclature]

Thanks for clarification Sir.
You mean to say employer contribution towards pension scheme is 1/3 (i.e.37%)of 'employee wages'; plus employee contribution is 1/10 (i.e.11%) of 'employee wage'. Thus the contribution made by employer is more, unlike the system of matching contribution system . (example: Here in India both employer and employee contribution are i.e. 12% each of fixed component (called as Basic) of salary given to the employee)

Further One small clarification required, does the term 'employee wage' represents total salary given to the employee, including performance based incentives ? or it represents only fixed component (also termed basic) of employee salary ?

It's based on fixed salary before any taxes. Here's breakdown of all social securities payments

name employer contribution (% of fixed salaray) employee contribution (% of fixed salaray)
Medical Insurance 8% 2%
Pension Fund 20% 8%
Unemployment Insurance 2% 1%
Work Safety Insurance 1% nil
Child-bearing Insurance 1% nil

For a limited subset of employers (government, state-owned companies, village and township owned companies, foreign companies, non-profit organizations, basically every employer other than domestic private companies) there is also a housing construction fund (different from accommodation allowances) to which both employer and employee contribute 3.5% of the fixed salary. The regulation differs regionally but in Beijing at least one can cash out from the fund whenever she/he likes.

Actually, since a lot of research is reporting personal income was dropping as percentage of GDP in China for the last ten years or so, I'm wondering if that correlates with the increase in the enforcement of social securities payments, i.e. if the employer contributions are classified as income for employee.

 

[Kadamba]

Giving it away to the workers, sounds like communists !! Oh well these guys are commies anyway !!!!

Buddy; Communism/Capitalism/Socialism/Dictatorship/Monarchy; extreme/moderate; Don't be lost in the terminology you use. For a system to sustain and succeed, It finally boils down to incorporating enough number of checks and balances, so that nobody can drive away with undue advantage at the expense of others.

 

[Ali Raza Sahni]

These kinds of activities by Govt. are just to distribute the wealth in general public. The Pension Plans, Overtime Double Stephens, Retirement Benefits, etc are not enough to spoil the MNC'z Strategies these firms are profit oriented, they have no any sense of social responsibilities... The state is responsible to instruct these companies for society and community welfare....