By Xiaolei Gu

To further expound the important role that online shopping is playing with regards to China’s expanding consumption levels, popular shopping website Taobao and China’s largest market research firm CTR jointly released the “Report on China’s Online Shopping Trends 2012 (中国消费风向标报告2012).” The report identifies and extrapolates on online shopping trends in China based on CTR’s continuous single-source survey CNRS-TGI, Kantar Worldpanel, and data collected from Taobao – a facilitator of B2C and C2C retail business run by Chinese internet giant Alibaba Group.

The report attempts to present a clearer picture of China’s rapidly growing online market, which saw an 83.5 percent increase in the number of online shoppers in 2011. The data illustrates a rise in the number of so-called “heavy” and “medium” online shoppers, as well as the surprising rise of the “grey market” made up of elderly shoppers. Geographically, cities and provinces in Central China and West China are enjoying the fastest growth in the number of online shoppers, compared to slower growth rates now being seen in the more developed coastal areas. In terms of shopping medium, mobile online shopping is gradually gaining steam in China following a surge in sales of smartphones and the growing use of 3G mobile networks.

General trends
From 2009 to 2011, the percentage of consumers going to supermarkets and malls to satisfy their shopping needs remains unchanged and the trend is steady. However, in contrast, the percentage of consumers shopping online saw a period-on-period increase of 6 percent in the first half of 2011.

According to the report, 64 percent of Chinese citizens used the Internet and 20 percent of Chinese citizens shopped online in 2011. That’s to say, roughly one out of three netizens in China shopped online in 2011.

By sector, the sale of apparel led online shopping growth with an increase of 89 percent, which corresponds with an overall 24.2 percent increase in sales volume of apparel reported by the National Statistic Bureau. Besides, sales of jewelries, household goods, groceries and travel services are growing on a large scale.

The rise of online shopping in central and western China
Although central and western China face a smaller online market the more developed eastern regions, it is this area that is experiencing the fastest growth.

According to Taobao data, the average growth rate in the number of online shoppers in China is 83.5 percent. Provinces in central and western China, including Henan, Xinjiang, and Anhui, are enjoying a growth rate of 105 percent.

However, consumers in Beijing and Shanghai still contribute most to the online market, with one out of two netizens in those areas shopping online. Meanwhile, second-tier cities such as Tianjin, Shenzhen, Chongqing and Shenyang are ranked just below Beijing and Shanghai in terms of the percentage of online shoppers among netizens.

The rise of “heavy” and “medium” online shoppers
The report indicates another interesting trend in online shopping in China – the structure of online expenditures. According to the statistics, the number of “heavy” online shoppers who spent more than RMB10,000 on Taobao in 2011 increased by 82.8 percent compared to 2010. Meanwhile, the amount of “medium” online shoppers spending between RMB1,000 and RMB10,000 on Taobao increased by 64.7 percent year-on-year. In contrast, the number of “light” shoppers who spend less than RMB1,000 only experienced a 34 percent jump.

However, while online expenditures are largely on the rise, the increase in income of online shoppers is lagging behind. In the first half of 2011, the average increase in income of online shoppers in China was 5 percent, while the increase in online expenditures hit 9 percent.

A potential “grey market” for online businesses
Most online shoppers in China are aged between 25 and 45 years old with those over 60 years old ranked at the bottom of the list. However, the report reveals that a “grey market” targeting the elderly in China might bring huge profits to online businesses.

Data from the report shows that both the amount of turnover in goods for the elderly and the total number of people buying things for the elderly online saw an increase of more than 200 percent in the year 2011. The most popular products in the “grey market” are leather apparel, casual pants, and sneakers. Last year, the number of consumers purchasing these select items online for the elderly increased by nearly 500 percent.

Those making purchases for the elderly online are not necessarily old people, with young people making up a good percentage of the total. More surprisingly, the report revealed a 369 percent increase in the number of people aged below 23 purchasing for the elderly.

Mobile shopping gains steam
Thanks to China’s growing wealth and advances in modern technology, consumers in the country are using mobile phones to access Internet services with greater frequency, bringing about inevitable changes in spending habits.

In January 2011, the total number of users that logged onto Taobao through mobile services reached 46.26 million. As of March 21, 2012, this number reached 100 million, and the total number of Taobao mobile service users is expected to reach 200 million by the end of 2012.

According to statistics from IDG News, the gross merchandise value from mobile purchases reached RMB11.8 billion (US$1.86 billion) in 2011, up more than six times the RMB1.8 billion generated in the previous year. Taobao further projects a total gain of RMB50 billion from mobile purchases in 2012.

Source from:  http://www.china-briefing.com/en/

China will resort to “market-oriented” measures to tackle its local debt issues, Chinese Premier Wen Jiabao said at a press conference last Wednesday after the closing of the Fifth Session of the Eleventh National People’s Congress. Wen’s remarks have signaled that China may allow more private investors to buy out some of the country’s state-owned assets.

When answering a question raised by Reuters on local government debt, Wen said the government attaches great importance to the debt issues and will not allow those issues to adversely affect China’s development. With regards to debt repayment, some of the debts borrowed for high-quality projects can be repaid by the projects’ own profits, and those used on projects for public interest will be repaid by both the central and local governments. China will also consider market-based approaches such as asset disposals, project transfers and equity sales during the debt repayment process.

That being said, private investors may have a chance to share a stake in the sectors that are mainly controlled by state-owned enterprises (SOEs) at present. The government seems willing to rethink the roles of state and private capital in industries, as the total amount of local debt runs high and risks in debt repayment grow.

