Recruiting in China

Vocational schools emphasize skilled training to meet growing demand

China is gradually shifting its education focus from a pursuit of diplomas to vocational training, in a bid to meet the growing demand for skilled workers in the country's technical upgrade.

The supply and demand in China's labor market has been mismatched, which resulted in structural unemployment, said Rong Lanxiang, headmaster of Shandong Lanxiang Vocational School, one of China's largest training bases of skilled workers.

"The overexpansion of university enrollment generates millions of graduates who struggle to find a place in the government or public institutions. But, on the other hand, the shortage of skilled workers in China's manufacturing sector was more than 4 million at the moment," Rong said, explaining that high-skilled workers only account for 15 percent of the country's workforce.

Another reason is the stereotyped, stubborn image that workers are ranked at a lower class of the social hierarchy and fail to win enough esteem, he added.

Rong said the issue has drawn attention from the government and corresponding changes in policy have been made, as reflected by the change in students' subsidies.

In February, China decided that from 2014 it will do away with the publicly funded postgraduate education system that has been in place for several decades.

Meanwhile, the government has also been increasing fiscal support for vocational schools. Since 2012, the Shandong government has provided annual subsidies of up to 4,800 yuan ($773) for each of Rong's students, on top of the 1,500-yuan national allowance.

"The policy came 10 years late, otherwise we would not have seen such a large gap in the supply of skilled workers," Rong said.

His words were echoed by Xu Xiaoping, a senior technician from Shanghai Volkswagen Automotive Co, who said manufacturers are facing a severe shortage of skilled workers.

"Even if we offer a salary of 5,000 to 7,000 yuan per month, it's still hard to locate the right candidates," he said.

He attributed the malaise currently afflicting the industry to the absence of trained professionals as well as the lack of enterprise engagement.

To iron out the issue, Xu said Shanghai Volkswagen has signed several memorandums of understanding with local vocational schools to nurture technical practitioners.

As for the Lanxiang school, Rong said employers have to pay 1,000 to 3,000 yuan for each graduate they book. Even so, only companies with a noted brand and good track record are eligible to do so.

A student of the school who went on to become an excavator operator or motor mechanic could make as much as 10,000 yuan a month, an enviable salary level even for top university graduates.

Graduates from the excavator operating class have also been employed by State-owned enterprises and sent for overseas mining project in Russia and Mongolia, with even better pay.

Although Lanxiang has trained more than 300,000 skilled workers, the labor gap currently stands at 4 million people.

Therefore, Rong suggested that training bases for skilled workers should be established in each province, in order to equip the 250-million-strong migrant workforce with skills or proficiencies, so that they'll have a better chance to settle down in the cities.

Meanwhile, he said, skilled workers should have a similar social status with public servants and university graduates.

Apart from cash payments, he called for job certification to be granted for vocational school graduates so as to encourage more young people to become skilled workers.

"Nowadays kids aren't used to hard work, partly because being a worker doesn't sound decent enough," said Zhou Zhenbo, a technician at Shanghai Delixi Group Co Ltd who has a tenfold pay increase over the past nine years.

"I think it's still worth the effort and young people should learn to put their feet on the ground," he said.

Under chairman Jiang Jianqing, the Industrial and Commercial Bank of China raked in $38.5bn in net profits last year, making it the world's most profitable bank. For his efforts, Mr Jiang was paid $185,000, less than 1 per cent of the overall package awarded to Lloyd Blankfein, chairman of Goldman Sachs.

Mr Jiang fared well compared with other Chinese financiers -- he was the best paid among the bosses of the country's biggest banks.

Chinese executives at state-owned groups have long been among the lowest paid of their global peers, according to their officially declared salaries. But even their apparently meagre pay generates controversy at a time when executive salaries at public companies globally attract scrutiny.

In China, it is not a case of shareholder revolt -- the government is the controlling shareholder of virtually all major Chinese companies and has the power to easily change salaries. Rather, public anger about inequality and corruption has made executive pay a focus for media attacks, even from official outlets.

