Recruiting in China

South China's Guangdong province is the latest area in the nation to unveil plans to raise wages, state media said Wednesday, a move economists worry runs counter to efforts to rein in inflation.

Guangdong provincial labour authorities said in a 2008 plan that they aimed to establish a regular salary increase system and raise wages of all employees in the region by 12 percent or more this year, the China Youth Daily reported.

Other areas in China have announced similar polices, including the financial hub of Shanghai, where a salary rise guideline for this year has called on companies to lift employee wages by five to 16 percent.

This is meant to help households, especially low-income families, cope with the country's surging inflation, which has fuelled government fears of potential social unrest.

China's consumer price index rose 8.0 percent in the first quarter of the year. In February, it climbed to 8.7 percent, the highest in nearly 12 years, before easing slightly to 8.3 percent in March.

But analysts have voiced concern that salary hikes risk exacerbating the inflation problem that they are supposed to alleviate.

"Salary rises are certainly contributing to inflation," said Chen Xingdong, an economist with BNP Paribas in Beijing.

If companies are told to pay higher wages, they may have to raise their prices to stay out of the red, the economists argued, warning this could be the beginning of a vicious cycle.

"The problem will get worse if salaries and price rises take turns," said Ma Qing, a Beijing-based analyst with the think tank CEB Monitor Group.

They argued that it could also add an extra burden on companies that are already under big pressure of soaring upstream raw material prices and might even put them out of business.

"If the requirement goes beyond what companies can afford and therefore forces them to cut jobs or stop production, then the losses may be bigger than the gains," said Shen Minggao with Citigroup.

The Chinese government has signalled growing concern about the ways in which rising prices might adversely affect the poorest in society.

Since January, it has resorted to freezing price hikes on key consumer items like grain, edible oil, meat, milk and liquefied petroleum gas in order to keep them affordable for most families.

Wage rises may be meant to do the same, but economists warned they could actually lead to more social tensions by widening income disparities.

This is because wage rises by decree are likely to benefit mainly government employees, while blue-collar workers in private companies may get left behind.

"I doubt who will benefit from a policy where the government directs salary increases," CEB Monitor Group's Ma said.

"In the final analysis, I think it will only raise government employees' wages. This is what happened in 2006 and 2007."

Software giant Microsoft yesterday said it will invest 280 million U.S. dollars to build a research and development center in Beijing and significantly expand its research team in the country.

The new R&D campus, set to accommodate 5,000 employees, will become Microsoft's largest research center outside the United States when it is completed in 2010, said Zhang Yaqin, the company's China chairman.

"Through investments such as this, we are building on our capabilities as one of Microsoft's key global R&D centers," said Zhang.

He said the company will hire 1,000 new research employees in China in the next fiscal year, which starts in July.

Microsoft currently has 3,000 research staff in the country, with 1,500 full-time employees and another 1,500 working on a project basis, Dow Jones has reported. The company has said it will double the number of its full-time research employees in China to 3,000 in the next three years.

Last year, Microsoft invested about 280 million dollars in its R&D activities in the country, said Zhang Hongjiang, chief technology officer of Microsoft's China R&D Group. The company also recruited 1,000 new employees to its China R&D Group last year, making it Microsoft's largest research team outside the US.

About 80 percent of the company's 3,000 research staff in the country develop products for worldwide users and only 20 percent of them work specifically for demand from emerging markets such as China, Zhang said.

"But I expect this percentage to grow in the future," he said.

Microsoft started its first R&D center in China as early as 1995. The company now has research facilities in Beijing, Shanghai and Shenzhen.

These investments are said to have helped Microsoft win support from the Chinese government and boosted sales in the Chinese market.

PC shipments in China reached 36.84 million units last year, research firm IDC has said. It predicted the number to grow at an average rate of 17.2 percent until 2011, when shipments will hit 64.94 million units.

The country also has the world's largest number of Internet and mobile phone users, offering what is believed to be huge opportunities for IT companies.

Microsoft does not disclose its revenue from the Chinese market. But Fortune Magazine estimated in a story last year that the software giant's revenue from China would exceed 700 million dollars last year, about 1.5 percent of Microsoft's global sales.

BEVERLY HILLS, California (Reuters) - Google Inc, the world's Internet services leader, plans to boost hiring in China by one-third this year and increase promotional spending to win market share, a senior company executive said on Saturday.

Lee Kai-Fu, Google's president for Greater China, said in an interview that the Silicon Valley company intends to add 200 staffers in 2008 to its existing 600 employees and to keep up that level of hiring for the next three to five years.

The new jobs will be in technology and sales and marketing and half of the jobs will go to new university graduates, Lee told Reuters on the sidelines of the Committee of 100 conference, an annual gathering of Chinese-American leaders. The three-day event in Beverly Hills ends on Saturday.

Google, one of the most popular places to work among recent graduates, has sharply curtailed hiring. The company has hired around 800 new employees worldwide in each of the past two quarters, excluding acquisitions, half the rate of a year ago.

Google, China's No. 2 provider of Web search services behind domestic market leader Baidu.com Inc, also will increase promotional spending for its products such as Google Maps and its e-mail service called Gmail, Lee said.

"You will not see a Google advertisement on TV but you will see more and more promotions and advertisements about Google's products at Chinese Web sites," Lee said, describing how Google plans to rely on search ads instead of conventional marketing.

He said Google also would look to strike more profit-sharing partnerships with Web site operators along the lines of one it already has with Chinese Internet media site Sina.com for news, advertising and search services.

The goal is for Google to boost its own online advertising revenue in China, where millions of young Chinese people are rapidly adopting Internet shopping, Lee said.

"Advertising is our core revenue in China, just like anywhere else for Google," he said. "I believe online advertising in China has very big market potential."

