Recruiting in China

Last Update: 5:20 AM ET Mar 24, 2006

SHANGHAI (MarketWatch) -- Germany's SAP AG (SAP), the world's biggest business software company by revenue, hopes to triple the number of its staff in China by 2008, a senior executive said Friday.
SAP now has 1,100 employees in China, including staff at a regional support center in the northeastern port city of Dalian, a laboratory in the central city of Chengdu and a new laboratory in Shanghai.

According to recent front-page articles in the New York Times and the Financial Times Asia edition, wages have been steadily rising during the last several years throughout southern China, where the world's largest manufacturing base is located. Citing "double-digit" increases in Chinese labor costs, executives of the Li & Fung group, a $7 billion Hong Kong-based trade-sourcing company, told the Financial Times last month that the competitiveness of China's sprawling manufacturing industries seriously eroded last year. William Fung even went so far as to declare that China "is no longer the most cost-effective country in the region," an assertion that has been seriously challenged.

China's rising costs have generated recent price increases averaging 2 percent to 3 percent for its goods, Mr. Fung reported. Though relatively small in absolute terms, these price increases nonetheless represent a major reversal of a long-term trend marked by "severe deflation." That deflation, which reflects falling prices, was especially evident in many consumer durable goods, which are products expected to last three years or longer, such as furniture, household appliances and most electronic goods, all of which China produces in abundance.

The Commerce Department's price index for all consumer durable goods, for example, has declined by nearly 20 percent since 1995, while the price index for furniture and household equipment plunged more than 40 percent over the same period. The prices for clothing and shoes, nondurable goods in which China specializes, fell 14 percent over the last 10 years. U.S. consumers derived extraordinary purchasing-power benefits from these falling prices, whose anti-inflationary impact has had the added benefit of helping to keep long-term interest rates, including mortgage rates, well below historical levels for years.

The New York Times article attributed China's rapidly accelerating wages to "persistent labor shortages," noting that the rising wages were "swelling the ranks of the country's middle class." U.S. workers should view this as a welcome development because American exports become far more affordable to Chinese workers whose living standards are rising. However, while the recent upward trend in Chinese wages is indisputable, there is good reason to believe that the trend will not have the long-term impact that experts cited by the New York Times seem to believe. Specifically, it is highly unlikely that rising wages are causing the Chinese economy to undergo "a profound change that will ripple through the global market for manufactured goods."

Applying "the math of small numbers" to China's changing wage structure, Stephen Roach of Morgan Stanley recently explained why China and its 1.3 billion people are unlikely to lose their comparative advantage in the manufacture of goods. "Rapid wage inflation off a very low base does little to close the gap with higher-wage economies on a moderate inflation trajectory," Mr. Roach convincingly argued. Back-of-the-envelope calculations illustrate Mr. Roach's point. The New York Times reports that the wages paid by multinational corporations in their largest Chinese factories typically average between $100 and $200 a month. (Minimum wages are less than $80 per month.) Given that Chinese manufacturing employees customarily work 10 hours per day six days a week, the upper limit ($200 per month) of wages paid by multinationals translates into 77 cents an hour. By contrast, U.S. workers in goods-producing industries earn an average wage of $17.72 per hour. Now, assume the 77-cent wage increases by 20 percent for each of the next five years. (The 20 percent annual increase would represent a significant acceleration over the 12-percent annual average that has prevailed since 1999.) Next, assume that the average U.S. goods-producing wage increases over the next five years by the Blue Chip consensus inflation forecast of 2.5 percent per year. Five years from now, China's top wage would be $1.92 an hour, having increased by $1.15. America's average goods-producing wage would be $20.05 per hour, having increased by $2.33, an absolute rise that is more than twice the absolute increase in the Chinese wage. The U.S.-Chinese wage difference would increase from $16.95 today ($17.72 less 77 cents) to $18.13 five years from now.

Responding to the New York Times assertion that China's rising manufacturing wages are "threatening at some point to weaken China's competitiveness on world markets," Morgan Stanley's Mr. Roach notes that "[p]roductivity growth in China's industrial sector -- manufacturing, mining and construction -- surged at an average annual rate of nearly 20 percent over the 2000 to 2004 interval," which was "well in excess of the cost pressures implied by 12 percent gains in hourly compensation." Thus, unit labor costs probably declined over the past five years. At worst, they were very well contained. Mr. Roach finds the "labor shortage in China" argument to be "equally preposterous." He cites the 60 million workers that have been furloughed by China's state-sponsored enterprises since 1997. And he points to the fact that China's rural population totals nearly 750 million, "by far the largest pool of surplus labor in the world."

So, it is good news that China's growing middle class is experiencing sizable relative income gains, a trend (if it continues) that will make U.S. goods more affordable to the average worker in China. It is also good news that the combination of soaring Chinese productivity and the continuing large absolute difference between Chinese wages and developed-country wages is likely to keep low-priced, purchasing-power-enhancing Chinese products within easy reach of consumers everywhere.

http://washingtontimes.com/op-ed/20060415-091638-9341r.htm

HONG KONG (Dow Jones)--Morgan Stanley (MS) said Thursday it hired Kai Yang as an executive director for its China investment banking team, based in Beijing.

Yang previously worked as chief representative in Beijing for Citigroup Inc. (C) and Swiss bank UBS AG (UBS).

Yang, who will start working at Morgan Stanley in May, will report to C.G. Wu, the company's head of investment banking for China.

So far this year, Morgan Stanley is the top bookrunner for equity deals in China, according to Dealogic PLC (DL.LN), a capital markets data provider. The company has acted as bookrunner on US$339 million worth of deals. The firm was also the top bookrunner for China equity deals in 2005.

http://sg.biz.yahoo.com/060323/15/3zku2.html

(SinoCast Via Thomson Dialog NewsEdge)BEIJING, Apr 04, 2006 (SinoCast via COMTEX) --UBS AG, a global leading financial service provider, appoints Cai Hongping the chairman of the investment banking business in China.