The government-run Xinhua news agency said in an editorial: "If the top executives of state-owned companies just fatten themselves, giving themselves high salaries and rich benefits, this is a departure from the original intent of the founding of these companies."

The People's Daily, the mouthpiece of the Communist party, said: "High pay for high-level executives and low pay for ordinary employees is immoral.

"If the pay for high-level executives is severely out of balance with the pay for ordinary employees, then the management has a problem." The harshest criticism was directed at China International Marine Containers. Net profits fell by 47 per cent last year, but group president Mai Boliang was the best paid of the top managers of the country's state-owned companies, pulling in $1.6m. The People's Daily noted that salaries of CIMC's top executives had risen 13-fold in the past four years, while the average pay for employees rose just 32 per cent.

Executives at other state-owned groups cut their pay because of poor performance. Wei Jiafu, chairman of China Cosco, China's biggest shipper, decided to take home $97,000, half of what he was due, after the company lost $1.5bn.

It is an unpopular view, but some Chinese academics and analysts say the main problem with executive pay at state-owned companies is that much of the time it is too low.

Tang Jie, a researcher at Renmin university's school of finance, says the government has tried to develop better incentive systems at state-owned companies by linking pay to performance, but that it is some way off from achieving this.

"This issue derives from the history of the government's management of state-owned companies. Executive pay is very low when compared to their contributions, their abilities and their responsibilities," says Mr Tang. "State-owned companies need professional managers. They should be paid according to market standards, with compensation adjusted according to objective performance criteria."

Proponents of better executive pay point to the idea of gaoxinyanglian -- the theory that higher salaries could be used as a way to discourage corruption.

The fall of Communist party leadership hopeful Bo Xilai last year, exposed the extent to which officials have enriched themselves despite small salaries. Mr Bo's official pay was $1,600 a month, but his family had net assets of $130m, according to Bloomberg.

Even in cases without extreme corruption, Chinese corporate executive have grey sources of income. Top bankers have low official salaries and small bonuses, but they often receive homes, cars, free schooling and more.

Fabrice Isnard, head of financial services in the Shanghai office of Robert Walters, a recruitment consultancy, says foreign banks in China can rarely afford to lure talent away from local banks because of the way pay is structured.

"We have seen that at local banks, senior positions have better packages than [at] foreign banks," he says. "If you add up all the benefits it becomes too expensive for the foreign banks to hire them."

Exits of top foreign managers amid health fears predicted to rise in future

Whitney Foard Small loved China and her job as a regional director of communications for a top automaker. But after air pollution led to several stays in hospital and finally a written warning from her doctor telling her she needed to leave the country, she packed up and moved to Thailand.

In doing so, the Ford Motor Co. executive became another expatriate to leave China because of its notoriously bad air. Other top executives whose careers would be boosted by a stint in the world’s second-largest economy and most populous consumer market are put off when considering the move.

Executive recruitment firms say it is becoming harder to attract top talent to China — both expats and Chinese nationals educated abroad. The European Chamber of Commerce in China says foreign managers leave for many different reasons, but that pollution is almost always cited as one of the factors — and is becoming a larger concern.

If the polluted skies continue, firms may have to fork out more for salaries or settle for less qualified candidates. Failure to attract the best talent to crucial roles could result in lost commercial opportunities and other missteps.

Poor air quality has also added to the existing complaints foreign companies have about operating in China. Even though the country’s commercial potential remains vast, groups representing foreign firms say doing business is getting tougher due to slowing though still robust economic growth, limits on market access and intellectual property theft.

China’s rapid economic development over the last three decades has lifted hundreds of millions out of poverty but also ravaged the environment as heavy industry burgeoned and car ownership became a badge of status for the newly affluent. Health risks from pollution of air, water and soil have become a source of discontent with Communist Party rule.

Foreigners regularly check the air quality readings put out by the U.S. Embassy and consulates on their Twitter feeds when deciding whether to go out for a run or let their children play outside.

