3 day, 3 city tour on conducting business in China with a focus on managing employees.

1. China’s HR Challenges

2. Managing Chinese - Relationships
Nation
Friends
Family
Company
Self

3. Managing Chinese - The Negative Stereotypes
• Strict adherence to hierarchy is still
prevalent
• Value systems are gradually fixing
themselves
• Attention to Details is often lacking
Work ethic does not
encourage pride in work as it
does in other countries
Leftover mentality of the ‘Iron
Rice bowl’ where everything
was provided by the State

4. Managing Chinese - The Negative Stereotypes
Being reactive rather than proactive
Education system relies heavily on rote memory and less on logical and critical
thinking
Creativity is stymied in strictly controlled classrooms where the authority of the
professor is paramount

5. Shuanghuan CEO or BMW X5?

6. Managing Chinese - The Reality
China's GDP Growth (RMB Billion)
25,000
20,000
15,000
10,000
5,000
0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007

7. 0
10
20
30
40
50
60
70
80
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
FDI Utilized (USD Billion)
Managing Chinese - The Reality
2000
2001
2002
2003
2004
2005
2006
2007

8. Managing Chinese - The Positive Stereotypes
• Incredible ability to organize
en mass Pudong, Shanghai 1990
• Strong sense of National
Identity and Pride
• High level of resiliency and
resourcefulness
The ability to wake from
decades of self-imposed
isolation…

9. Managing Chinese - The Positive Stereotypes
Pudong, Shanghai Today
…to become one of the world’s
most promising economies

10. Managing Chinese – Solutions
• Never accept: “That’s how its done in China”
Often used to deflect foreign criticism or excuse improper behavior
If it does not make sense then it probably doesn’t belong in your organization
• Chinese are capable of accepting and adopting to new behaviors
China is in a constant state of flux: it’s not just the economy that is developing
Flat Organizations, cooperative working environments, empowering junior and
middle management
• Adapt your company culture to your China operations
There is a reason why your firm is successful and part of that is the company
culture
Just as your business model needs to be adjusted to regional preferences so too
does your management style
Not just Foreign Companies introducing new management concepts

11. HR Trends - Recruitment
• The cost of replacing a senior manager can cost a firm twice the annual salary of the
position
• Localization is increasingly more common
• Most severe talent shortages:
Leadership / P&L experience Staff Recruitment Methods % Respondents
Project management skills 23
Attractive Salary & Benefits
Marketing 19
Opportunities for Career Development
Sales
7
Meaningful & Creative Work
Specialized technical skills
7
Unique Company Culture
3
Company Location
Source: Mercer Employee and Attraction Survey

12. HR Trends - Retention
• #1 concern for American companies operating in China is retention of staff
• Years of services of 25-35 year olds have dropped on average from 3 to 5 year to 1 to
2 years in 2005
• Key mistakes that foreign companies make:
Two-tier payment system
Effective Retention Tools Year of Service
Glass Ceiling
Training and career development Training, Education Reimbursement,
Up to 5 years
career development, Housing
Benefits
Work-life balance
Exposure to Senior Management,
5 – 10 years
Training, Career development,
Housing Benefits
Retirement Benefits, Medical
Benefits, Work/Life Balance, Long-
Over 10 Years
term incentives, External
Recognition
Source: Hewitt Associates

13. Labor Compliance - Employment
• Rep Offices are not allowed to sign employment contracts with local employees
directly.
• Official version of employment contract must be in Chinese
• Only two fixed-term contracts allowed
• Severance compensation applies for expired contracts that are not renewed
• No standard contract form, but should include:
Term of contract & probation period
Job Title
Labor protection and working conditions
Compensation
Termination Conditions
Breach of contract provisions & disciplinary rules, NDA’s, Non-Competes
Consult with a Lawyer specialized in the Labor Law

14. Labor Compliance - Severance Pay
• Amount based on the number of years worked with employer
• 1 month salary for each full year
• In case the employee works less than 6 months, severance pay of ½ month salary
• Any period of not less than 6 months but less than 1 year shall be regarded as 1 year
• Severance cap:
If the monthly wage ≥ 3 x (average monthly wage*)
- and -
No more than12 years of work (i.e. 12 months severance max)
* The average wage of Shanghai, 2008: RMB 2,892/mth (3*2,892=8,676)