Mr. Cai, formerly served in BNP Paribas, has 12 years of experience in helping the state-owned companies go public and vie for underwriting business of USD 2.5 million, in which BNP Paribas was a leading bank and arranger.

Robert Rankin, joint head of USB investment banking business in Asia, reveals that Mr. Cai has been doing the investment banking business for ten years and is a senior investment banker. He had in-depth understanding of the Chinese private companies in various industries, including manufacturing, transportation, infrastructure, retail, and power and energy. The coming of Mr. Cai will help UBS AG to improve the current business in China.

Cai Hongping joined BNP Paribas in 1997 and became the managing director in 2002. Later, he was promoted to be the joint head of the bank's Asian business.

www.chinaview.cn 2006-04-04 08:15:47

BEIJING, April 4 -- A lack of qualified personnel in both the private and public sectors has seen the number of foreigners working in the country soar.

Expatriates legally employed in the country last year almost doubled compared with three years earlier, reaching a record high of more than 150,000, according to the Ministry of Labour and Social Security.

The rise is mainly seen in overseas-funded companies and local offices of multinationals as they expand rapidly in the coastal areas as well as big cities in the inland provinces.

The most sought-after positions include those in information technology (IT) and management, including human resources and finance departments.

In Shanghai alone, where more than half of the global top 500 multinationals have a presence, an estimated 40,000 foreigners work.

The State Administration of Foreign Experts Affairs is also hiring foreign experts every year.

"Foreigners with managerial and professional skills are welcome to work in China," said Gao Lin, an official with the ministry's employment department, adding that more are coming after the country joined the World Trade Organization (WTO) in 2001.

Lack of talents to fill new positions is a major reason behind the influx of foreign professionals.

The IT and telecommunications sectors, new materials and energies, high-tech and financial industries are particularly in need of foreign talent, said Wang Tongxun, a senior expert with the Chinese Academy of Personnel Science under the Ministry of Personnel.

"It means greater opportunities for both domestic and overseas talented people," he said. But since most domestic jobseekers cannot meet the requirements, foreigners fill the breach.

For instance, senior personnel in finance and accounting, like finance controllers, are urgently needed, Mercer Consulting said in a mid-March report after it co-sponsored a survey with the Association of Chartered Certified Accountants (ACCA).

But most senior accounting positions are taken by expatriates, it said.

Key positions such as marketing managers of overseas enterprises and foreign-funded hotels, and top posts in banks and manufacturers are also mostly taken by foreigners.

For these jobs, "expatriates are paid two to three times higher than their local counterparts," said Alan Zhang, who leads Mercer's Human Capital Product Solutions business in China.

"Most expatriates used to take up senior managerial or senior technical positions. But since 2004, there is an increasing trend to assign expatriates at middle management and professional level," he added.

(Source: China Daily)

Who's got the hottest job in China? The HR guy.

Michael Cline has seen the front line of the piracy battle in China. As a vice president for global personnel at AO Smith, the maker of heaters and motors based in Milwaukee, he helped guide the firm's China expansion from no plants in 2001 to multiple sites in four cities by 2005, and from zero employees to 3,000 people. Problems soon emerged: Employees were selling the company's technology to outsiders, and sales staff were, he says, "leading a dual life" by also working for rivals.

"The environment here was very different from anything the company had faced before," says Cline, who now runs a U.S. textile company in China. "I was spending 70% of my time" on China.

So AO Smith called in a U.K. consultancy called Control Risks to plug the security holes and help vet employees more carefully. They tried to root out nepotism by managers who directed business to companies controlled by family members, says Dane Chamorro, the China deputy manager with Control Risks in Shanghai. AO Smith declined to comment on the security issues. "There are a lot of messes here" in China, Chamorro says.

China's economic boom and attendant surge in intellectual property theft and financial crimes are taxing the skills of personnel departments. The demand for those skills is making personnel into one of the hottest careers in China today. According to consulting firm Mercer, wages in China for top HR executives of multinational companies grew 20% in each of the last two years to $97,000--in a country where per capita income is 1% of that figure.

The risk of a bad hire is getting bigger as manufacturers transfer sophisticated technology to woo local consumers and overseas investment funds pour fresh capital into local businesses. Corporate-snooping outfits are thriving as clients demand more background checks on their partners and employees. After opening a Shanghai office in 2003, Control Risks has gone from 2 to 22 employees in the city and will add an office of 5 people in Hong Kong this year.

For decades after the Communists took over in 1949, workers spent their entire careers with one state-owned company and rarely moved to a different town. Although state-owned enterprises now account for only a third of the economy and workers are far more mobile, there are no good national databases for checking employment histories, education credentials and criminal records.

The cost to check out a potential or past hire can range from $100 to $5,000, more than in the U.S., where criminal, legal and credit databases are more easily checked. The expense and hassle deters some businesses from even bothering, says Control Risks' Chamorro. Résumé fraud is rampant, and applicants frequently forge names on recommendation letters. "They don't expect to be checked--that's why they do it," says Chamorro.

And don't bother calling a former employer by phone. "If you call another part of China to ask about someone, people will tend to say everything is fine because they don't want to risk trouble from saying anything bad," says Simon Yin, cofounder of Hongren Club, an association based in Shanghai of about 1,000 personnel professionals. Yin is a big proponent of informal information exchanges about job applicants and of using references among group members.

"A lot of laws are there, but they don't always help. You have to work internally," says Arthur Yeung, who teaches at the China-Europe Business International School.

http://www.forbes.com/business/global/2006/0417/022.html