May 9, 2019
Labor Prospects for Expatriates in China
Is the era of professional expatriates coming to an end? What is the outlook with regards to the labor prospects of foreign nationals in China?
There is a passage in Mark Kitto’s China Cuckoo where the author compares himself, a sort of adventurous explorer turned entrepreneur, with a new class of expatriates that became more prominent in China following the trailblazer of business opportunities that sprang when the country joined the World Trade Organization (WTO) in 2001.
He describes what he perceived was a transition from an old class of foreigners, those who had come to China attracted by the idea of China itself, towards a much more driven, goal-oriented type, brought in by the multinationals that wanted to tap into the economic prospects that China offered. To this new type of foreigners, it did not matter so much the destination (whether China or elsewhere), but the purpose or intent. He refers to them as professional expatriates.
As the author was pondering the idea to leave China (he would leave eventually in 2013), there came this descending feeling upon him that as China was becoming a different country, it would then need also another type of foreigner.
Which brings us to the main point of this article: is the era of professional expatriates in China coming to an end? What is the outlook with regards to the labor prospects for expatriates in China?
Spotting Trends with the Data we Have
In our attempt to answer these questions, we first take a look at what data is available on the subject. It is hard to get official statistics on the foreign population in China, and when getting hold of some, it is always advisable to take them with a grain of salt.
At China-level, the most recent data comes from the Sixth National Population Census of the People’s Republic of China, which was completed in November 2010. Based on the census, there were nearly 600.000 foreigners in China in 2010, with South Korea (20%), U.S. (12%) and Japan (11.1%) making the top-3 foreign nationalities in China. No previous data exists, for that was the first time foreigners were included in the census.
However, China’s economy and labor market conditions today bears little resemblance to the traits that defined it in 2010.
The Shanghai Statistical Yearbook (2018 edition) offers a proxy that is more relevant timewise (see Figure 1).
According to this source, the overall foreign population in Shanghai reached its peak in 2015. Especially pronounced is the downward evolution in 2017 of U.S., French and Japanese nationals. Foreigners coming for work present the highest decrease: a 10.4% year-on-year (y-o-y) in 2016; however, those who come to China to study are on the rise, with an increase of 7.9% y-o-y in 2016.
Another interesting source, for it is more current and regularly available, is the number of household-goods shipments (see Figure 2). Again, the data does not tell us about the whole foreign population in China but is a good proxy to get a glimpse at the underlying trends that shape them.
The total number of sea shipments in Shanghai’s bonded warehouse peaked in 2013, totaling 15.334 shipments according to data from Thomas Coupat, China country manager at AGS Four Winds Shanghai. After 2013 shipments have decreased by an average of 9.8% y-o-y, though with varying degrees of intensity: shipments went down by almost by 12% in 2015 and 2016 and tumbled 16% in 2017. In 2018 the decrease was much more moderate (3.7%), with the catch that the number of imports increased by 1% y-o-y, meaning that for the first time since 2013 there had been an increase in the number of relocations to China (that is via Shanghai only).
Ryan Metz, Director at Crown World Mobility, tells ChinaHRnews via phone interview: “The probable consensus you get from talking to people is that in the last five years companies have reduced their expat populations. We also see that: we have a client who had about 80 expatriates five years ago, today that number has gone down to under 40; another company had a population of 70 expats in 2013 and now has shrunk to below 30. These are perhaps extreme cases. I would say on average companies have reduced their expatriate populations by 40% to 50% in the last five years.”
Jason Will, Country Manager China at Asian Tigers Mobility, offers a very similar account for an almost identical period. In an email to ChinaHRnews.com he tells us: “based on the number of personal effects shipments we have been handling, we have certainly seen an ongoing contraction of the expat population in China. Over the last 3-4 years, we have seen a continual exodus of expatriates, especially families. Many of the international schools in China that we have spoken to also testify to the reduced number of western expatriate students enrolled at their schools”.
Isaac Trallero, General Manager at Asian Express International Movers, adds via phone: “Today we are seeing more outbound than inbound relocations in China. We had a slight decrease in our traditional trading business lanes from countries such as USA, Australia, and Europe during the period 2013 – 2017. However, we have noticed a significant increment on domestic relocations for both corporate and private business in China moving out of the so-called first-tier cities to second and third-tier cities. We have also noticed an increase of intra-regional relocations within the South East Asia region with a higher number of assignees looking at opportunities in China. While the U.S. and Europe remain our main markets, we are expecting even bigger growth from the Asia region, especially from developing economies such as Vietnam and Myanmar as their talent pools become more attractive for higher skilled opportunities in China”.
When turning to the vast array of business confidence surveys and similar research conducted by chambers of commerce in China, we find traces that concur with this. For instance, findings from the Labor Market and Salary Report by the German Chamber of Commerce in China (disclosure: a report elaborated in partnership with Direct HR Group since 2016) show that, whereas in 2013 about 33% of German companies were considering replacing some or all of the positions held by foreigners by local staff, in 2018 that proportion went up to 41.5%. (see Figure 3).
