With China facing economic headwinds that are unlikely to dissipate any time soon, 2016 has seen the growth rate of domestic investment by private Chinese enterprises decelerate rapidly. As a result of both market forces and ongoing restrictions, EU investment into China is also roughly half of what it was last year: in short, while European business is not leaving China, it is preparing for new challenges.

Under these new conditions, characterised by slower growth, it is extremely important that European business manages its HR issues adeptly. While rising labour costs was the number-two challenge reported in the European Chamber’s Business Confidence Survey 2016 (BCS), it is likely we will see this change as companies are forced to lay off employees and become increasingly reluctant to take on new hires. At the same time, China’s talent shortage and high staff turnover—listed as major concerns by 26 and 12 per cent of BCS respondents respectively—will also decline in importance.

In continent-sized China there will be hot spots—regions with solid growth like Shanghai, Hangzhou and Guangdong Province—which may still face difficulties attracting enough of the right kind of talent. However, in many other parts of the country staff will be happy to just have a solid employer. So while we will continue to face HR challenges, in most regions they will be different from those of the recent past.

In the 13^th Five-year Plan and the Made in China 2025 initiative, the Chinese Government has stated its admirable goal of establishing a more innovative economy. In order to do so companies need to build the best teams with motivated, educated and experienced professionals. So it is in the face of much more challenging conditions, particularly in North China, that European business will need to devise ways of holding on to the talent that it needs to successfully navigate this transitional period.

With China’s working-age population already shrinking, raising the country’s retirement age above 55 for women and 60 for men would go some way to addressing this problem. The Chinese Government should also allow business more flexibility concerning whom they hire – there is currently a long-standing visa restriction in place on foreign managers above 60 years of age. These individuals are highly experienced and can help to maneuver China-based European businesses through the economic downturn – something they have witnessed more than once in Europe. Opening up access to this rich talent pool would therefore be beneficial to China’s economy.

Shanghai has already taken leadership on HR in China: first, with a move to a market-driven evaluation and allocation of innovative talent for the development of the Shanghai Technology Innovation Centre; second, with the announcement in late August that expatriate workers above the age of 60 will be made eligible for work visas. The European Chamber commends these common-sense changes. Hopefully other cities and regions that want to compete with Shanghai, in the race to foster innovation and the development of new industries, will follow its lead and these reforms will be rolled out nationwide, and soon.

Burdensome costs faced by businesses that can discourage them from taking on new hires also need to be addressed. In recognition of this, Premier Li Keqiang stated earlier this year that a corporate tax cut will be enacted in order to reduce companies’ costs during this period of slower economic growth. Unfortunately, in other areas this burden might actually be set to increase. Changes to the funding and use of the Disabled Persons’ Employment Security Fund may lead to a disproportionate increase in costs for companies. This is especially the case for SMEs and those in high-tech and services industries which generally offer a higher average salary. While European business strongly supports the full integration of persons with disabilities into the workforce, this legislation fails to address the actual root of the problem. It would be preferable to implement a broader strategy to support people with disabilities, while introducing caps or manpower thresholds below which it would not be applied. A thoughtful legislative review and further dialogue to find solutions are needed.

Ultimately, China’s competitive advantage cannot be found in its size. Nor can it be found in the state’s tendency to amalgamate companies into mammoth SOEs. It is the entrepreneurial spirit of the average Chinese citizen that distinguishes this country’s potential from many others. The Chinese Government is therefore best advised to leverage this HR advantage with the introduction of better vocational education schemes, more practical curricula in science and education more broadly, better language training programmes and by simply establishing an open Internet through which its citizens can fully engage with the international world of learning. Doing so will help this great nation to fulfill its potential. As always, European business is ready and able to be part of this future success story.

Jörg Wuttke
President
European Chamber of Commerce in China