The pollution has become even more of a hot topic since January, when the readings in Beijing went off the scale and beyond what is considered hazardous by the U.S. Environmental Protection Agency.

At the same time, China’s state media gave unprecedented coverage to the pollution following months of growing pressure from a Chinese middle class that has become more vocal about the quality of its air.

“January was probably the worst,” said Australian Andrew Moffatt, who worked in Beijing before the pollution pushed him to return to Brisbane in March with his wife and 5-year-old son. “Back in November I had been sick and then we went on holiday to the beach in Hainan, and it just reminded me of Australia and I just thought we could be breathing this quality air every single day rather than polluted air in Beijing.”

And it’s not only in the capital where the air pollution is driving expats away.

Ford transferred its regional headquarters from Bangkok to Shanghai in 2009. Four months after the move, Small had her first major asthma attack. “I had never had asthma in my life, never ever had asthma before China,” said Small, who quit the country in May last year.

Her asthma was exacerbated by an allergy to coal, which is the source of about 70 percent of China’s energy. In Shanghai, the problem resurfaced. “Three hospitalizations later, my doctor said it was time to call it quits,” she said.

Her frequent treatments — involving inhalers, steroids and a nebulizer in the mornings and evenings to get medication deep into her lungs — meant the medication became less effective. “I actually got a written warning from my pulmonary doctor and it said you need to reconsider for your life’s sake what you’re doing and so that was it. I didn’t really have a choice, my doctor made it for me,” she said.

Ivo Hahn, the CEO of the China office of executive search consultants Stanton Chase, said that in the last six months, air pollution has become an issue for candidates they approach. “It pops up increasingly that people say, ‘Well, we don’t want to move to Beijing’ or ‘I can’t convince my family to move to Beijing,’ ” he said.

Hahn thinks this trend will only strengthen over the next one or two years because the highest-level executives generally “are not working primarily for their survival.” Such employees, he said, “normally get a decent pay, they are generally reasonably well taken care of, so the quality of life actually does matter, particularly when they have children.”

Some, however, say that China has become too important economically for up-and-coming corporate executives to ignore. It generates a large and growing share of profits for global companies while still offering a vast untapped potential.

“It’s increasingly important for people who want to have careers as managers in multinational companies to have international experience, and as part of their career path and in terms of international experience, China is one of the most desirable places because of the size of the market and growth and dynamism of the market,” said Christian Murck, president of the American Chamber of Commerce in China.

Hahn said the effects of expats refusing to relocate to China aren’t going to be felt overnight, but eventually “either companies will have to pay a higher price overall because maybe candidates may have to commute, as an example, or they may lower their standards or they may offer the position to somebody who may actually not be quite as qualified.”

If the trend worsens, it would have some economic impact, said Alistair Thornton, senior China economist at IHS in Beijing.

“Expats contribute almost nothing to China’s growth because the numbers are just tiny, but intangibly they contribute quite a significant amount” by introducing foreign technology, best practices and Western management techniques “that Chinese companies are harnessing and using to drive growth,” said Thornton.

He is leaving Beijing in June, citing air pollution as one of the factors.

At 7.7%, China’s annual GDP growth in the first quarter of this year was slower than many expected. While the data were hardly devastating relative to a consensus forecast of 8.2%, many (including me) expected a second consecutive quarterly rebound from the slowdown that appeared to have ended in the third quarter of 2012. China doubters around the world were quick to pounce on the number, expressing fears of a stall, or even a dreaded double dip.

But slower GDP growth is actually good for China, provided that it reflects the long-awaited structural transformation of the world’s most dynamic economy. The broad outlines of this transformation are well known – a shift from export- and investment-led growth to an economic structure that draws greater support from domestic private consumption. Less well known is that a rebalanced China should have a slower growth rate – the first hints of which may now be evident.

A rebalanced China can grow more slowly for one simple reason: By drawing increased support from services-led consumer demand, China’s new model will embrace a more labor-intensive growth recipe. The numbers seem to bear that out. China’s services sector requires about 35% more jobs per unit of GDP than do manufacturing and construction – the primary drivers of the old model.