15. Labor Compliance - Termination
• Contract terminated by employee / employee does not agree to renew the contract if
the employer provides better offer
• Contract terminated during probationary period:
1 month / 6 months – 1 year contract
2 months /1-3 year contract
6 months / 3 years and above
• Employee breaches contract / commits a civil crime
• The employer faces substantial difficulties in business operations
• Dramatic change in macroeconomic circumstances
• Missing or death of employee
Limited situations where severance is not paid for termination

16. Labor Compliance - Work Hours
• Legal Weekly Working Duration: 40 hours
Overtime arrangements: Name of Holiday Duration Period
• Weekdays: 1.5x normal salary
1 day 1 Jan
New Year’s Day
• Weekends: 2x normal salary
Lunar calendar
• National Holidays: 3x normal 3 days
Spring Festival 01/01 - 03/01
salary
1 day 4 Apr
Tomb-Sweeping Day
Overtime during weekdays and
weekends can be replaced by time 1 day 1 May
Labor Day
off during working days Lunar calendar
1 day
Dragon Boat Festival 05/05
• Intern/Part Time Employees: 20 hours or
Lunar calendar
1 day
Mid Autumn Festival
less 15/08
• Flexible working hours 3 days 1 Oct – 3 Oct
National Day
• Retail & Services
• Comprehensive working hours
• MFG

17. Labor Compliance - Contributions
• For Shanghai Residents Urban Scheme Township Scheme
Social Benefits
Additional coverage in Company Employee Company Employee
each category is available 22% 8% 17%
Pension
to employees depending 2% 1% 2%
Unemployment Fund
on individual agreements
12% 2% 5%
Medical Coverage
reached with employers 0%
0.5% 0% 0.5%
Workplace Insurance
• For non-Shanghai 0.5% 0% 0.5%
Maternity Leave
Residents: RMB 216.90 per 7% 7% 7% 7%
Public Housing Fund
month
44% 18% 32% 7%
Total
Maximum base 8,676 RMB (~3,800)
Minimum base 1,735 RMB (~760)

18. Labor Compliance - Tax Rate
• Full tax amount deducted from
Quick
Taxable Amount Tax Rate
employee’s salary
Deduction
Less than 500 5% 0
• Employer submits the amount to tax
501 – 2,000 10% 25
bureau
2,001 – 5000 15% 125
• For Local Employees
5,001 – 20,000 20% 375
IIT = [Gross Salary – Social Benefits – 2,000
20,001 – 40,000 25% 1,375
RMB] x Tax Rate – Quick Deduction
40,001 – 60,000 30% 3,375
• For Foreigners liable to tax contributions
60,001 – 80,000 35% 6,375
IIT = [Gross Salary – Allowances – 4,800
80,001 – 100,000 40% 10,375
RMB] x Tax Rate – Quick Deduction
Over 100,000 45% 15,375
Tax rate for Foreign and Chinese employees identical nationwide

19. Labor Compliance - Example
Employer’s and Employee’s Share of Social Benefits and ITT
Components Example
4,310
Employer's Total Expense
Add 1,310
Employer’s Share of Social =44%
Benefits
Gross Salary 3,000
Employee’s Soc. Benefits Subtract 540
=18%
Employee’s Taxes
Subtract 23
Net Salary 2,437
Net Salary
0

20. The Expat – Work Permit & Residence Visa
• Qualifications:
Established Entity within China
Two- year Degree
Two-years working experience
Reasonably Good Health
• Work Permit Process (Shanghai)
Apply for Z Visa abroad
• (Chief Rep., Legal Rep may apply in China)
Health Examination in Shanghai
Apply for the Work Permit (1-2 years)
Finally the Residence Permit (1-2 years, multi-entry)

21. The Expat – Tax Liability
New Zealand has a Double Taxation Treaty with China

22. A few last points…
• China is not a mystical land of dragons and forbidden cities
The Chinese have the same desires and needs as all of us
It is possible to understand China and the Chinese, but…
• There is no such thing as the “China Expert”
The more that you know about China the more questions you will have
Even the Chinese cannot grasp, in its entirety, the socioeconomic changes that
are occurring within their own country
• Foreign Invested Enterprises should not behave like locally owned companies
Foreign firms are scrutinized more closely and held to stricter standards
Train your staff to understand the difference