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  Cost of skilled labour on the rise
(XING BAO)
12/21/2001
In the eyes of many overseas business people, the Chinese mainland is a paradise for investment, largely thanks to its huge market potential and low labour costs.

Yet there are those who doubt that the benefits are always necessarily so great. Although China's entry to the WTO has sparked investors' enthusiasm, they in fact need to be cautious before throwing a lot of money into the seemingly alluring land.

Issues like labour costs, for example, may turn out to be more difficult to cope with than expected, experts said. "Investors should take the high cost of local labour into serious consideration," said Gus Kang, human resources consulting director for PricewaterhouseCoopers China.

Kang voiced such an argument at a recent forum in Shanghai.

Employee security

While many are still talking about the cheap labour easily available in China, labour costs for professionals and senior managers in this country have risen over the past decade.

They exceed those of the financial-turmoil-ravaged developing countries of Southeast Asia like Viet Nam, Thailand, Malaysia and Indonesia, according to Kang. Statistics from PricewaterhouseCoopers indicate that the salaries of company executives have risen more quickly in China than in the countries mentioned above.

The local average salary increase in US dollar terms has maintained a pace of at least 7 per cent annually over the past three years. Some top salaries are even closing in on global levels. One of the major reasons for such salary increases, sometimes coupled with other incentives like equity options, is to make employees feel secure in their companies and decrease the possibility for job-hopping, analysts say.

Statutory contributions

In addition to mounting salaries, companies' expenses on related benefits are also on the rise.

They have reached up to 40 per cent of payroll for low-level and mid-level jobs, where average monthly salaries stay at around 3,000 yuan (US$360), Kang said.

In accordance with China's progress in establishing its nationwide social welfare system, the central government has required domestic enterprises, especially private businesses, to increase their contributions for employees and citizens' social welfare. The domestic housing commission is on the other hand more likely now to enforce contributions from employees or employers relating to the housing fund.

The situation means every employer has to bear in mind his statutory contributions, ranging from pensions, medical insurance, and housing funds to unemployment insurance, in order to avoid tough scrutiny from government supervisors and grievances from employees.

Eyes on Africa

"It's a misconception to only look at expenses on blue-collar workers' wages, though the cost is comparatively low; what you pay for local high-level executives can be high," said industry consultant Zhang Yiqian.

Insiders at the Shanghai Taiwan-invested Business Association admit that salaries and benefits-related expenses of high-level employees in local Taiwan companies remain at US$12,000 to US$18,000, which can well match the level in Taiwan.

"Taiwan companies should focus on sharpening their core competitive edge instead of merely eyeing the cheap labour force of the mainland," said a Taiwan businessman.

"Otherwise, we have to turn our eyes to Africa for opportunities with the mainland's overall progress and accordingly mounting local labour costs," he said.

To some observers, there exist other reasons behind the high labour costs in China for many businesses involving overseas investment.

Western firms tend to be good corporate citizens, reporting their tax-related profits and salaries and paying their contributions, and that nature makes their labour costs higher than quite a few domestic establishments.

These domestic firms are more or less used to covering their true expenses in order to evade taxes, and are reluctant to pay social-welfare-related contributions for their dire business straits, observers say.

   
       
               
         
               
   
 

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