One of the great successes of European companies in China has been the ability to identify and develop Chinese nationals to take on senior leadership positions. This speaks to the quality of talent available in China, but also the realisation that the ability to attract the best people requires companies to offer promising career development opportunities.

However, while many European companies have successfully localised positions, this has brought new challenges to their operations. The European Chamber’s Business Confidence Survey 2024 (BCS 2024) found that 41 per cent of respondents experienced a growing divide between their headquarters (HQs) and China operations in the past two years, up from just 20 per cent in 2022.[1] Companies report that this has resulted in slower decision-making processes, with HQs and China offices struggling to align on important issues. Foreign nationals on the ground in China have typically been seen as playing a major role in bridging this gap, often arriving in China with prior experience at HQs, and a deep understanding of corporate culture.

The dilemma companies now face is how to balance the benefits of local workers with a better understanding of China’s business environment, against the advantages that foreign employees can bring to the table. Increasingly, it is becoming clear that the best solution is to foster a mix of both Chinese and foreign nationals along the talent pipeline — from entry-level to middle management and all the way to senior management positions.

For this to be possible, China needs to be seen as a long-term career development prospect for foreign nationals. However, the BCS 2024 found that nearly 40 per cent of respondents encounter challenges attracting or retaining international talent, with factors such as reluctance to relocate, high salary expectations and the lack of quality and affordable education for children the main concerns.[2] Three years of travel restrictions during the Covid-19 pandemic further diminished China’s appeal.

Chinese authorities have attempted to correct this by making it easier for foreign travellers to visit China through the introduction, and subsequent expansion of, a visa-free policy for the citizens of several countries, along with other conveniences for visitors. While this welcome step has had a positive impact on business travel, it so far has done little to increase the number of foreign nationals working at European companies in China.

The extension of the individual income tax exemption for foreign nationals announced in late 2023 is one example of a policy that has had a real impact. Yet this is merely a continuation of the status quo rather than something new.

In order to attract foreign nationals in the numbers that it used to, China will need to undertake significant policy reforms. To help identify the key areas where improvements are urgently needed, the Chamber’s Human Resources Working Group has detailed its key recommendations in the European Business in China Position Paper 2024/2025. If implemented, these could substantially improve European businesses’ ability to attract and retain the right balance of both domestic and foreign employees.[3]

[1] European Business in China Business Confidence Survey 2024, European Union Chamber of Commerce in China, 10^th May 2024, viewed 11^th September 2024, p. 39, <https://www.europeanchamber.com.cn/en/publications-business-confidence-survey>

[2] Ibid,p. 58

[3] European Business in China Position Paper 2024/2025, European Union Chamber of Commerce in China, 11^th September 2024, viewed 12^th September 2024, pp. 85–90, <https://www.europeanchamber.com.cn/en/publicationsarchive/1269/European_Business_in_China_Position_Paper_2024_2025>