Leo Zhang, chairmen of China-based Jumbo Consulting, believes the government should play a smaller part in specific industries.

“In industries where you can exit, you exit…Why do we need over 100 SOEs? It’s unnecessary. You should sell them all,” Zhang commented.

During the past wave of privatization back in the 1990s, China significantly shrunk the state’s stake in enterprises. However, the government still keeps an iron grip on sectors that it regards as “strategically important,” such as energy and finance.

Problems associated with strong state control – which often lacks full consideration to economic efficiency – have gradually risen to the surface. Analysts believe around 20 percent to 30 percent of the over RMB10 trillion in local debts will face a repayment challenge and most of those non-performing loans will be on the books of China’s big banks. While those banks which see weakness on their balance sheets recently started a new round of capital raising, it is again the large SOE-linked buyers who have helped pay most of the bills.

Some of the other government-controlled sectors – such as infrastructure development and power generation – are very attractive to both domestic and foreign private investors. As the world’s second largest economy, China’s spending on infrastructure is multiples of what is being spent anywhere else in the world, but private investors’ participation in this sector remains minimal.

While the Chinese government has come up with various approaches – such as extending the loans’ maturity period and raising more capital – to avoid a major bank default, faster privatization might be the ultimate measure that helps the country finally get away from a vicious lending and spending cycle.

David Roseman, global head of infrastructure, utilities and renewables at Australian investment bank Macquarie Group, offered an example on how more entrepreneurial activity will generate a virtuous cycle. By selling profitable infrastructure to investors, China could free up enough cash to build a toll-free road.

However, the goal for further privatization will not be an easy one to achieve. The complicated ownership structures may make it difficult for SOEs at different levels to agree on asset deals, and their growing financial power – a result of expansion at home and abroad – is also making them less willing to conduct restructuring.

Source From: http://www.china-briefing.com/en/

By Vivian Ni

China’s video web sites have made “fundamental” improvements in their use of audiovisual products with authorized copyrights, according to Yan Xiaohong, deputy director of the General Administration of Press and Publication. Now, at least 76 percent of movies shown on the country’s 18 largest video web sites are shown in authorized-copyright format.

While people living in China may still find it relatively easy to buy a pirated movie in DVD format on the street, or download a non-copyright edition of a book from the internet, China’s efforts to enhance its copyright environment is undeniable. Major progress in recent years includes the official shutdown of the download services provided by China’s main file sharing web sites such as BTChina and VeryCD, both of which were then major online platforms where pirated cultural products were uploaded and shared by netizens.

China is also going through the third-round of amendments to its “Copyright Law,” which was first approved in 1990 before being amended both in 2001 and 2010. During the previous amendments, new concepts were introduced in line with both technological developments and international practices.

While cracking down on piracy in one hand, China is advancing its copyright exchange regime in the other. The National Copyright Administration (NCA) is making an attempt to gradually “normalize” China’s copyright trading activities, Yan said at a forum held on February 17.

Copyright exchange is coming into fashion nowadays, as it benefits both copyright owners as well as users. A platform for such trading activities enables the owners to profit more efficiently, and lets buyers have greater access to obtain copyright use rights at lower costs.

As an experiment in copyright trading, the NCA established a National Common Market for Copyright Exchange in 2009. Up until now, key members of the association have conducted copyright trading transactions amounting to RMB1.8 billion. In addition, they are also making copyrights an emerging financing vehicle by providing loan services with copyrights as pledges.

Opinion: China gains momentum in copyright protection
Complaints from international investors regarding China’s poor intellectual property rights environment may have pushed China to make changes, but the increasing benefits the country is seeing by promoting copyright products have likely provided the government with even greater motivation.

For instance, with less access to pirated movies, Chinese citizens go to the cinemas more regularly and movie distributors have seen box-office revenues surge to US$2.1 billion in 2011. Recently, China reached a settlement with the United States to allow an additional 14 movies in 3D or iMax format to be imported from U.S. movie makers every year, in addition to the current cap of 20 standard movies. Although  U.S. studios can collect a greater portion of box-office proceeds based on the agreement (25 percent compared with the current 13.5 percent-17.5 percent), the increasing imports of those premium movies will still mean considerable growth in revenues for Chinese movie theaters.

The above-mentioned settlement on movie imports is also an outcome of a World Trade Organization (WTO) dispute filed by the United States back in 2007, where China’s scope of movie import restrictions was found inconsistent with its WTO obligations. This case – which indicates a trend that China may be pushed to hold a more open attitude to cultural product imports – requires the government to increase its efforts to protect the interests of domestic importers who pay money for foreign copyright use.

Another important motivation for China to fight piracy is the need to shield and encourage its own cultural development. As part of its plan to expand the country’s “soft power” to the whole world, the government has offered various incentives to boost its cultural industries, and has called for increasing mergers and acquisitions as well as international cooperation to improve the strength of its media platform. Such new tendencies in industrial upgradation have naturally increased the authority’s sense of copyright protection.

Source From: http://www.china-briefing.com/en/

By Vivian Ni

Consumer goods retailers and female-oriented service providers across China are competing to launch promotional campaigns and offer discounts today in a bid to attract more female consumption. At the end of this year’s “International Women’s Day,” they hope to harvest profits from the wallets of the country’s increasingly wealthy female buyers.

In fact, not only on this symbolic day, but in Chinese people’s day-to-day lives, spending by women has become a significant contributor to the “great Chinese consumption power,” a concept that is becoming the mantra for international businesses nowadays. According to a Nielsen survey in 2010, the consumer confidence of Chinese women aged between 30 and 39 achieved the same level of men in that age group, and there is a growing tendency that younger Chinese women are willing to pay more for their favorite items than men.

