Recruiting in China

Job prospects for executives at multinationals in Greater China and Singapore have improved sharply in the past three months amid growing optimism that Asia's recovery from the global recession will be sustainable, a quarterly survey showed on Thursday.

'Asia is the first region to emerge from the global recession, causing employers to revise their hiring expectations sharply upwards,' said Mike Game, chief executive of executive recruiters Hudson Asia.

In China, hiring prospects picked up for the first time in more than a year. The proportion of employers in China, Hong Kong and Singapore who plan to cut headcounts within three months is less than half that in a similar survey taken in May. The latest survey was taken in August.

Hiring expectations have increased most in Hong Kong, where 35 percent of companies say they expect to recruit staff within three months, up from 22 percent in May. In media, public relations and advertising, 69 percent of companies said they would be hiring, compared with 28 percent in the previous survey.

In China, 39 percent of employers said they planned to add staff, up from 27 percent in the May survey, with companies in banking and finance most bullish about hiring.

Hong Kong and Singapore pulled out of recession in the second quarter while China on Thursday announced an 8.9 percent surge in third-quarter GDP, putting it easily within reach of its 8 percent growth target for this year, economists say.

WAGE GROWTH

Salaries are set to accelerate across Asia next year as business conditions improve: a survey by U.S. HR consultants Hewitt Consultants forecasts salaries in China will jump 6.7 percent next year after rising only 4.5 percent this year. Pay rises in Hong Kong and Singapore will be more modest at just under 3 percent.

In Singapore, 34 percent of companies in the Hudson survey said they would be hiring soon, up from 26 percent in the May survey, and only 5 percent said they would cut staff, compared with 14 percent in May. The healthcare and life sciences sector continues to offer the best hiring opportunities in Singapore with 44 percent of companies preparing to add headcount, while the consumer sector has seen a slight fall in hiring expectations since May.

Singapore employers were most willing to hire candidates who had been unemployed for more than a year, or an extended period of time, while employers in China were least willing to do so, according to Hudson.

Previous experience and specialist skills were cited as the main reasons to hire the long-term unemployed across the region but, in China, stopping work to obtain a higher qualification was also seen as a valid reason.

The quarterly survey covered responses from nearly 2,000 managers at multinational companies across industries in the three markets.

(Reuters) - The frustrations of companies in coastal China trying to hire enough workers may become a permanent headache, foreshadowing higher wages, according to a top labor economist.

CHINA

Labor shortages, especially in export hubs in China's coastal provinces, have intensified since last month's Lunar New Year holiday, when tens of millions of migrant workers headed back from coastal factories to their home villages.

Beijing regards the bottlenecks as a temporary, regional phenomenon. But Cai Fang, head of the Institute of Population and Labour Economics with the Chinese Academy of Social Sciences, disagreed.

"It's certain that the migrant worker shortage is here to stay in China," Cai told Reuters.

Factories are finding it tough to recruit even though China's working-age population, in the 15-64 age bracket, will not peak until 2015.

Cai said wages for China's 150 million or so migrant workers increased 19 percent in 2008 and 16 percent in 2009, even though exporters were hit hard by the global financial crisis and more than 20 million migrants lost their jobs.

The manager of a shoe factory in the eastern city of Wenzhou said he had been unable to hire 300 workers despite adding 200-300 yuan per month to last year's average salary of 1,500 yuan ($220).

"This year we have a lot of orders, but the problem is we don't have enough workers," he said. Raising prices was not an option because of competition from newly opened factories, so profits were being squeezed, the businessman added.

SHIFT INLAND

"There is little doubt about the long-term trend of rising wages in China," said Cai, a standing member of the National People's Congress, China's largely ceremonial parliament.

Economists at China International Capital Corp agreed that the end of China's demographic dividend would help increase labor's share of national income, driving up consumption.

"Judging from the experiences of Japan and Korea, we are particularly positive about urban consumption of such goods as vehicles, travel services, healthcare, culture and entertainment, as well as the fast growth of rural appliance sales in China over the next few years," they said in a report.

Labor typically accounts for less than 10 percent of manufacturing costs in China, but businesses, many working on thin margins, also face the risk of a rise in the yuan.

Businesses have been able to absorb higher costs by increasing productivity. More and more companies have also been shifting production inland, where labor costs are lower -- a trend that Cai expects to gather momentum.

