China’s ‘New Normal’

Does slower growth mean lower wages?

By Michael Switow

For top talent, the scales may be beginning to tilt in China. Whilst many candidates can still name their price, industry analysts see signs of a transformation from China’s current candidate-driven market to an employer-driven one more typical of mature markets, at least in some sectors.

“On many projects this year we saw our clients negotiating very hard with candidates and giving them a “take it or leave it” approach,” says Hays China business director Christian Lepolard. “More often than expected, the candidate agreed to decrease their salary expectations in order to get the job.”

The average annual salary increase ranges from 8 to 15 per cent, according to recruitment firm ZW HR Consulting’s recently launched China Salary Guide, which is based on actual transactions between Chinese employers and employees.

China’s economy is currently growing at 6.7 per cent, its slowest pace in a quarter century, down from 6.9 per cent a year ago, and 7.3 per cent in 2014. If not for Central Bank stimulus and central government spending, the economic deceleration would have been more severe.

“Candidates have not integrated the recent slowdown of the Chinese economy into their expectations yet and keep asking for 20, 25, or even 30 per cent salary increases,” Lepolard explains.

The International Monetary Fund expects China’s GDP growth rate to drop further to 6.2 per cent next year. China Finance Minister Lou Jiwei has also warned that Chinese wage increases are ‘unsustainable’ because they have been rising faster than productivity.

Fewer Factory Jobs…

The country’s manufacturing sector has been especially hard hit. Wages are no longer cheap by global standards and by some measures, the unit cost of labour in China is nearly as high as the U.S.

As a result, a number of clothing and footwear manufacturers are shifting to other Asian countries where factory workers earn just a quarter to one-half of Chinese workers. One in four respondents told the American Chamber of Commerce in China that they had either already moved or were planning to move operations out of the People’s Republic. And whilst iPhone-maker Foxconn has not said that it’s closing down in China, it has chosen India, not China, for its expansion plans; it plans to build 10 to 12 new assembly plants in Andhra Pradesh and other Indian states by 2020.

China’s state-owned companies are also expected to downsize. Earlier this year, China’s Minister for Human Resources and Social Security, Yin Weimin, said the coal and steel industry will likely lay off 1.8 million workers, or 15 per cent of its workforce.

… But High Service Sector Demand

Yet, whilst unemployment is surfacing in some regions, this isn’t changing the dynamic of labour markets throughout the country.

“These [new] candidates don’t have what local HR managers are now looking for and they are often not willing to move to a different city,” like Beijing and Shanghai, where the competition for talent can be most fierce, observes Hays’ Lepolard. in addition, many recent graduates are choosing to return to their hometowns to avoid the high cost of living in big cities, according to Career International CEO and president Xin Guo, who notes that Beijing is encouraging them, often with financial support, to set up their own businesses.

“Whilst much has been made of China’s recent slowdown, most hiring managers will tell you that there are still severe talent shortages,” notes Karel Eloot, a senior partner in McKinsey & Company’s Shanghai office, writing on his company’s blog, China Point. “Some of the most dramatic effects are felt in production and operations, where positions such as engineering, the skilled trades, and technicians are consistently understaffed.”

It’s All About Skills And Money

In fact, whilst many job-seekers will not get the salary bump they desire, quite a few will, particularly if they have the right mix of skills.

“Candidates with international exposure, good language skills, market knowledge, and who are well-disciplined will continue to receive multiple offers, as well as counter offers from their current employer,” says ZW HR Consulting chairman Frank Yu. “With talent shortages within many sectors, those with specific in-demand skill sets and experience will command a higher than average salary increase.”

Salaries in some sectors can “soar as high as 30 per cent after job hopping,” according to Career International’s Guo, who says that “all the main industries have talent war in niche sectors, whilst filling high-end positions.” He notes that “a Java engineer with good project experience can even receive more than ten calls from headhunters or in-house HR practitioners.”

The list of desired skills and hot sectors is actually quite long.

It includes anti-money laundering specialists; compliance lawyers; customer relationship management (CRM), digital marketing and e-commerce experts; drug safety and quality assurance professionals; engineers (particularly with R & D experience); IT professionals with knowledge of big data, cloud computing and enterprise-class services; online finance, risk management and supply chain professionals.

“Good sales people are and will always be in demand. This is especially true for companies entering the Chinese market or big established companies which want to revitalize their business,” says Lepolard, who adds that the large number of start-ups has fostered stiff competition in the internet industry as well.

Preventing Job Hoppers

Given the opportunities for workers in these sectors to make more money by frequently hopping jobs, it’s no surprise that talent retention is a major issue for many companies.

Starbucks—which plans to add 1,400 new locations in China over the next three years, up from 2,000 stores now— hopes to buck the trend by publicly offering large housing allowances as well as “career coffee breaks” (also known as one-year sabbaticals) to staff with 10 years of service.

It’s worth noting that whilst compensation is the main tool to prevent attrition, it’s not the only one. Nearly one in two Chinese employees “will not look for a new job, as long as the work-life balance in their current company is good” according to Hays’ Asia Salary Guide. Career development opportunities are also increasingly important to retain staff.

Adjusting to Changing Times

As China’s economy adjusts to what is increasingly described as a ‘new normal’—lower growth rates, higher wages at the lower end of the spectrum and lower raises at the top, more emphasis on the service sector, domestic consumption and entrepreneurship—corporate attitudes and ways of doing business need to adjust as well.

For Human Resources, this can mean rethinking employee roles and job descriptions to enable companies to react faster. Recruitment “needs to be faster, higher quality, and (have) better cost control” says Guo.

“HR leaders in China are experiencing many of the same challenges as their global counterparts, but the pace of change in China is leapfrogging so quickly, that what HR leaders in other markets had 10 years to adapt to, China’s HR leaders will have three years,” adds ADP’s new Asia Pacific president Charles Ferguson. “The onus is now on HR in China to quickly adapt, to go out and learn everything that can be found on leading in times of change, and to assert the power of human capital management.”

Posted August 22, 2016 in Talent Acquisition

Leave a Reply