“The future is female,” HSBC said assertively in a 2010 survey on luxury goods, highlighting the importance of female consumers to the investment decision-making of many global companies.

The changing face of Chinese women
Chinese women nowadays are receiving higher education, getting equal employment opportunities, and gaining increasing financial independence. Their income distribution to families has increased dramatically over the past few decades, from around 20 percent in the 1950s to 40 percent in the 1990s, and to over 50 percent today.

These social changes have shaped the new mindset of Chinese women (especially the younger ones), and made them more ambitious in consumption. Departing from a traditionally appreciated thrifty life style, women in China are more prone to enlarge their expenditures and lower their saving levels. Compared to the 55 percent savings rate back in 2006, Chinese women in urban areas only saved 24 percent of their incomes in 2009, according to a 2010 survey conducted by Women of China Magazine (WoC).

The improving gender equality has also offered more Chinese women the opportunity to move into leadership roles in corporate management and entrepreneurship. Among the world’s top 20 self-made female billionaires, 11 come from China, according to the 2011 China Rich List produced by Hurun Report, a Shanghai-based monthly magazine. The increase in female CEOs and entrepreneurs can potentially impact the business models of the financial market, as those women have a big say in the investment directions of company wealth.

As Chinese women make achievements in their careers, their family roles have changed as well – with Chinese families becoming less patriarchal and women having a greater voice. As a result, the consumption and investment preferences of women are now playing a larger role in the domestic spending structure.

Family decision maker
Women are the primary decision-makers when it comes to daily household consumption and bulk purchases for their families. In 2011, wives made about 77 percent of the household spending decisions, according to WoC.

The WoC research shows more than 60 percent of average household income went into consumption in 2011. On the list of Chinese women’s shopping priorities for 2012, household appliances were ranked third while real estate and vehicles are ranked fourth and seventh, respectively.

Businesses have started to learn some interesting household consumption patterns and the influence of women’s preferences. For example, what comes with house purchases is always furniture buying, and in China, it is mostly women who furnish the house, regardless of who pays. Therefore, furniture manufacturers that cater to the tastes of female customers may have a better opportunity to boost their sales.

Businesses should also learn that as family decision-makers, women do not only spend money on themselves, but also on every other family member. Therefore, women’s preferences may also determine the kind of suits their husbands are wearing, the kind of education their children are receiving, and the kind of healthcare products their parents  or parents-in-law are using.

Another large part of the household budget is investment, taking up 13 percent of average household income in 2011. More and more Chinese wives are managing domestic finance through investments in stocks, real estate, banking products, funds and commercial insurance. Such a trend may create a new market space for women-centric financial solutions in the future.

In pursuit of better life quality
Chinese women nowadays are spending money to improve every aspect of their life.

Looking good
It is in a woman’s nature to want to look beautiful, but with growing income and social power, their cult of beauty is more intense than ever. Clothing and cosmetics took the first and second place respectively on WoC’s 2012 shopping priority list and, according to findings by Nielsen, an increasing number of Chinese women are buying expensive, high-end beauty and skin-care products rather than traditional, simple cosmetics offering only whitening and moisturizing functions.

Manufacturers of “beauty tools” are not the only ones targeting female consumers – a variety of beauty service providers are also sharing the rapidly-expanding beauty market. Services for weight loss, fitness, beautification and aging prevention are burgeoning across China, expanding from the country’s first-tier cities to second and third-tier cities.

Followers of high-tech products
Thanks to improved educational opportunities, Chinese women are becoming more interested in using high-tech products. Purchases of mobile phones and electronic products are ranked fifth and sixth on WoC’s 2012 shopping priority list, and a 2011 Nielsen study shows 41 percent of surveyed Chinese women want to spend their extra money on electronics.

Getaway experiences
Over 70 percent of women responding to the WoC survey said they and their families had traveled for holiday during 2011. Those households spent an average of RMB8,858 on their vacations, a 56.3 percent surge from such spending in 2010. Women living in the cities of Shanghai, Changsha and Dalian spent the most on travel.

Luxury consumption
While traditionally, Chinese men have been regarded as the primary consumers of luxury goods, in large part because of the custom of giving gifts to business partners and government officials, Chinese women are now catching up in luxury consumption. They contribute over 50 percent to this market segment today, compared to the 20 percent contribution a decade ago.

China is expected to spend around US$14.6 billion on luxury goods this year and become the world’s largest luxury consumption market.

Business implications
The emerging female consumption power is providing international companies with a more nuanced China picture. While China is often seen as a monolithic market, companies are now gaining a better understanding of the country’s gender power dynamics and conducting more studies on the differences in male and female consumer behavior as well as psychology. For instance, a study by the global management consulting firm McKinsey finds that, compared to men, women tend to shop more, and spend more on personal-care products and foods. In addition, Chinese women are both brand and price conscious, while men usually go after the brands they prefer. Such market segmentation will help businesses determine better product and marketing strategies.

Source From: http://www.china-briefing.com/en/

As their joint venture (JV) agreements in China approach their expiration dates, the Big Four global accounting firms had hoped that they would be allowed to extend the terms of their JVs. However, according to a variety of sources, Chinese authorities have been adamant in using the expiry milestone to force the four to convert into the same mode of practice as local firms.

Such new regulatory requirements could mean the four firms must transfer their JV structures into limited liability partnerships and their partners must have Chinese accounting qualifications.

