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2011-11-03 | All chapters

China  criticised over social security plan
Financial Times, 2nd November 2011

China has come under fire for its handling of new rules that require foreign workers to pay contributions to the country's social insurance system.

Representatives of foreign businesses say that hasty implementation and apparently poor coordination between Beijing and local governments have left them in the dark about their obligations.

While large multinationals say that the extra expenses will probably be limited, smaller companies worry that they will only add to the growing cost of doing business in China.

Lawyers say the average monthly cost per worker will be about $650 month in employer contributions and $200 in individual contributions. The insurance fees will apply to the more than 200,000 foreigners who have work permits in China.

Much of the confusion stems from the fact that the central government has left it to municipalities to determine fee levels and payment methods. Although the law went into effect on October 15, no cities in China are yet ready to collect contributions and few have issued any guidance about rates. The central government has given them a deadlne of the end of this year.

In a measure of the concern of foreign companies, the European Union Chamber of Commerce in China had an unusually strong turn-out of 180 members at a recent meeting with an official from the social security ministry.

"There are a lot of question marks, a lot of insecurity about details," said Dirk Moens, secretary general of the EU Chamber. "While the regulatory framework was created a while ago, what was surprising to us was the speed of the implementation, especially knowing that the system was not ready."

Cities in China also seem to have been caught by surprise.

Dalian, a high-tech hub in the northeast, has been besieged with queries after lifting a cap on social security contributions, which would theoretically force employers to pay about 32 per cent of workers' total wages as fees, no matter how high the wages.

At the opposite end of the spectrum, people familiar with the matter say that Shanghai is dragging its feet, not wanting to add an additional levy on foreign workers that might dent its appeal as an investment destination.

"Our clients will do whatever is required to be compliant with Chinese law. They just want to know what the law is," said Andreas Lauffs, head of the employment law group at Baker & McKenzie in Hong Kong.

Xu Yanjun, deputy head of China's social security centre, conceded last week that local governments were having some difficulty rolling out the system, but said there would be no turning back on the plans.

The official Xinhua news agency drove that point home in an English-language commentary on Sunday, criticising foreign companies for assuming that they deserve "favourable treatment".

"The lenient policies of yesterday have worn out their usefulness, and foreign companies should keep that in mind," it said.

Jeffrey Wilson, a labour lawyer with Jun He, a leading Chinese firm, said that the reforms were consistent with the broader evolution of Chinese employment law.

"It is putting foreign nationals and People's Republic of China nationals on the same page in terms of their obligations," he said.

Foreign nationals from countries that have bilateral agreements with China on social insurance contributions will be exempt from some of the fees. To date only Germany and South Korea have such treaties, but the new rules are expected to prompt others to seek similar deals, with France, Belgium and Japan all initiating talks.