Businesses both seasoned and new face many struggled while managing China employment. This year, more than 77% of American companies in China said that they felt less welcome now than they did in 2015. The climate for Western businesses is cold due to a slowing economy and increased regulations. But despite the hurdles, many companies still choose China as a prime location for global expansion.
The country does offer many opportunities, a vast market of consumer and talent, and the optimism of future growth. If your company is considering an international move to China, learn about some common employment problems and how to come out on top.
1. Market Access for Foreign Companies
One of the top complaints from American countries operating in China is the lack of market access, especially for service-oriented firms. There are many constraints that disable growth potential including increased competition and lack of equal treatment from Chinese companies, investment restrictions, and the lack of consumer awareness about foreign companies services.
The slow pace of government policy reform keeps these hurdles top of mind every year for companies entering the Chinese market. In regards to China employment, foreign entities may also find it more difficult to find qualified talent in sectors like human resources and administration. This hurdle stems from China’s reluctance to promote non-local firms, and their employment opportunities, to local nationals.
More than 70% of American companies said that the Chinese government favors domestic enterprises, making it difficult to perform operations. Companies that work with an international consultant can determine strategies to combat these complaints. Experts with experience in Chinese operations can help your company battle the complexities and take advantage of this popular market.
2. Adapting to the Cultural Differences
China’s culture is deeply rooted in Eastern traditions, and although the culture is modernized, its history and ancestors still exert dominant influences on the culture. As a result, many people in China believe that their processes are the best for helping the country become an economic leader as it was between the 10th and 15th centuries.
It’s best to be adaptable and learn the customs and traditions deeply rooted in China’s history. Attempting to bring Western traditions when your business enters China may backfire. We suggest teaming up with a trusted, in-country expert who can help you learn the ropes. It’s also crucial that your leadership team spends an ample amount in the country, taking the time to dive into the culture and learn the standards for businesses.
3. Businesses Cannot Hire Employees Without a Legal Entity
It was once thought that businesses could work through independent contractors or outside staffing agencies to perform operations without establishing a legal presence in China. The Chinese government is cracking down on these practices and making it nearly impossible to perform operations without a legal entity. Essentially, China aims to increase its tax revenues, particularly from foreign companies and improve the lives of its working citizens.
Establishing a foreign subsidiary is a commitment that not all companies are ready to take on when expanding overseas. Consider options like International PEO and Foreign Subsidiary as a Service (FSaaS), instead. These Employer of Record services grant businesses a legal presence in China and maintain compliance for everything from hiring to payroll.
4. Employers Need a Solid China Employment Contract
Now that you have information about forming a legal entity in China, you’ll need to start growing your team. China employment law requires all employees to have a signed contract within one month of their initial hiring date. This contract isn’t an option for employers; it’s mandatory. Failure to provide and sign a contract for each employee results in a penalty equal to 200% of the employee’s monthly salary from the start of the employment relationship. A similar penalty accrues when an employer fails to renew an expired China employment contract.
Plus, it’s critical for businesses to know that if a contract isn’t established within one year of employment, China employment law deems that the parties entered into an employment contract without a fixed term. As a result, businesses cannot terminate the contract without paying sufficient compensation.
When it comes to establishing employment contracts, we suggest working with your legal team and an expert on China’s labor law requirements. To get you started, some basic information that needs to be included in a China employment contract is:
- The Employer and Employee’s Name
- Duration of the Contract
- Detailed Job Description
- Social Security Information
- Work Hours and Vacation
5. Foreign Employees Need a China Employment Visa
It’s common practice to bring your local employees with you during an international expansion. In China, you need to issue an employment license and certificate to all foreign employees. Then those employees need to obtain the Z Work Visa and Temporary Residence Permit to work and stay in the country legally. If your team members only remain in China on a temporary basis, you must sign an agreement stating the limited length of time allowed for their services.
Violating these China employment requirements results in hefty fines and termination of the employment contract. It can also lead to deportation of your US team members.
The first step to helping your team members obtain legal work permits is by supplying them with an official job offer. You can also transfer the process over to a third-party resource by using International PEO. This service also helps employers draft employment agreements that take care of specifications for their target country.
If you’re considering a move into China, we suggest working with a partner to combat these employment hurdles. The EOR services mentioned in this post reduce the headaches businesses deal with during overseas operations. Contact us to learn more!