It is worth mentioning that the direction Chinese regulators wish to go is in line with international practices. The Big Four in most countries are owned by local partners, operating more like a franchise than a typical multinational corporation. However, the policy change still brings the four firms serious challenges, especially when China’s accounting industry is still very young.

There is also difficulty in converting the existing non-Chinese auditors at the Big Four in accordance with China’s requirement, since the country’s accounting exams are among the toughest and are all offered in Chinese. The pass-rate of those exams is well below 20 percent, according to Reuters.

The United States has tried to negotiate with China about offering the accounting tests in English, but failed in that direction, according to a recent blog post by Paul Gillis, a member of the U.S. Public Company Accounting Oversight Board Standing Advisory Group.

Western countries are paying keen attention to the potential change for the Big Four in China, as the overhaul comes at a delicate time when Chinese companies listed overseas (especially in U.S. stock markets) are facing a rash of audit scandals and are becoming high recommendations by short-sellers. Any reduction in the audit capacity of the four firms would increase Western regulators’ and investors’ concerns over the integrity of Chinese auditing.

There are also concerns at the Big Four’s global headquarters that they may have less control over their Chinese practices, if those are dominated by Chinese-qualified partners in the future.

“If the change in the structure of audit firms loosens their ties to the United States, the challenges for the SEC enforcement program in China will increase,” said William McGovern, partner at the Hong Kong unit of law firm Kobre & Kim. The U.S. Securities and Exchange Commission (SEC) has previously met a setback when requesting audit information from the Chinese unit of Deloitte Touch Tohmatsu (Deloitte), one of the Big Four firms which did the audit work for the U.S.-listed company Longtop. According to the SEC, the information asked was necessary for its investigation into Longtop’s possible fraud; however Deloitte said it could not comply with the SEC subpoena as this could breach China’s state secrecy rules.

As time starts ticking for the Big Four, the firms are now busy negotiating with Beijing, hoping the authorities will make some compromises and allow them to retain the roles of their foreign partners for a few more years during the transition period.

The authorities can consider granting a Chinese Certified Public Accountant license to some of the Big Four’s partners from Hong Kong and Taiwan, based on recognizing their foreign credentials. Such a solution will not only allow those foreign partners to finish out their careers, but also enable local partners to gain further experience and become more prepared for the future leadership of the firms, writes Gills in his blog.

Three of the “Big Four” firms – Deloitte, KPMG and Ernst & Young – will see their 20-year JV arrangements expire later this year. PricewaterhouseCoopers’s JV agreement will come to an end in 2017, as it formed a new JV at the time of the Price Waterhouse/Coopers & Lybrand merger.

Source From: http://www.china-briefing.com/en/

An overview of social welfare obligations and costs for employers of Chinese staff

By Adam Livermore

This week, China Briefing is running a special human resources theme concerning the employment of staff in China. We will be featuring topics such as regional industry clusters, minimum wage levels compared on a national basis, employee termination procedures and costs, in addition to looking at how to arrange employment for Chinese nationals overseas.

Today we look at the various issues that employers must consider when hiring permanent staff in China, and outline the full social security package that must be made to Chinese employees.

New Social Insurance Law
On July 1, 2011, China implemented its new Social Insurance Law (“new law”) with three main objectives in mind:

1. Take more direct control over the funds contributed to the system;
2. Tighten administration so that companies are compelled to make contributions in full; and
3. Improve the overall social security safety net for Chinese residents.

Of these objectives, the third can be considered the ultimate goal and the first and second a means by which to meet this goal. The Chinese government is acutely aware that in the long term it cannot rely on foreign investment, a cheap labor force and heavy fiscal spending to continue to drive the economy. What is lacking is an appropriate amount of domestic spending by Chinese households.

One major reason that Chinese people are reluctant to spend is the lack of an effective safety net in the event something undesirable happens to them or to a family member, as well as a general distrust that funds contributed for mandatory pension will still be available when they reach retirement age. Instead they save, and a side-effect of this phenomenon is that, in the absence of alternative avenues to invest the money that is being hoarded by Chinese households, too much of the money is flowing into unsustainable real estate investment, creating a potentially dangerous bubble.

By overhauling the social security system, the government is making an effort to address the problems mentioned above as well as related issues affecting Chinese society in recent years. However, as always in China, the difficulty is in the implementation.

The Five “Insurances” Plus the Housing Fund

The five “insurances” covered by the mandatory welfare system refer to: pension, medical, work-related injury, unemployment and maternity insurances, which have been part of the existing social security framework in China for a number of years now. In addition, housing fund contributions are generally included within the scope of mandatory welfare because the additional costs are mandatory and come from both the employer and the employee.

Below, we look at the costs and benefits of the Chinese insurance system one by one. However, before commencing the analysis in detail we should point out an important concept that will largely influence the potential costs to both employer and employee.

The concept we refer to is the ceiling on the amount used when calculating social insurance contributions. At the time of writing this document, most cities in China implement a ceiling (or cap) on contributions. The calculation for the ceiling figure is usually the average monthly social salary over the previous year for that city multiplied by 300 percent. Therefore, the actual percentage contribution for employers and employees is lower than the percentages indicated below when the individual is a particularly high earner. As a general rule of thumb, the further the salary increases above RMB12,000, the lower the effective percentage that needs to be contributed.

1. Pension

Interestingly, the new law makes a clear distinction between employers (who must make contributions based on the total wages paid to all their employees),and individuals (who make contributions based on their gross salary). There is speculation that the legislation has been drafted in a way to allow the removal of the employer’s contribution cap in the future. However, at the time of writing the effective contribution bases for both employer and employee remain identical

The new law also clarifies that employees who move from one jurisdiction to another will be able to transfer their pension funds, and that when they retire they will be able to receive a pension based on the entire amount of their accumulated funds. However, the specific method for calculation when “merging” these funds will be detailed in a separate piece of legislation that has not been finalized yet.