That number has potentially huge implications, because it means that China could grow at an annual rate in the 7-8% range and still achieve its objectives with respect to employment and poverty reduction. China has struggled to attain these goals with anything less than 10% growth, because the old model was not generating enough jobs per unit of output. As Chinese manufacturing moved up the value chain, firms increasingly replaced workers with machines embodying the latest technologies. As a result, its economic model spawned a labor-saving, capital-intensive growth dynamic.

On one level, that made sense. Capital-labor substitution is at the heart of modern productivity strategies for manufacturing-based economies. But it left China in a deepening hole: increasingly deficient in jobs per unit of output, it needed more units of output to absorb its surplus labor. Ultimately, that became more of a problem than a solution. The old manufacturing model, which fueled an unprecedented 20-fold increase in per capita income relative to the early 1990’s, also sowed the seeds of excessive resource consumption and environmental degradation.

Services-led growth is, in many ways, the antidote to the “unstable, unbalanced, uncoordinated, and ultimately unsustainable” growth model that former Premier Wen Jiabao’s famously criticized in 2007. Yet services offer more than just a labor-intensive growth path. Compared to manufacturing, they have much smaller resource and carbon footprints. A services-led model provides China with an alternative, environmentally friendlier, and ultimately more sustainable economic structure.

It is premature, of course, to conclude that a services-led transformation to slower growth is now at hand. The latest data hint at such a possibility, with the tertiary sector (services) expanding at an 8.3% annual rate in the first quarter of this year – the third consecutive quarter of acceleration and a half-percentage point faster than the 7.8% first-quarter gain recorded by the secondary sector (manufacturing and construction). But it will take more than a few quarters of mildly encouraging data to validate such an important shift in the Chinese economy’s underlying structure.

Not surprisingly, China skeptics are putting a different spin on the latest growth numbers. Fears of a shadow-bank-induced credit bubble now top the worry list, reinforcing longstanding concerns that China may succumb to the dreaded “middle-income trap” – a sustained growth slowdown that has ensnared most high-growth emerging economies at the juncture that China has now reached.

China is hardly immune to such a possibility. But it is unlikely to occur if China can carry out the services-led pro-consumption rebalancing that remains the core strategic initiative of its current (12th) Five-Year Plan. Invariably, the middle-income trap afflicts those emerging economies that cling to early-stage development models for too long. For China, the risk will be highest if it sticks with the timeworn recipe of unbalanced manufacturing- and construction-led growth, which has created such serious sustainability problems.

If China fails to rebalance, weak external demand from a crisis-battered developed world will continue to hobble its export machine, forcing it to up the ante on a credit- and investment-led growth model – in effect, doubling down on resource-intensive and environmentally damaging growth. But I remain hopeful that China’s new leadership team will move quickly to implement its new model. There are no viable alternatives.

Financial markets, as well as growth-starved developed economies, are not thrilled with the natural rhythm of slower growth that a rebalanced Chinese economy is likely to experience. Resource industries – indeed, resource-based economies like Australia, Canada, Brazil, and Russia – have become addicted to China’s old strain of unsustainable hyper-growth. Yet China knows that it is time to break that dangerous habit.

The United States is likely to have a different problem with consumer-led growth in China. After all, higher private consumption implies an end to China’s surplus saving – and thus to the seemingly open-ended recycling of that surplus into dollar-based assets such as US Treasury bills. Who will then fund America’s budget deficit – and on what terms?
CommentsView/Create comment on this paragraphJust as China must embrace slower growth as a natural consequence of its rebalancing imperative, the rest of the world will need to figure out how to cope when it does.

With escalating labor and rental costs as well as manpower shortages on the mainland, 'relocation' has become the new buzzword for HK factory owners. Sophie He talks to them about their experiences.

Around 25 years ago, many Hong Kong factory owners, including Willy Lin Sun-mo, managing director of Milo's Knitwear (International) Ltd, moved their manufacturing facilities from Hong Kong to Guangdong province on the mainland to take advantage of cheap labor and low rental costs.

