Cheaper labor cost is a primary factor in global B2B companies’ ambition to enter the Chinese market. However, once they actually start doing business in China, they face a slightly different reality. the preconceived notions about low hiring costs belong to the past. nowadays, the Chinese job market forces B2B companies to offer their employees a lot more; Otherwise, ironically, the attempt to save will turn out much costlier, impacting budget planning dramatically.
This post explains the reasoning behind salary standards in the Chinese market so you know what to expect when recruiting in China.
The seniority gap
Perhaps unsurprisingly, a significant salary difference exists between mid-level and senior-level employees in China. As professionals gain more experience and expertise, they can command higher salaries, particularly in industries with a shortage of skilled talent. Additionally, senior-level employees may be offered generous packages that are unavailable to mid-level employees to entice them to stay longer on the job. And don’t be fooled, the domestic competition for talent is fierce.
An internal survey we conducted among our clients examined the salary range within their organizations. The findings uncover a striking, cross-industry difference in salary levels based on seniority. Disclaimer: The amounts exclude yearly bonuses, 13th salary, social benefits, and IIT contributions.
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Experience and languages skills
Despite the vast pool of job candidates in a populous and heterogenous country such as China, foreign B2B companies often struggle to find suitable local employees. Be it for poor English proficiency, a requirement which is not always made by a local company, hence making it more candidate-attractive; or limited practical experience and industry connections – the supply of qualified workers is still lower than their demand, especially in second and third-tier cities where the overall costs are high anyway. Thus, the hiring cost of such employees is sky-high.
So here comes the dilemma – the more experienced and better English speakers the employees you desire, the more you’ll have to pay. Therefore, we recommend considering the required English level for each position. For example, a good salesperson will conduct sales in Chinese and not in English, and the same goes for employees in technical roles, such as engineers. You’d be surprised how difficult it could be to find a skilled engineer who also speaks good English. Ask yourself whether it’s a necessary skill for the job in question.
Location: cost of living and talent availability
Salaries in China vary remarkably depending on the region, stemming from two main factors: the standard of living and the local variety of skilled employees. As a result, you could find salary discrepancies for the same position between different areas across the country.
For instance, in first-tier cities, such as Beijing and Shanghai, the higher cost of living is translated into higher salaries, particularly in high-demand industries. On the other hand, in second-tier cities, such as Xiamen and Zhuhai, despite the constant rise in the cost of living, salaries tend to be lower overall.
However, the shortage of skilled workers in smaller cities often plays a bigger role in determining, and in fact, increasing the local salary. The following chart uses data from the survey mentioned earlier and shows the salary variation for the same position in several cities. Here, the salary in Dongguan, Guangdong (a third-tier city) surpasses the salary for the same position in Shanghai and Guangzhou.
For a more general overview of averages, the following graph compares first-tier cities with an average of other locations:
Employee retention in niche industries
Employee retention is a challenge that varies across industries, with some experiencing greater difficulty than others. In highly competitive industries, it may be necessary to offer higher salaries to retain top talent. Some of our clients have reported increased competition for talent, with local companies willing to pay higher salaries, driving up the market rate for certain positions. This can pressure employers to offer more competitive compensation packages to attract and retain the best employees.
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Taxes and social benefits
Employment in China and related costs are also affected by the taxes paid by employers. Specifically, employers in China are obligated to contribute to five different social security insurance for their employees. This percentage differs between localities; For example, the contribution rates for employees’ medical insurance in Shanghai and Guangzhou are 10.5% and 5.45%, respectively. Your employees expect you to do your part and help with these payments monthly. As any expert in employment services in China will tell you, failure to pay properly will lead to penalties for the employer.
Employees’ expectations
Like employees in other countries, Chinese workers expect to receive compensation beyond their base salary, including, for instance, a special increase due to legal responsibility on the job, annual salary increases, and additional benefits such as transportation allowances. If workers feel they are not receiving appropriate compensation, they may issue ultimatums or seek opportunities elsewhere. Therefore, it is important to check what is acceptable in your industry and in the city where the company operates and adjust the conditions as much as possible.
Don’t get caught off guard – by HR management in China
As it becomes clear, hiring in China and salary calculation are more complex than usually expected, and you better be prepared for more “surprises” as you solidify your China business. In such an environment, it’s advised to work with a reliable partner on your side. A local HR expert will help you understand the full responsibility of HR management in China and ensure you run your HR operations properly and effectively.
HR management is one of our areas of expertise at PTL Group. Read more about our Payroll services and HR services in China, and feel free to contact us for any inquiries.