This aspect of the new Social Insurance Law addresses one of the most serious problems under the current system. The lack of transparency for individuals relating to treatment of their pension often dissuades them from transferring to jobs outside of the city they are living in. This in turn reduces the overall mobility of labor, which is a major problem in a society that lacks sufficient skilled workers across the country.

Implementation challenge for consolidation of pension funds nationwide
Merging pension pools under a central administration is going to be an arduous task. The groundwork has been done by the central government in passing and implementing this law, but cooperation and agreement between the innumerable local governments concerning the practicalities of these transfers will be time-consuming. It is unlikely that China will be able to realize the ambition of the central government to ensure a smooth transition of pension funds between jurisdictions for several more years.

The new law also refers to introducing a pension system for rural workers, even opening up the possibility of merging the system with the urban pension system in the future. This provision is aimed at reducing the effect of the hukou system, which limits the options available to the rural Chinese population and is a source of much dissatisfaction in China in recent years. Again, realization of an effective integrated system still seems a long way off, and the law provides only the direction without specifying tangible methods of reaching this ideal situation.

2. Medical Insurance

Similar to improvements mentioned in the pension system above, the government is intending to enhance the overall operation of the Chinese healthcare system. One particular point of note is that the medical insurance fund will be responsible for directly refunding medical expenses to the hospital that carries out the treatment, avoiding the situation that happens frequently where the patient has to first pay treatment fees in advance and later receive compensation from the fund.

The current system has a particular weakness in that when an employee travels and becomes sick or injured in an area remote from his/her administrative jurisdiction, there are considerable complications when paying for the treatment and getting reimbursed by the insurance fund. Article 29 specifically proposes to resolve this solution through creating administrative units to process such payments directly from medical funds to medical institutions. Once again, this may take a long time to realize in practice.

3. Work-Related Injury Insurance

The law mainly concerns itself with the circumstances under which compensation will be provided, and clarifies which payments will come from the work-injury funds and which payments from other funds, such as pension.

The most important point relates to the government’s commitment to ensure provision of treatment for work-related illness or injury even in the absence of contributions made by employers. The law states clearly that it is the employers that must make the contributions, but in the absence of such contributions the employee can still claim the relevant treatment expense, the administrative agency is then obligated to chase up the employer for the cost of the treatment (as well as, presumably, outstanding work injury insurance contributions).

4. Unemployment Insurance

Most of the law is simply a generalization of previous laws and circulars. Key points include the length of time that unemployed people may claim benefit (depending on the amount of time they worked) and the amount they may receive (to be designated locally, but not related to the salary they used to receive / the premiums they paid while employed).

One point that has been included to resolve a particular problem is an obligation on the employer to provide the “termination of employment” evidence to the employee within 15 days of his/her release from the company. This is to resolve a particular problem whereby the employer refuses to release such a document for some reason, putting the terminated employee under unreasonable pressure because without this document they cannot start claiming unemployment benefit.

5. Maternity Insurance

There has been an important change to the rules here. Article 56 of the new law states that monthly payments from the insurance fund to women during their maternity leave will be made based on the average salary paid by the company to its employees. This is in contrast to the previous practice, where the woman on maternity leave received an amount equal to her salary (as defined by the social insurance contributions made by the company prior to her maternity).

This change will also have a couple of interesting side effects. The first will be that employees will become aware of the average salary paid in the company. This will cause issues of confidentiality (especially for small organizations) and also possibly encourage certain employees to seek salary increases to what they consider to be “fair” levels – no valued employee wants to know that they are earning way below the company’s average salary!

Secondly, this policy could encourage a trend of “maternity arbitrage,” where employees who expect to become pregnant in the near future consciously look for work at a company paying a high average salary. This situation is likely to be more prevalent in cities such as Dalian, which provides a total of five months of maternity leave to employees, as the financial benefit to an individual of taking maternity leave would be higher. We can take the case of an individual leaving a company paying an average salary of RMB3,000 and joining a company paying an average salary of RMB9,000. The switch would potentially benefit such an employee by RMB30,000.

More recently, Beijing’s Human Resources and Social Security Bureau released the “Circular on Adjusting the Municipal Maternity Insurance Policy for Employees (jingrensheyifa [2011] No.334)” on December 20, 2011, clarifying a few loose ends. Under the new calculation system, female employees working in the city will receive compensation according to the combined average monthly salary of all company employees during the previous calendar year. Furthermore, if a female employee’s actual monthly salary level is higher than the company’s combined average monthly salary, the company shall make up the difference in the two amounts; eliminating concerns over the possibility that senior-level employees may end up receiving less benefits during their maternity leave. Whether this policy is rolled out on a national basis remains to be seen.

6. Housing Fund

China’s housing fund, although in the strictest sense not a kind of social welfare, is generally included within the scope of social security because the contributions are mandatory and come from both the employer and the employee (apart from in some special areas like Shenzhen, where the employee does not need to make a contribution).

As its name suggests, the housing fund is designed to ensure that workers save some money in order to purchase a house or an apartment. The employer will usually have to contribute between 7 percent and 13 percent of the employee’s salary. In many cities, the employee matches this contribution with an equal contribution of their own, although certain cities have different policies.