At that time, a worker's wage was as little as 8 yuan per day. Currently, wages at Lin's Dongguan factory have risen beyond 60 yuan per day - almost more than seven times what they used to be.

Today's mainland factories, especially those located in the Pearl River Delta, find it hard to recruit enough workers.The trend started with millions heading home annually for Chinese New Year holidays, only for large numbers to refuse to return to work. The workers preferred to stay at home for lesser-paid jobs and be nearer their loved ones and families, enhancing the jobless situation in many cities - a phenomenon that has become increasingly common these days.

As many factories in Guangdong face the triple challenges of rising labor costs, labor shortages and strong increases in rental, many factory owners, including Lin, turned to relocation or investments in factories on the mainland's hinterland, or even transplanting to neighboring countries as a solution to their problems. By moving factories to where labor was both adequate and cheap, owners expected to offset their challenges and be rewarded with bigger profit margins. And while some have benefited from such moves, others have not.

Lin told China Daily that Milo's Knitwear, whose Dongguan factory was established over 20 years ago, faced labor shortages several years ago, a problem shared by many such plants. As most of his workers in the Dongguan facility are from Jiangxi province, Lin invested more than 30 million yuan to set up a plant in Jiangxi four years ago, while answering the central government's call to companies to invest in the central and western area of the country. But he simultaneously invested in automation at his Dongguan factory, replacing semi-automatic machinery with its fully automatic equivalent.

When the Jiangxi factory went operational, Lin planned to recruit as many as 2,000 workers. But despite four years of production, the factory has only hired 300 workers, Lin says, explaining that few young people who lived in the area also wanted to work near their hometown.

"Most of the young people (who are born in smaller cities) on the mainland wanted to experience life in big cities, and thanks to a well-developed transportation system in the country, they can work in big cities and return to their family overnight," Lin says.

For those who choose to work near their family and loved ones, factory owners found these workers are easily distracted by domestic chores.

"The workers (in the Jiangxi factory) never want to work overtime, as they want to go home, prepare dinner, or take care of their children," Lin points out, adding that such distractions from home means the Jiangxi workers are not as efficient as their Dongguan counterparts.

The Jiangxi factory still hasn't broken even after four years. However, Lin has no intention of giving it up, as Jiangxi labor costs are still lower than those of Dongguan, and the local government is supportive.

So Lin improvised change. "Recently, it crossed my mind that since Jiangxi workers are having such a hard time adapting to our business model, maybe we should change our business model to adapt to them," he says.

Lin says that instead of producing entire garments in the Jiangxi factory, his company decided to produce only part of the garments there, thus making it easier for workers; meanwhile, the company can also lower its requirements to adapt to their production habits.

Relocation outside the mainland

Another company Top Form International, a Hong Kong-listed brassiere manufacturer, has two production plants; one in Foshan, Guangdong province, and the other in Jiangxi province. Both were established 30 years ago to manufacture lingerie for export to the United States and Europe. The two factories have a combined labor force of some 4,300 workers.

Top Form used to have a third factory in Shenzhen, but it closed down last year, as workers' monthly wages doubled from 2,000 yuan five years ago, to more than 4,000 yuan today. Difficulty recruiting sufficient numbers of workers was another reason for the plant's closure.

Four years ago, the company decided to close down the Shenzhen factory as part of a "strategic shift" to reduce capacity in high-cost areas and increase capacity outside the mainland where costs were lower.

According to Top Form chairman Willie Fung Wai-yiu, producing brassieres requires numerous manual procedures, so the company is heavily dependent on workers and is highly sensitive to workers' wage fluctuations.

Top Form then set up a factory in Thailand where it has since doubled the number of workers to 4,000 as of 2011. The company also established a factory in Cambodia in early 2012 and hopes to staff it with 2,000 workers. Average production costs in Thailand and Cambodia are 15 percent lower than on the mainland. The company expects to have two thirds of its total production capacity outside the mainland eventually, up from the current 47 percent.