In 2017’s China Business Report by the American Chamber of Commerce in Shanghai, 34% of AmCham members had reduced senior foreign executives headcount (another 8% had increased it). That seemed to be a one-time metric, and no data is available for benchmark from previous editions or in the subsequent 2018’s.
A Change in Demographics
Besides the tendency to see a larger outflux than influx of foreigners to work in China there is also a change in the profile between those who are leaving and those who are coming.
According to Mr. Will, “while we have seen an exodus of expatriate families from China, an increasing proportion of the incoming expatriates are younger ‘millennial’ types. They have come to work in IT jobs, as students or entrepreneurs to try to make their fortunes from the market opportunities that exist here. These younger expatriates do not typically bring large personal effects shipments with them; they are content living off smaller housing budgets, and do not need many of the typical expat package benefits that families need.”
Mr. Metz also points to a shift both in the demographics of expatriates as well as in the expectations they bring along: “There is a change in the profile of expatriates. The expectations of what the company will do for this new demographic of younger expatriates has changed. Back in the day companies would provide air and sea shipments. The air shipment would get the employees started. After they settled in into their property, a big sea shipment would bring in their furniture and other belongings from their home country. Younger people nowadays don’t want or need that. They are fine to arrive in China with a very small shipment if any.”
“China’s steering towards its domestic market is the factor that will have the most significant impact in the employment prospects of foreign professionals
Whether motivated by changes in the expatriates’ demographic and their expectations, or such changes being the result of companies trying to adapt to a more challenging environment in China the consequence is that the new influx of expatriates is lighter on the benefits they are entitled in their compensation packages. Mr. Metz offers further insight: “Many companies are changing their relocation policies. They are not only reducing their household good shipments but also, if the employee does not need to bring that much or event does not want his company to manage the process, companies might give them cash to do it themselves. Many companies go into what we could call “self-managed” relocation policies, or they dramatically reduce the amount of support, being household goods, housing allowances, or school support.”
What is behind those numbers? Which are the underlying forces behind the dwindling numbers of foreigners?
A difference between the China Mr. Kitto wrote about and today’s is that its current economy relies heavily on its middle class and domestic market. This inward focus as a source of economic growth is a trend that, at least for the foreseeable future, is here to stay. That does not sit well with the employment prospects of foreigners in China, with the exception perhaps of those coming from South East Asia regions that share important social, demographic and cultural commonalities with China, such as Singapore or Malaysia.
As China’s GDP continues to reflect the economy’s careening towards its domestic market, other factors shape the centripetal forces that are driving down the number of foreign professionals.
One of these forces is the speed of China’s economic growth. The days of double-digit growth are gone. Companies need to be more realistic about the return-on-investment they can expect, and cautious on how they spend their resources. Overall, the Chinese economy grew by 6.6% in 2018 – the weakest pace of growth since 1990. Behind this relatively weaker performance, there was a slowdown on retail sales and a tumble on car sales during the second half of the year. Auto sales started to fall in the summer of 2018, with sales in December down 19% from a year earlier (it should be noted that 2017 was the second and last year of a tax break for car buyers).
A second force is the quality of homegrown talent. Marcel Austin-Martin, Sr. Manager – Marketing & Admissions at CEIBS Global Executive MBA (GEMBA) tells ChinaHRnews via phone interview: “there are many Chinese private-owned companies that have reached such state of maturity that they’ve outcompeted their foreign competitors here and now they are looking to extend their reach outside of China as well. Over the last five years, positions that were previously held by expatriates have either been localized because the local talent certainly has improved; or some of those expat positions just have been eliminated as companies have shrunk and scaled back their investment in China.”
The world of Global EMBA programs in China is another vantage point from which to observe underlying trends about the labor prospects of foreigners in China. To the question of how registrations from foreign students have evolved, Mr. Austin-Martin says: “during the period 2009 -2019 our English EMBA has kept, in average, a 30 to 40% proportion of foreigners. In 2013 we saw the EMBA market reach its peak in terms of players. Many international business schools opened foreign programs, lured by the attractiveness of the destination. Two things followed: at China level, there was an excessive offering; and, globally, there was a shift in companies’ sponsorships. If two or three years ago you could still find a majority of companies sponsoring in full their employees’ EMBA fees, today only around 50% of students have company sponsorship, and of those, only half are fully sponsored by their companies.”
What is more, in CEIBS GEMBA they do not find any direct correlation between China’s economic growth and the number of foreign applicants to its English program. There is, however, a shift that reflects on the general trend we have described so far. As Mr. Austin-Martin ads: “in the past, the majority of our international students were living and working in China for multinational companies with operations here. This proportion has been decreasing, and today we have an increasing number of international students that fly in once every month or every two months to participate in the program. I would say about 25% of our GEMBA international students are based outside China. These are senior executives that might not want to live in China necessarily, but who want to do business with China and therefore have an interest in learning more here.”