It is possible in many cities to make housing fund contributions in excess of 300 percent of the local social average salary for an employee. The limit is generally 500 percent, although some cities do not set a limit at all. The portion over 300 percent will be deemed as taxable income of the employee. The key point for employers to note is that if you hire employees earning a salary of higher than 300 percent of the local social average salary, you should make sure to clarify in the offer letter that both employee and employer contributions will be limited by this cap. This can avoid potential problems in the future if the employee claims that higher contributions should be made.

When the employee wishes to purchase a house, the money in the housing fund can be used to pay the initial down-payment on the house, and it can also be used to subsequently pay back the loan to the bank. Furthermore, by producing evidence that funds have been accumulated in an individual’s housing fund, the bank may provide a lower rate of interest on the loan. Upon retirement, any remaining balance in the housing fund account can be withdrawn and used for any purpose by the individual.

Final Thoughts
The above summary covers the main scope of the first 56 articles of the new Social Insurance Law. The remaining 42 clauses relate mainly to methods of strengthening collection and the responsibilities and liabilities of the various government organs that collect and handle these funds. These clauses reflect the importance the government attaches to transparency. They realize that there is general public distrust relating to the current usage of funds, and have addressed some of the issues in this law.

For instance, Article 80 is quite interesting. It proposes that committees be setup consisting of employers, social insurance participants and trade unions, legal experts and economic experts to oversee the management of these funds as supervisory bodies. That sounds very promising in theory. How these committees are formed in practice will determine how much transparency is injected into the system.

Despite all the legal provisions aimed at enhancing transparency and creating a more healthy system, the law can be accused of lacking teeth. For instance, Article 87 and Article 88 impose punishments for organizations or individuals that make fraudulent claims or forge documents. However the fines imposed on such organizations or individuals are restricted to 200 percent to 500 percent of the amount of the claim made, hardly a punitive punishment. There may be organizations and/or individuals that come to the conclusion that the punishment does not adequately fit the crime, and will continue to abuse the system.

Source From: http://www.china-briefing.com/en/

By Julia Gu

Since separating from Southwest China’s Sichuan Province in 1997, the municipality of Chongqing has emerged as one of China’s fastest developing regions and is regarded by Beijing as the epicenter of the country’s “Go West” campaign.

Last year, the province-sized city with a population of 28.85 million attracted US$11 billion in foreign direct investment and its GDP grew 16.5 percent year-on-year to RMB920 billion (US$145 billion). According to the Chongqing municipal government, the city expects 13.5 percent GDP growth this year.

Chongqing’s officials attribute this tremendous economic growth largely to the city’s continually improving infrastructure, particularly its transport system.

Even just a few years ago, if trading companies in Chongqing wanted to send goods to Europe, they would have to first go through a coastal port city such as Shanghai or Guangzhou to then be shipped through the Straits of Malacca – which was both time-consuming and expensive. In addition, some sections of the shipping route warranted serious safety concerns.

Inspired by the “New Silk Road” (also known as the New Eurasian Land Bridge or the Second Eurasian Continental Bridge) that connects Lianyungang Port in Jiangsu Province with Rotterdam in the Netherlands and Antwerp in Belgium, Chongqing’s government leaders in July 2008 brought about a plan to make use of the continental railway network to open up a trade channel for the city.

This ambitious plan manifested itself in the form of the Chongqing-Xinjiang-Europe international railway, which officially came online on July 1, 2011. The new route starts from Chongqing and arrives in Duisburg, Germany – covering 11,179 kilometers in 16 days. The domestic section of the railway passes the inland cities of Xi’an, Lanzhou and Urumqi, and enters Kazakhstan in Central Asia from the Alataw Pass (Alashan Kou) in the Börtala Mongol Autonomous Prefecture of the Xinjiang Uyghur Autonomous Region. The international section of the railway travels through Kazakhstan, Russia, Belarus and Poland before reaching Germany.

Currently, the train leaves Chongqing for Duisburg once a month, but train services may be increased to once per day in the future as the city’s exports to Europe increase, according to Chongqing’s Mayor Huang Qifan.

The route will be used to link Europe to South China’s manufacturing hub and Southwest China’s industrial belt, according to municipal authorities. In June 2011, a rail route connecting Chongqing and Yantian Port in Shenzhen began operations.

The transcontinental railway will also boost trade between Southeast Asia and Europe, as rail links presently exits connecting Chongqing with Yunnan Province and the Guangxi Zhuang Autonomous Region in the country’s southwest, said Cai Jin, vice president of the China Logistics and Purchasing Association.

The municipal government has said that the Chongqing-Xinjiang-Europe railway will make the city an international logistics junction by connecting the Yangtze River Delta to Europe. Meanwhile, to the southwest, Chongqing is trying to open up another trade route which passes such inland cities as Guiyang, Kunming, Dali and Ruili before crossing the border to Mandalay in Myanmar and then on towards both the Indian Ocean and the Middle East via the port of Sittwe on the Bay of Bengal.

Experts say that the new Chongqing-Xinjiang-Europe rail route will function as an international trade passage that may benefit as many as 40 countries across the Asian and European continents in the coming years, helping to further amalgamate the emerging markets of the East and the developed markets of the West. With these improvements in Chongqing’s transport system, manufacturing businesses have become more and more attracted to the city.

In 2010, Taiwanese computer giant Acer announced that in the coming years, the firm will invest US$150 million in the city to build its largest global IT manufacturing center. Last year, Acer made another announcement that the company also has invested US$4 million to set up a new global R&D center there, Acer Intellectual (Chongqing) Co. Ltd.