But the relocation of Top Form's factory to Cambodia brought trouble from the outset.

Fung says that by September 2012, the factory had up to 700 workers, but then out of the blue, they downed tools and went on strike.

Illegal strike

"The strike was illegal.We had to take the workers to court, and the final ruling was in the company's favor, but by that time we had already paid dearly for the incident," Fung explains, adding that the strike action saw the company close its factory for weeks and release the majority of the workers.

Top Form's Cambodia factory is already back into full swing and currently has around 300 workers. But the incident forced Fung to do some serious thinking. As a result, he wants to share what he has learned from the relocation initiative with factory owners who may also want to expand their manufacture into Southeast Asian countries.

In retrospect, Fung says it is far better to train a local management team in the country the factory is relocated to, than to introduce a new management team from Hong Kong or the mainland to the country. "As it is hard to keep a non-local manager away from his family for many years, it is better to train a local manager who will ensure smoother operations," he says.

It's good to bring in staff from overseas, but that is only half the job

Since China joined the World Trade Organization in 2001, a great number of its state-owned enterprises have developed businesses overseas. An increasing number of SOEs are also conducting international commerce with other countries. Both trends show us that the need for excellent international talent has become inevitable for SOEs. But the fierce competition among all kinds of companies in the knowledge-based economy has led to an urgent lack of foreign talent in SOEs over the years.

There is no doubt that it is critical for companies to take care of their foreign talent, especially high-end management talent and multitalented expats. From human resource management to human resource development, to retain foreign talent can be presented in every detail. But it is difficult to say whether SOEs have done a good job in retaining foreign talent.

To begin with, I would like to talk about the process of adaptation by foreign talent to the Chinese working environment. SOEs should always bear in mind that foreign employees may not stay at the company till the end of their contract.

If an SOE really wants a foreign talent to stay in the company for a long time, it really needs to take action. For instance, in order to help skilled foreigners get used to the environment quickly, a mentor from the company can be arranged to help the foreign employee with life and work issues. SOEs can also plan team-building activities to encourage them to communicate with local employees. Moreover, SOEs can organize training sessions for new employees so that they can get familiar with the company within a short time.

Another important issue is that fairness, transparency and efficiency in performance appraisals should be improved so skilled foreigners can receive objective feedback about their work. A fair performance appraisal plays an important role in the development of one's career. Foreign employees enjoy positive recognition from their company, while negative feedback may stimulate them to work harder.

It is also very important for a foreign talent to see an SOE's real action. To be specific, if a foreign talent performs very well, he or she expects to see a salary increase that matches what is noted in the performance appraisal.

Developing a better incentive system is also a positive action to take for SOEs.

What needs to be addressed is that both psychological and material incentives should be considered. The psychological incentive refers to an encouraging environment for foreign talent. Positive comment and feedback from management can infuse foreign talent with confidence, which can also develop into work motivation.

As for material incentives, I think SOEs should come up with some smart ones. By saying smart, I mean incentives that are tailored to foreign talent. Take housing subsidies. For foreign employees, a housing subsidy is not really practical. The majority of foreign employees in China rent houses rather than buy them. Instead of paying for the housing subsidy, SOEs could choose to pay for Chinese language courses if they are going to stay in China for a long time.

Another issue is with Chinese medical insurance. The Chinese medical insurance only covers expenditure in Chinese hospitals, but it is difficult for most foreign employees to talk with doctors or nurses in the local language. SOEs should consider foreign hospitals or clinics as options.

Lastly, taking care of the family of a foreign employee is also a good way keeping them. Foreign employees, being in another country, are unable to spend time with their families. Arranging a trip for the family of the foreign employee may be a great idea.

There are still a lot of challenges for SOEs. Attracting and retaining international talent is certainly not an easy task, but it would be helpful for SOEs to solve the issue of retaining talent by considering the suggestions set out here.

The author is CEO & founder of RMG Selection, an Asia-focused human resources and recruitment consultancy.