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.
"It's not a small amount [of money] It definitely will affect the market, it will have impact on both the employers and employees," said Daniel Cheng, managing director of the Canada China Business Council office in Beijing. "In the big picture it is China's attempt to normalize the international policies on social benefits. Right now when Chinese businesses go overseas they are subject to the requirements of local countries to pay for social insurance programs. The issue really, now, is how things are implemented, whether the laws are implemented and enforced with a certain amount of transparency."
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.
But officials have been very public about their hope of triggering bilateral agreements that will help Chinese employees abroad, who are required to pay into the Chinese national plan even if they are paying locally as well. Only Germany and South Korea at present have treaties with China on social insurance benefits.
"Normal practice around the world is to carry out bilateral negotiations. As far we're concerned the United States and Japan have signed bilateral social security agreements with more than 10 countries respectively," Mr. Xu said. "China actively wants to carry out these negotiations and the adoption of the social insurance law has provided good conditions for these negotiations."