Already housing leading IT businesses including Hewlett-Packard, Foxconn and Acer, Chongqing welcomed Asus, another Taiwanese computer firm, in April last year with its US$150 million investment aimed at building a computer manufacturing base.

Aside from IT firms, automobile manufacturers are also excited by the attractive logistic options and economic potential on offer in Chongqing. In September last year, CEO of Ford China Joe Hinrichs announced that the U.S.-based auto giant plans to build seven factories across the Asia-Pacific region and Africa, including four in China. Hinrichs has confirmed that Ford has chosen to invest in three factories in Chongqing, all of which will start operations by the end of 2013.

Last year, three international companies, ThyssenKrupp, Kautex Textron and Magna Cosma, revealed plans to establish production facilities in Chongqing. ThyssenKrupp is Germany’s largest steelmaker and one of the world’s top elevator manufacturers. It is establishing an assembly shop, painting workshop and quality-control laboratory, while Kautex Textron plans to build a factory that produces auto engine fuel supply systems and other key auto parts. In 2011, Magna Cosma, a subsidiary of North America’s largest automobile parts manufacturer (Canada’s Magna Group) established a manufacturing facility that focuses on the production of auto parts and electromechanical industrial products. According to a city government report, the three multinational firms will mainly provide auto parts for Volkswagen, Chang’an Ford Auto, Chang’an Auto and Volvo Chengdu.

Source From: http://www.china-briefing.com/en/

The current debt crisis affecting many Western markets offers major expansion opportunities for China and its large state-owned enterprises
Opinion: Tahuy Chhan

The current crisis of national debts affecting Western developed countries has created a favorable period for China to strengthen its position in overseas markets. In particular, it offers potentially lucrative opportunities in North America and in Europe – traditionally the most difficult markets to conquer for emerging actors.

China strengthens its position as an investor With strong commercial surpluses and high national savings, China is at the heart of current events by massively investing in industrial assets and public securities. This is especially the case within U.S. and European markets where China has been contributing to the financing of public deficits within troubled states while boosting industrial projects.

In terms of direct investment, the 2010 episode of the Port of the Piraeus – a US$3.3 billion contract concession signed between Greece and China via its public entity Cosco – is illustrative of Chinese ambitions. The level of direct Chinese investment into Europe remains relatively low compared to other countries such as Brazil, but there has been strong growth since 2008; in 2009, Chinese direct investment into Europe exceeded the levels invested in Africa, according to the Chinese Ministry of Trade. Chinese foreign surpluses, more than US$3.2 trillion in exchange reserves this year alone, are especially held in the form of public securities: Treasury bonds and government bonds.

The development of Chinese investments abroad has also aroused certain anxieties in the regions and sectors where it invests. For some, China constitutes a threat to local companies, employment, and overall social structure, while for others, this development offers opportunities. China operates abroad in ways targeted by means of its large state-owned enterprises, serving as the sort of operational “tentacles” of Beijing decision-making.

The “success story” of the state banking model
Most of the big Chinese companies which operate on the international stage remain controlled by the central government. They want to forge “national champions,” capable of competing with the big multinationals already in place. The current context of the crisis offers them new operational opportunities, propping up ailing firms through infusions of capital or repurchase, both creating strategic alliances.

The Chinese firms are experiencing a major change in direction as their international expansion accelerates. Having built their economic development on a large-scale national base, big representatives have arisen out of the energy sector (PetroChina, Sinopec), financial services (Industrial and Commercial Bank of China), computer technology (TCL), electronics (Changhong), and household electrical appliances (Haier).

The Chinese model of international development is also connected to the hegemony of its large state-owned commercial banks, which are supporting the development of domestic companies overseas. Quoted on local exchanges as well as the Hong Kong Stock Exchange, these banks are following the example of the Industrial and Commercial Bank of China. They have become “monsters” in terms of market capitalization, upsetting the hierarchy of the traditional North American and European banks, which are struggling in the context of this current crisis. So, with this crisis of national debts, China’s model of international development has entered a pivotal stage, the scale of which will likely continue to grow through the rest of the decade

Source From: http://www.china-briefing.com/en/

By Vivian Ni

Twitter, the U.S.-based micro-blogging service provider, has recently found itself at the receiving end of criticism due to its new policy that will allow content censorship on a country-by-country basis. The policy adjustment may have revealed Twitter’s interest in returning to the cash-flowing Chinese market, where the government implements strict internet censorship regulations and blocks an array of Western social media web sites.

In a blog post last Thursday, Twitter said that it had refined its technology and gained “the ability to reactively withhold content from users in a specific country – while keeping it available in the rest of the world.” Previously, when the company took down a post at the request of a country’s government, the “tweet” invariably disappeared across the worldwide web.

Advocates for freedom of speech have found Twitter’s new policy hard to accept. Reporters without Borders, a France-based international non-governmental organization that support freedom of the press and information, expressed concern over Twitter’s new move in a letter it wrote to the U.S. company’s executive chairman Jack Dorsey.

“By finally choosing to align itself with the censors, Twitter is depriving cyber dissidents in repressive countries of a crucial tool for information and organization…Twitter’s position that freedom of expression is interpreted differently from country to country is inacceptable. This fundamental principle is enshrined in the Universal Declaration of Human Rights,” the group wrote.

However, from a business point of view, Twitter’s new move makes complete sense. The company is in pursuit of an ambitious expansion goal to increase its global users from the current 170 million to more than 1 billion, and may be willing to abide by individual country’s specific laws in order to reach that target.

Among potential countries, the Chinese market – with a micro-blogger population of 140 million already on its dominant domestic micro-blogging platform Sina Weibo – is too huge for Twitter (or any other social media web site) to miss. Even Twitter’s co-founder Biz Stone admitted the fact that the company will not be able to ignore China forever.