"A monthly salary of 1,500 yuan in Guangdong may be too low to attract workers; but if that pay is on offer in an inland city, people are willing to take the job," he said.

Cost pressures will also force companies to climb the value ladder -- a key objective of the government's economic policies.

"Sweatshops in coastal areas with low wages, poor working conditions and narrow profit margins are set to go bust," Cai said. "The process of industrial upgrading will speed up."

And as workers become harder to attract, local governments will have to shift from being "pro-capital" to "pro-labor," for instance by raising minimum wages and making it easier for migrants to settle in cities with their families, Cai said.

In Guangdong, which accounts for about 30 percent of the country's exports, the local government plans to raise its minimum wage by more than 20 percent.

China's proactive employment policies and measures in the wake of the financial crisis have generated positive results, Yin Weimin, Minister of Human Resources and Social Security, said on Saturday.

China is expected to create over 11 million jobs in 2009, well above the target set in March this year, Yin said.

In a most important measure taken since the beginning of this year, millions of enterprises nationwide had been allowed to delay the payment of enterprise-contributed social security funds for up to six months, said Yin.

China's social security system is made up of five parts -- pension insurance, medical insurance, work injury insurance, unemployment insurance and maternity insurance.

The measure also temporarily lowered the insurance rates for medical, work injury, unemployment and maternity. In the meantime, the government offered subsidies over the payment of social security funds for enterprises which were in financial difficulties.

Yin told Xinhua that this measure alone had eased corporate burden by nearly 33.9 billion yuan ($5 billion) in the first 10 months this year and more than 1.6 million enterprises had benefited from this measure.

According to Yin, China had generated 10.13 million new jobs in urban areas in the first eleven months, exceeding the government's target of 9 million new jobs for the entire year.

The urban unemployment rate would likely stand at 4.3 percent by the end of this year, which also met the target of below 4.6 percent set in March, he said.

In 2008, China's urban unemployment rate was 4.2 percent.

Private equity (PE) backed companies were more profitable and successful in creating jobs than their publicly listed peers in China over the past seven years, according to a survey conducted by Bain & Company and the European Union Chamber of Commerce.

The survey compared the performance of 100 companies that received at least $20 million PE funding, excluding real estate and bank investments, with 2,424 publicly listed Chinese companies between 2002 and 2008.

PE firms recorded nearly 100 percent growth in jobs and 56 percent in profits over their bigger peers during the period.

More importantly PE firms have fostered inland province development, boosted domestic consumption, transferred management know-how to businesses under their portfolios and greatly improved corporate governance, the survey said.

"Although private equity is a relatively new phenomenon in China, it is fast gaining ground and scoring over others," said Michael Thorneman, managing partner, Bain & Company Greater China.

The biggest contribution of private equity has been the creation of better-run companies. Companies with PE shareholders posted annual revenue growth of 25 percent and an average earnings growth of 39 percent, up 3 percentage points and 12 percentage points over the benchmark companies.

The survey also shows that PE investors are showing keen interest in China's consumer goods and retail industry. While PE investment in China as a whole increased by 58 percent since 2002, investment in the consumer goods and retail industries grew by 77 percent.

PE investments in consumer and retail businesses now rival those in traditionally strong sectors like IT and media.

Retailers backed by PE investors reported sales growth of 47 percent compared with 16 percent for publicly listed retail companies. Consumer goods companies backed by PE investors showed sales growth of 30 percent against 18 percent for listed peers.

"Over 50 percent of the PE firms that participated in the survey felt that consumer products and retail sectors are the most promising sectors, but also felt that the sector would become more competitive in the future," said Thorneman.

Total employment at private equity-financed firms increased by 16 percent over the survey period compared with 8 percent at publicly listed companies. PE-backed firms also pay significantly higher wages. The gross salary growth rates at PE-backed companies outperformed those of the listed companies by 7 percentage points.

Private equity has also been a strong contributor to the government's "Go West" policies. The survey found that 42 percent of the investment was directed to companies headquartered in inland provinces.

"China has emerged as one of the leading destinations for PE capital, and PE capital has a more positive image in China than in other western countries," said Andre Loesekrug-Pietri, chairman of the European Chamber's PE working group.