Paul Shao, Managing Director of EMBA Program at Washington University, Olin Business School & Fu Dan University offers a slightly different account: “Five or six years ago, international students represented about 15% to 20% of the total; today they account for about 10%. The total size of the program has remained stable as Chinese students’ relative weight has increased. Most of our international students work and live here; they are mostly European, Canadian and U.S. nationals that come from the industrial goods, manufacturing and industrial services industries. Although the total number of students sponsored by their employers has declined, those who are being sponsored still see the same level of financial commitment from their companies. Our take on the decrease in the relative weight of international students is that China overall is seeing fewer expats, and especially the most senior type in major cities like Shanghai”.
A third vector contributing to the dwarfing numbers of foreign professionals working in China stems from their perception about the living conditions. According to HSBC’s 2018 Expat Explorer Survey, China ranks 27 out of 31 countries in terms of its attractiveness as a destination. There are specific dimensions where China is fairly attractive and thus more competitive than other geographies, especially in the economic arena: disposable income, savings, wage growth, career progression. However, those do not outbalance other aspects where China scores low: quality of life, work-life balance, health & healthcare, childcare, and school quality. As a result, the country’s overall attractiveness is low.
Although the survey does not provide results by age groups, nearly 60% of the expatriates in China contributing to it are in the range of 35 – 54 years. This group is more likely to place higher importance to factors such as childcare, school quality, or health & healthcare than younger cohorts, and matches the demographics of foreign professionals that are most likely to leave China.
Visas & Working Permits
There are several (local) visa initiatives that have been enacted to widen the range of foreigners that can establish in China for work: i.e., Shanghai’s Business Startup Visa (创业签证), or long term visas for foreign experts.
On the other hand, the regulatory framework presents a fragmented legal landscape with several jurisdictions and is continuously evolving. In general, it is unclear when and where regulations will be enforced.
It is because of the above two conflicting patterns that is not easy to assess what are the net effects of visa regulations on the prospects of employment for foreigners in China.
China is the world’s second largest foreign direct investment (FDI) recipient, according to the 2018 World Investment Report. In 2017, 35.652 foreign-funded companies were set up in China (up 27.8% from 2016), and investment in China’s 11 free trade zones totaled USD 16 billion (up 18.1% from 2016), according to Santander Trade. Thus, foreign-invested entities remain committed to China.
However, as the economy keeps cooling-off, it is only natural that doubts arise with regards to business expansion, as shown in the figures relative to American and European companies in Figure 4.
However, we should separate the business prospects of foreign-invested companies from the employment prospects of foreign nationals for they might move in different directions. Even if investment in China from the former continues to grow, albeit a slower pace, this does not necessarily entail an improvement in the outlook of employment prospects of foreign nationals in China.
China’s steering towards its domestic market is the factor that will have the most significant impact in the employment prospects of foreign professionals, by narrowing the scope and range of activities where hiring such professionals will make sense.
There are, of course, exceptions to this. For instance, professionals coming from South East Asia regions that share important social, demographic and cultural commonalities with China, such as Singapore or Malaysia might see their employability in China go up.
Another relevant exception refers to those activities where China remains eager to attract investment from which it expects technology transfers. Two recent examples:
- Boeing’s “737 Completion and Delivery Center” project in Zhoushan (Zhejiang province), along with its Chinese partner Commercial Aircraft Corporation of China Ltd (COMAC). The first Boeing plant outside the U.S., the agreement was signed in 2016 and delivered its first plane in November 2018.
- Tesla’s Gigafactory 3 in Lingang, Pudong, Shanghai. It will be the first wholly foreign-owned car plant of any overseas car manufacturer in China.
To finalize, it might be that the best employment prospects for foreign nationals in China’s lay not in China but away from it, riding on the wave of China’s national champions overseas expansion (Huawei, Alibaba, Tencent, Xiaomi).
Much in the same way many foreign companies failed to read the market and localize their strategies when entering China in the ‘90s and 2000s,1 Chinese corporations are also experiencing their fair share of cultural and business misreadings as they expand globally.2 If the influx of foreigners coming to China for studies is indeed growing, it will result in a new cohort of millennials well positioned to support the international expansion of Chinese corporations as they seek to gain market share overseas.
(1) To a lesser extent, continue to do so: i.e., Dolce & Gabbana’s November 2018 ad series on Weibo to promote the company’s Shanghai runway show that fired back.
(2) An interesting account of some of the shortcomings from Chinese companies going global can be found in China’s Offensive in Europe, by Philippe Le Corre, Alain Sepulchre. Brookings Institution Press, Washington D.C. 2016.
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