Google Web search advertising services brought in virtually all of the company's $16.6 billion in revenue last year. It had 19,156 employees at the end of March, including around 1,500 that joined through its DoubleClick acquisition in March.

Lee's remarks follow comments by Google Chairman and Chief Executive Eric Schmidt earlier this week of improved business in China. "We are seeing market share growth and good revenue growth as we have learned to operate in that environment," he told investors on a conference call to discuss financial results.

Almost 480 of the Fortune 500 companies have invested in China during the past 30 years, Du Ying, deputy minister in charge of the National Development and Reform Commission said here on Monday.

From 1978 to 2007, China's total use of foreign investment exceeded 760 billion U.S. dollars, the largest amount among developing countries and the second largest worldwide, said Du at a national economic conference held here.

In 2007 alone, China's foreign direct investment reached 83.5 billion U.S. dollars and outbound investment stood at 18.7 billion U.S. dollars, both soaring from less than 20 million U.S. dollars in 1978 when the country initiated the policy of reform and opening up to the outside world.

Meanwhile, the country's foreign trade also experienced a rapid growth, from 20.6 billion U.S. dollars in 1978 to 2.17 trillion U.S. dollars last year.

"By using both the markets and resources from home and abroad, China has improved its international competitiveness remarkably," he said.

SALARIES are soaring for top executives in China's listed companies, especially in the financial sector, according to recently released annual reports.

Shenzhen-based China Ping An insurance company pays the most of all A-share companies to its top executives, according to the Shenzhen Daily.

Ping An augmented its top executives' paychecks by 122 percent, to 282 million yuan (US$40 million), or 1.47 percent of the company's net profit last year.

At the same time, the company posted a 140 percent rise in net profits.

As a result, Ma Mingzhe, chairman of Ping An; Louis Cheung, Ping An's president and CFO; and Dominic Leung, Ping An's CEO, each earned more than 25 million yuan after taxes in 2007.

The average income of Chinese citizens is rising too, although not as fast.

According to the National Bureau of Statistics, the disposable income per capita for Chinese urbanites was 13,796 yuan in 2007, an increase of 17.2 percent over 2006, the biggest rise in six years.

If the current rate of increase continues, salaries in cities will double in four to five years.

Salaries increased 9.6 percent for managers and 9.1 percent for supervisor/senior professionals in the non-manufacturing sector in Shanghai in 2007, in contrast to 8.2 percent and 8.1 percent respectively in 2006. That's according to the 2007 Shanghai Local Compensation and Benefits Total Compensation Measurement Report, conducted by Hewitt Associates on mainly Shanghai-area foreign-invested firms.

Another trend is the salary increase in second-tier cities in the Yangtze River Delta, with Shanghai manufacturing at 8.5 percent, Suzhou 8.8 percent, Wuxi 9.2 percent and Changzhou 10.2 percent.

In an interview with China Knowledge@Wharton, Michael Song, head of Hewitt's compensation and benefits consulting practice, said the average salary increase in Hewitt-surveyed companies was 8.7 percent across China.

Companies were also asked how they were reacting to the ever-climbing CPI. Fifty percent of the 300 surveyed companies said they have factored CPI into their 2008 budgets.

A human resource manager at a US Fortune 500 company, who asked not to be named, said the salary increase rate at his company closely follows that of similar Fortune 500 companies.

"If our pay is above the market level, that will impose big pressures on labor costs. And ... even if you are above the average level, your turnover rate will not necessarily come down. However, if your pay rise is lower than the market level, even by a few percentage points, you will see the turnover rate going up. "

Song acknowledged that the pay increase rate varies atn different levels within the same company. "The higher the level goes, the faster the pay grows," he said.

The cited Hewitt survey says in the Shanghai city manufacturing sector over the last three years the compound growth rate of salaries has increased to 54.5 percent for the top management level while it is only at 14.1 percent for manual workers.

Meanwhile, Song pointed out the entry level salary for new college graduates has recently stabilized at around 3,000 yuan per month in Shanghai, although some outstanding graduates from top universities in China could earn 5,000-7,000 yuan.

Oversupply might account for the stagnant entry-level salary. There are too many fresh graduates every year, and most likely, they don't possess the right skills that companies seek, Song noted.

High turnover rates

The biggest salary increase last year was in the finance and investment sector, especially the funds industry, said Song.

Increasing labor costs are posing challenges to companies' margins.

However, even if companies continuously improve compensation and benefits levels, employee turnover rate shows no sign of decline.

The Hewitt study confirmed that turnover rates are still rising across most sectors, with average rates increasing from 8.3 percent in 2001 to 14.7 percent in 2007.

Some cities and industries see even higher turnover rates, said Song. The main reason is the gap between supply and demand, he said, pointing to the fast-growing economy in China as the fundamental cause of the gap.

"Most enterprises are continuously expanding. Last year, there was an average 10-20 percent increase (in company work forces). When companies are expanding, the whole market is recruiting but supply is not catching up fast enough. Demand for certain functions, like sales and marketing, is even bigger."

Kang Lan, client partner in the Shanghai office of Korn Ferry, the international executive search company, said: "For a function like marketing, which is relatively new in China, there was not much talent accumulation."

Ever-increasing pay hikes pose a significant problem for most organizations.

SINGAPORE: The top reason why employees in Asia quit is unhappiness with their pay, a study by a human resources firm said on Saturday.

It found 70 percent of the best employers see a large connection between improved performance and higher salaries.

While Asian employers have "increased investment" in compensation, they are not yet getting the "strategic and financial results"; The Business Times quoted Hewitt Associates principal Nishchae Suri as saying.

In China, 71 percent of employees are unhappy with their pay, 51 percent are unsatisfied in Hong Kong, 44 percent in India, 73 percent in Japan and 42 percent in Singapore, the published survey said.