With Christmas spending just around the corner and memories of frozen annual bonuses lingering from last year, many companies in Beijing are calming employee concerns with news they will come through with cash regardless of economic woes.

"Though some companies said they won't pay out a bonus in 2009, the majority said they would pay no matter what the impact on the business was," said Tommy Li, a senior consultant at Mercer, one of the largest international HR consulting firms operating in China.

Li, who was the product manager for the China Monitor Report, a quarterly survey containing the most updated HR trends in China, said most companies froze or postponed yearly bonuses in 2008 due to the dire global financial situation.

The China Monitor Report, which surveyed over 290 companies, found that more than 69 percent confirmed they would pay yearly bonuses this year despite the global financial crisis. Only 4 percent of companies said they would not.

In addition to the return of year-end bonuses, the China Monitor index found that jobs are on the rise. In the fourth quarter of 2009, over 78 percent of business said they had plans to hire new employees and less than 10 percent said they would downsize.

One sales director of a Beijing-based metals business said that he fears his company will lose employees in the reviving employment market. With the exception of last year, he said he has noticed a trend of employees leaving his company after receiving their yearly bonuses.

"There's a joke in my office about it. Every year, out of the 15 people that report to me, I lose anywhere from three to five," he told METRO, requesting that he not be named.

He said employees feel less incentive to stick around after receiving the year-end payout.

Though the company gave out bonuses last year, much to his surprise, he said his salary had been frozen. "This year, with companies starting to hire again, I expect to see a lot of movement. Most people stayed at their jobs last year, grateful just to have a paycheck, but with confidence restored and hiring resuming, I think this year will be different," he said.

The Accor hotel group on the other hand is taking a different approach to distributing end of the year bonuses.

"The bonuses of our salaried employees engaged in the corporate office are assessed against several criteria - including the performance of the company," said Robert Murray, Senior Vice President of Greater China for the ACCOR Hotel group.

Murray, who has been working with Accor, a foreign public company listed in France, for more than five years has seen shifts in the market. He said Accor's system allows employees to share in both the good times and the more "challenging times", such as the 2009 economic crisis.

"Although it is yet to be determined, it is fair to say that bonuses for this year will be examined in line with results," Murray said.

He added that employees at the hotels, outside of the corporate office, are usually given bonuses based on individual successes of their hotel.

"There will be mixed outcomes of bonus payments to these employees," he said.

Employees in China’s richest city, Shanghai, saw salaries stagnate this year – at least compared with what they have grown used to.

They can’t expect much of a pick-up in 2010 either. Perhaps worse for many Shanghai workers used to ever-upward mobility is that its people will do merely as well as the rest of China.

Human-resources firm Hewitt Associates LLC on Thursday predicted average annual salary increases will be 7% in 2010, about equal to what is expected nationwide.

That won’t necessarily make things comfortable for employers. Hewitt’s Shanghai Compensation and Benefits Study concludes that for employers, it will be back to the challenge of hiring enough good workers: “In order to hire more talent, enterprises have put salary increases on the agenda.”

The study, which included 911 enterprise participants, shows the average annual salary increase in 2009 in Shanghai was 5.2% in the non-manufacturing sector and 5.4% in the manufacturing sector, about half the 11.2% and 10.1% increases seen in those sectors in 2008. The average lagged the national level of a 5.8% increase in salaries in 2009.

“As an international financial metropolis, Shanghai is inevitably influenced by financial crisis,” the firm said.

Rather than layoffs, it found salary freezes in Shanghai this year. The voluntary rate of turnover – job-hopping – slid 3.4 percentage points in 2009 to 13.9%, the firm found.

The employees still commanding good increases this year: pharmaceutical and medical-device firms, up 8.9% and 9.1% respectively.

The market for new job seekers was tougher than ever. The average starting salary for a fresh university graduate was 45,153 yuan ($6,615) this year, while post-graduates could earn 63,732 yuan.

Separately, Standard Chartered Bank economist Stephen Green, in a report Thursday, takes issue with the conclusions reached in China’s effort to track urban private sector wages. He said the National Bureau of Statistics study probably captures only about 42% of the nation’s 450 million workers. Since the ones missed are likely lower-paid migrant workers, the official statistics probably overstate actual wages, said his report.

Mr. Green puts the urban wage at 1,476 yuan a month, compared with the government’s estimate of 2,077 yuan.