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2011-11-07 | All chapters

Concerns rise over China's new welfare rules for foreign workers
The Guardian, 7th November 2011

New Chinese rules bringing foreigners into the social welfare system are under fire, with businesses warning that contributors appear unable to claim most of the benefits.

Foreign companies have also complained that they cannot find out exactly how much to pay, or how to pay it, because the scheme has been rushed through. Beijing has said it wants local authorities to implement the scheme by the year's end, but that firms and individuals will have to make back-payments from mid-October, when the rules went into effect.

It appears that companies will have to pay in up to 32% of the salary of a worker based in Beijing, or 37% of a worker in Shanghai. In most but not all cities a cap would apply, so payments will be due on income of up to three times the average monthly wage. In Beijing that would probably mean a maximum employer's contribution of around 4000 yuan per month - roughly £4,800 a year. Employees will put in 10 to 11% of their salary. It is not clear whether their contributions will be capped.

The scheme will affect more than 230,000 foreign workers in China. Beijing has been gradually introducing a social welfare system and says it wants to ensure that foreign employees are also protected. In theory, they will be entitled to a pension, basic medical care, unemployment cover, maternity pay and workplace injury insurance.

But a commentary in the state-run Global Times newspaper on Thursday acknowledged concerns that the payments might not benefit foreign workers. It said: "Many worry they won't receive the benefits, although they and their companies pay for the insurance every month. For instance, a foreigner who loses a job in China instantly loses the right to live here, and it is unclear how he or she is going to benefit from the unemployment insurance and retirement pension."

"Our members have a lot of questions and concerns," said Dirk Moens, the secretary general of the European Union Chamber of Commerce in China. He said that the principle - including foreigners in the system - was very similar to that of other countries.

"The concern of members is: okay, we understand we have to contribute to the system - but how do we benefit from it? If there is a reasonable balance between benefits and contributions, I think people would accept it. If you don't know, you cannot have confidence," he said. "We understand the individual can claim back [pension] contributions but not the employers' part [when they leave]."

The chamber also believes the back-payments are unfair, because people are paying for benefits they never had a chance to claim. It had suggested that the policy should be voluntary initially, to avoid companies and individuals having to pay twice over. Beijing says that they are happy to reach reciprocal agreements to avoid double payment - as they have done with Germany and South Korea - if other countries approach them.

A spokesman for the British embassy in Beijing said: "If in the future UK businesses wanted us to seek such an agreement, then we would give it strong consideration." The American Chamber of Commerce in China also expressed concern about the apparent impossibility of collecting the benefits, adding: "In addition, the measure would create substantial new financial obligations that could in some cases threaten the competitive standing of our member companies."

Nick Thomas, executive director of the British Chamber of Commerce in Beijing, said "almost no notice was given at all" of the changes. He added: "There's also the cost implication. It's something like £6,000 a year and especially for small companies, if you have a lot of expats, it's a sizable amount."

Xu Yanjun, a senior official at the Ministry of Human Resources, said last week: "Local governments have had some difficulty implementing the measures at an operational level. It will take time." He acknowledged there was a "disconnect" because visa regulations would not allow people to remain in the country to claim pensions or unemployment benefit and asked people to "trust China". "Some new problems have come up and we are working hard to address them and need some time to do so," he added.

An editorial carried by state news agency Xinhua suggested many foreign companies who complained were expecting special treatment. "Leaving foreign employees out of the system simply gives their employers an unfair cost advantage in hiring," it said.