Expatriate compensation packages continue to increase in China as the soaring cost of living and air pollution make it more challenging to attract international executive talent.
Mainland China has the 2nd highest expatriate pay packages in the Asia Pacific region, a survey by consulting firm ECA International showed. This is up from last year’s 4th position with the cost of an expatriate package having risen by 5% over the past 12 months.
A total annual package for an expatriate middle manager in Mainland China is now worth USD 290,000 on average. Meanwhile the gap has widened between the total expatriate packages typically offered in Mainland China and Hong Kong, with the total cost of an expatriate compensation package in Hong Kong falling by 2% over the past year. The value of a typical expatriate package for Middle Managers in Hong Kong is now USD 267,000.
ECA's figures shown in the graph below represent the total benefits package, including salary, housing, insurance, international school tuition, transportation and other non-cash benefits, as well as tax.
And though the total package puts China as the 2nd highest pay and benefits package in the Asia-Pacific region (behind Japan), let's not forget that a good chunk of that is related to a higher tax. If we discount the chunk taken out as tax, China's expats take home less in salary and benefits than those in Singapore, Hong Kong, and South Korea as well.
However, far from all Chinese cities require such high pay. “The cost of benefits provision in tier-2 locations is still much lower than in tier-1 cities and if those cities, alone, were to be taken into account, Mainland China would appear towards the bottom of the regional ranking above only Malaysia and Pakistan,” said Lee Quane, Asia director of ECA.
Higher salaries and increased benefit costs, as well as a stronger yuan, may explain the rise of China in the rankings. But employees also find it tough to attract international talent due to factors like air pollution and concern over food security. Last year, twice as many expats moved out of China than into the country, according to a study by UniGroup Relocation.
However, China remains a popular expat destination. A 2014 HSBC survey showed that China is the third most desirable expat destination, behind Switzerland and Singapore. "China is the best place for expats looking to make their money go further, with 76% of expats in the country experiencing growth in their spending power once they've moved," the bank said.
The good news for expatriates is that the global economic downturn has not significantly affected China's hiring of foreign specialists and executives. In fact, many Chinese companies have embarked on aggressive expatriate hiring policies, encouraged by the fact that opportunities are thin on the ground for expatriates in their respective countries of origin. That said, the dip in the world markets has affected the standard for lucrative expat packages. Companies are now less likely to offer housing allowances and help with school fees than they were in the past.
According to Expat Arrivals, expatriate jobs that are especially in demand in China include:
Roughly 85% of the expatriate workforce are employed by international firms. The largest number of jobs are in sales and marketing (30%); followed by banking and financial services (25%); engineering (15%); education (10%); management (10%); and IT and telecommunications (5%). Expats are rarely employed by local Chinese corporations, and those that are, usually are hired as engineers or as top-level managers in manufacturing firms.
International assignment compensation packages can be designed in a variety of ways. The most common approach, both in China and globally, is to use the employee's salary in their home country as the starting point, then adjust for cost of living and any other allowances, and tax. However, increasingly international companies operating in the major Chinese cities adopt an approach, particularly for executives sent on a permanent basis, whereby the host country local salary is used as the starting point with or without some additional benefits such as an allowance for accommodation or children’s school fees.
“When choosing an expatriate pay approach it is essential for companies to be clear about the reasons behind the assignment so that their choice reinforces this. This will also help them to decide whether they wish to create equity among home or host country peers – something that has become even more complex as companies manage increasingly diverse nationalities in and out of different markets. And of course all this needs to balance against benefits and costs to the business,” said Quane.