Most people avoid talking about money, especially in terms of salaries. It is considered a taboo. If you happen to work in a multinational company, you might be familiar with expatriate salaries and packages. Those are for employees who are sent abroad by their company or hired by a foreign company. For the time they spend working abroad they get compensated for their increased effort pretty well. This phrase is of course stretchable and many companies offer their expats different packages, depending on multiple factors. It seems fair enough, but in some specific cases those packages are extremely good. When it comes to expat packages for the Pacific-Asian region, Mainland China ranks currently fourth, which means, that expat compensation packages in China are swelling. From the expat’s point of view, this might be justified, as China is still considered as an emerging economy. But from a local’s perspective, the wage gap between expats and locals in China is immense and creates the impression of a true imbalance.

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Living and Working in China is promoted

Despite the fact that it had a rough start this year, China’s economy is still growing, and as such, opportunities abound for both companies and their employees in China alike. For several reasons, China’s domestic labor market is not able to meet all the demand for certain skilled professional positions that companies need. Moreover, foreign companies tend to put their own employees in charge, meaning that they are more likely to send expats than hiring Chinese staff for management positions. As the cost of living is rising and increasing pollution is an ongoing problem in China, it became more challenging to attract international talent. In order to promote positions in China, increased compensation was adapted. A total package for an expatriate middle manager in Mainland China is now worth over $276,000 a year on average (Forbes). This number results from the fact that tier-1 cities, especially, forced up wages, as living costs seemed to explode during the last years in Beijing, Shanghai or Shenzhen. However, this is not the only reason, which explains the rocketing expat salaries. Increasing benefits and a stronger Yuan may also explain the rise of China in the expat salary package rankings. Currently China is in demand for expats in banking and financial services, sales and marketing, human resources, manufacturing, industry, health sciences and IT.

Studies show significant wage gap

According to a recent study by the UK Economic & Social Research Council (ESRC), expats make 400-900 percent more than their local counterparts in lower-income countries. In the study China was considered a lower-income country. According to the institute this disparity cannot be attributed to either differences in experience or skills, but is rather the result of the fact, that expats are coming from countries with higher average incomes. Knowing about this wage gap, it has been the cause of contention in international offices, triggering dissatisfaction among local employees. Although experts expect the gap to shrink in the future, as China’s economy continues to catch up with developed countries, it still is a massive income inequality and the sources of it are more diverse than just the origin of the expats.

Reasons for the gap

There are multiple reasons for the wage gap; some have a stronger influence than others. For instance, it is more expensive to hire or send an expat with family. The benefits have to be worth the effort for both the company and the employee. Therefore a package for an expatriate with family would cover accommodation, healthcare for the spouse, transportation and the tuition fees for the children’s school. Local staff would never be eligible for those benefits, because there is nothing to compensate them for, in the opinion of the company. As those packages are given on top of the normal salary, expat incomes can easily exceed $300,000 per year (Forbes). For a Chinese teacher, whose monthly base is at around RMB 2000, this might seem outrageous. It certainly is, but in order to attract foreigners, Chinese companies are willing to stretch. Furthermore, it has to be considered that not all expats get to work in Shanghai or Beijing, where living standards have adapted, some of them are hired and sent to less developed cities. Therefore the incentive has to be strong to motivate them to accept the position. Moreover, China still deals with issues like serious pollution and concern over food safety, which can inhibit persons from highly developed countries like the UK or the US from coming. The possibilities of making their earned money go further is a strong motivation for expats coming to China.

Effects on the market

Despite the fact, that companies are willing to pay more for foreigners, a foreign passport itself does not enable you to demand more money. Companies are looking for talent and the chance to increase one’s salary is directly linked to the skills you have to offer. If these are scarce in the local market, it will make you even more desirable. For instance, China has seen increasing demand for foreign teachers during the last years, but received only a small number of qualified applicants. Therefore foreign teachers can expect to be paid a high salary and to receive some perks, as they are courted by language schools. Also, it seems likely that salary disparities among top-level talent will continue to exist in the long-term, as this is not a Chinese phenomenon but a worldwide fact. But as China’s economy continues to grow, the number of Chinese multinational companies will also increase and the economic gap between China and developed countries will shrink. Simultaneously, the wage gap between expats and locals in China will become smaller.
In order to increase their market value for international companies as well, Chinese students and employees are encouraged to gain working and studying experience abroad, as it will take them further in their career and add noticeable value to their CV. Furthermore, the base salary of Chinese employees might be lower than compared to foreigners, but they also have the possibility to get promoted quickly and they are given the right to demand increasing payment, once they have working experience.

The Chinese market is still emerging and companies are trying to improve steadily to take part in the global competition. Despite the fact that there are imbalances and inequalities in terms of salaries, the possibilities in this country are huge for locals as well as foreigners.

If ever have questions about Labor Practices in China, you can contact INS Global Consulting, a 10-year Staff Management Company based in Shanghai.

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