“Our philosophy is that open exchange of information can have a positive global impact, and that’s not China’s philosophy…we’re not going to be able to ignore it forever,” said Stone at the CTIA wireless convention held last year, adding that the company was still working on a way to deal with the censorship issues.

Twitter has been banned in China since July 2009, when government attempts to censor the information on the July 2009 Ürümqi riots were largely hampered by Twitter’s powerful message dissemination platform. Together with Twitter, U.S. social media web site Facebook was also blocked in China during the same time.

But indeed, it has been proved many times that China does not really intend to refuse the business opportunities brought on by the emerging social media technology. The country welcomes all the commercial advancement on one condition: companies must follow China’s own rules and keep off the political bottom line. On August 28, 2009, shortly after the blocking of Twitter, China’s largest information portal Sina launched its own micro-blogging service Sina Weibo, and within only 66 days, the number of Weibo subscribers surged to 1 million.

In a two-year period, micro-blogging services have become one of the most important markets that big-name Chinese internet companies are competing to share. Following Sina’s success, Tencent, Baidu, Sohu and Netease have all developed their own micro-blogging platforms, attracting a combined 250 million subscribers by the end of 2011. Homegrown players are able to enjoy this huge market because they can (and do) filter content according to government requirements.

Following the maturity of micro-blogging services in China, Sina expects US$75 million in income from Weibo in 2012 – US$50 million of which will be income from advertisements.

If Twitter does return to China someday, the commercial income from the market will be a welcome addition to Twitter’s global revenue – which the U.S. company aims to increase from US$139.5 million in 2011 to US$540 million in 2014.

The availability of Twitter will also likely help both domestic and foreign companies in China gain more exposure to international clients. Nowadays in China, more and more companies practice their online marketing by incorporating social media directly onto their business sites, but such efforts are partly in vain due to a lack of access to such social media platforms in the country.

Even if we look beyond business interests, Twitter’s new policy may not be that harmful to freedom of speech and may actually find a way to improve free information in countries like China.

The new Twitter policy means the removal of “tweets” will only happen in one part of the world, and such deletions will be clearly announced on the web site Chilling Effects, which will end up drawing attention to cases where it’s been obliged by local law to remove content, said Zeynep Tufekci, an assistant professor at the University of North Carolina at Chapel Hill.

An example echoing Tufekci’s point can be found on Sina Weibo, which established an account called “Weibo Rumor Buster (Weibo Piyao)” to announce the removal of posts proved untrue. Such announcements have in fact raised public awareness of “forged news,” which are often related to collisions between authorities and ordinary people.

Of course, it is still too early to assert any of Twitter’s strategy towards China, as Twitter will still struggle to comply with China’s strict internet regulations even if it implements its new policy. For example, Twitter will only be able to erase a tweet if it is requested by the government based on valid legal grounds; in contrast, its Chinese peers can delete posts on a broader range of topics without legal review. Additionally, the recently-practiced real-name registration represents another potential roadblock to Twitter’s entry to China.

“We would love for people in China to express themselves…(but) under the current situation, that’s not possible,” said Twitter’s Chief Executive Officer Dick Costolo, who on Monday denied that the new policy was designed for the Chinese market.

In a recent blog post, Reuters journalist Doug Young speculated on the future progress of the event: “…I suspect this move by Twitter may be designed to test the China waters and will be followed by a visit to Beijing to see what regulators think. If the reaction is positive, I wouldn’t be surprised to see Twitter taking some kind of modest initiative in China by the end of this year, though it will face a difficult road catching up to (Sina) Weibo.”

Source From: http://www.china-briefing.com/en/

Hangzhou, the capital city of Zhejiang Province, has recently announced a new regulation on maternity insurance, a move that may bring employers in the city higher expenses on social security coverage.

The new “Measures on Hangzhou Municipality Maternity Insurance Scheme (Hangzhengban [2011] No.22),” issued by Hangzhou’s local government on November 15, 2011, stipulates that the employer contribution rate to maternity insurance within Hangzhou City shall stand at 1.2 percent (compared to the existing 0.8 percent), whilst the contribution rate in suburban and rural Hangzhou shall be determined by the local governments of the districts/county-level municipalities.

The wage base for maternity insurance remains unchanged. An enterprise shall take the total monthly salary of all of its employees as the base for maternity insurance payment. However, where the monthly salary of an enterprise’s employee is below 60 percent or above 300 percent of the average monthly wage in Zhejiang Province last year, his/her wage base for maternity insurance shall be calculated at 60 percent (for a low salary employee) or 300 percent (for a high salary employee) of Zhejiang’s average monthly wage of the previous year.

According to the new document, an employee covered by maternity insurance can enjoy:

an allowance for giving birth (total amount = average monthly wage of all employees of the entity last year × maternity leave duration [month]) (varies depending on the pregnancy term, surgeries required such as cesarean section, as well as whether multiple births are involved)

an allowance for surgeries related to birth control and pregnancy termination (to comply with China’s one-child policy) (total amount = average monthly wage of all employees of the entity last year × sick leave duration [month]) (varies depending on the method of birth control, method of pregnancy termination, and pregnancy term prior to termination)

coverage of medical care expenses on giving birth

coverage of medical care expenses related to compliance with one-child policy

The Measures took effect on July 1, 2011, but according to Hangzhou’s Labor and Social Security Bureau, local authorities are still waiting for details on how to implement such increase.

Source From: http://www.china-briefing.com/en/