China Relocation: A Rough Road for Relocation

While expatriate workers continue to enter the mainland and firms seek to relocate domestic staff to other parts of the country, China’s regulations and regional differences remain complex and challenging obstacles.

FOREIGN EMPLOYEES working across a number of industries in China are now viewing their time in the mainland as beneficial to their careers, while Chinese working overseas are increasingly seeking opportunities to return home. However, strict changes in visa regulations have had a profound impact on the ability of companies to relocate staff into China. More importantly, rising costs in the country are forcing companies to relocate away from central hubs. The relocation process itself has become a more difficult endeavour, with new regulations and policies differing between regions and even cities. Hence, as Theresa Xie, branch manager at UniGroup Relocation in Shanghai, observes “China’s regulatory environment is in need of nationwide change” if the government wishes to see China remain high on the list of locations where MNCs want to operate.

First tier flight

Following the development of reform and opening in the late 1970s, China’s eastern coast became by far its most developed area, propelling the nation’s growth and bringing about a wide array of business opportunities. Yet, rising costs in these areas are now forcing many companies to move elsewhere, as China’s competitive cost advantage gradually wanes.

“At present, second and third tier cities are becoming increasingly popular in a bid to reduce costs, access raw materials and take advantage of government incentives and preferential tax policies,” notes Oliver Castling, business development Manager at Santa Fe Relocation Services in Shanghai.

However, despite the incentives offered, there still are a plethora of difficulties that arise when relocating staff into these areas. Expats often fear the regions lack adequate infrastructure or facilities to accommodate their families. Among particular worries are medical facilities, international schools, housing and access to international food options.

A Global Mobility Survey conducted among 1,200 HR professionals in 2013 by Santa Fe Relocation Services found that within China, multinational organisations are finding the top three challenges for their expatriates to be cultural differences, perceived concerns about personal safety and security, and language difficulties. ‘’These challenges are more pronounced in second and third tier cities,’’ says Castling.

Despite the rapid urbanisation, many foreign firms find that even their local staff are not keen to relocate domestically. ‘’Often, when a company decides to move a facility or headquarters to another city, they will be able to keep some key staff but will need to re-hire the majority of their employee base. Companies also need to be aware of differing regulations, cultures, and business practices across regions, and treat China more like a sub-continent than a single country,’’ Castling notes.

Especially for smaller and developing Chinese cities, clients’ needs are still often very specific, while options are rather limited, says Ryan Metz, China director at Crown World Mobility in Shanghai. ‘’Relocations into these areas often project-based, spanning from moving engineers or team leaders to build a factory or start a joint venture on one to three year assignments.

Clients may need a relocation firm that can support the local visa application in a small Chinese city, or manage a portfolio of properties that has been secured on long-term, multi-year leases just for their expatriate population. In most cases, relocation firms do not have offices in these areas, thereby forcing them to be extremely collaborative in their approach with clients.’’

Shanghai Changes

In first tier cities, such as Shanghai and Beijing, relocation is becoming common too. In Shanghai, more and more firms are relocating away from the central districts to more peripheral areas such as the Hongqiao transport hub and the former Expo area. ‘’This is a trend that is likely to continue. Rising costs have made China an expensive business proposition and everyone is looking at rationalising their presence here to ensure they have the most competitive positioning,” says Thomas Coupat, country manager at AGS Fourwinds Shanghai. “We have seen a number of corporate accounts moving away from high-rent areas to lower-cost areas where they can ensure they have a space specifically designed to their needs. For example, some large corporations, such as Nike, are moving to Yangpu district,‘’ he adds.

‘’Particularly within the first tier cities, we are seeing a change in the expatriate demographic,’’ says Castling. ‘’There are still the senior executives on full expatriate packages, but there are an increasing number of foreigners arriving in Beijing and Shanghai looking to start or revitalise their careers. China is no longer viewed as a hardship posting, but as an opportunity for career progression. This in turn has led to an increase in locally hired expats, or ‘half-pats’, allowing companies to tap into international skill-sets without having to pay the expensive expat packages.’’

Complex challenges

‘’China’s nascent relocation industry is characterised by the complexity of the customs and immigration regulations, making the relocation process often difficult and lengthy,’’ notes Theresa Xie,.

Moreover, China’s relocation industry is considered to be a highly cost-competitive environment. ‘’China-based relocation companies vary from global relocation management firms and strong regional movers and relocation provider, to fiercely competitive local real estate shops,’’ says Metz. ‘’Due to currency restrictions, which make paying vendors in China from overseas locations challenging, China is often kept out of corporate global relocation management policies. Corporate management of relocation into China is often left to China HR, admin or procurement teams, who tend to look at costs as the main differentiator when selecting a relocation provider,’’ he adds.

Bottlenecks and speedbumps

Operating costs are increasingly expensive in the mainland, and already China has become more costly in this regard than many other countries. This has tremendous impact on the relocation industry in China, as certain services, such as inland road transport, are still relatively expensive compared to Europe and the United States. Among other factors that might affect the relocation industry are volatile freight prices, which have profound influence on companies’ stability.

Additionally, one of the biggest challenges China’s relocation industry currently faces is the lack of a holistic regulatory environment, especially in the field of tax and customs issues. Taking into account that authorities are also asserting a more strict approach, there is rising worry within the industry that these regulatory uncertainties will continue to hamper business activity.

‘’The issue here is that we see a tightening from the authorities without being clear exactly what the rules are,’’ says Coupat. ‘’Not all government bodies we interact with have the same interpretation. Geographical differences in how laws and regulations are implemented mean that we still spend a lot of time explaining to our clients and colleagues that whilst something may be possible in one district or in a province, it is no longer possible in another.”

In addition to complicated regulatory systems, other key challenges include cultural differences, security and legislation, says Castling. ‘’Topping the list of priorities for relocation programs are cost savings. However, for China and other emerging markets, organisations are less likely to seek cost reductions by doing anything that might negatively impact employees. For foreign companies in China, there is a renewed focus on better compliance within relocation policies from both a legal and tax standpoint and also the integration of talent management.’’

According to Coupat, it is imperative that the government tries to clarify the rules of the game, unifies them at a national level and also ensures that everyone has the same set of rules, thereby avoiding favouring some parts of the market over others. China’s competitive edge globally is not as strong as it was after the financial crisis, and it is worth taking the best steps administratively to ensure that the country remains an attractive place to do business.

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