Editor’s note: On October 15th, the long-awaited "Provisional Measures for Foreigners Working in China regarding Participation in the Social Insurance Scheme" (Provisional Measures) went into effect (sort of). Under the plan, foreign employees working in China are required to pay into China’s Social Security, which, predictably no one is too excited about. Foreigners have been rampantly voicing concerns over the tangibility of accessing any of the benefits, the somewhat outrageously high monthly insurance premiums, and what these premiums will do to the foreign job market in China. The following article, which was first published in China Economic Weekly, addresses these concerns, and speculates that, if everything goes according to China’s plan, everyone will come out ahead.

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According to rough calculations by PricewaterhouseCoopers (PwC), a global professional services firm headquartered in London, China's social insurance system is on track to collect 3 billion RMB every month from foreign employees’ contributions alone.

Wait, 3 Billion RMB?!

PwC arrived at this number fairly easily. According to the most recent census, released in November 2010, there are 600,000 foreigners currently living in China (not including Hong Kong, Macau and Taiwan residents, which the Provisional Measures does not mention). PwC used the current social security insurance premium rate and base numbers for Beijing, Shanghai and Guangzhou to “roughly measure” how much each employee (and their employer) would have to pay into the Social Insurance Scheme each month. The conclusion: each foreign employee will “bring in” 5,600 RMB per month. Multiply this number by the 600,000 foreigners living in China (it is a rough estimate after all), and you get 3.36 billion RMB, added to China’s Social Insurance Scheme reserve each month!

Foreign Chambers of Commerce weigh in

In an interview with China Economic Weekly, a representative for the American Chamber of Commerce in China stated: “Requiring foreigners to participate in China's Social Insurance Scheme may have a duplicative nature; the specified costs are too high, which will negatively affect China’s investment environment. Also, there are obvious contradictions between the Provisional Measures and other regulations on issues such as Chinese work visas and family planning policies. Further, the current provisions do not clearly explain how foreigners in China can take advantage of these insurance benefits, or how they can access funds from their account after they leave the country.” The representative continued: "We believe that when a foreign employee is hired in China, they should be given the option to opt out of China's Social Insurance Scheme. In addition, when employees decide to leave China, they should be allowed to access all insurance accounts at any time. If the Provisional Measures were postponed for at least a year, it would give the Chinese government time to clearly set out their requirements and procedures, work out all necessary processes, and enter into negotiations for bilateral exemption agreements with other countries. This would also give companies who employ foreigners ample time to do their own adjustments."

A representative for the European Union Chamber of Commerce in China (EUCCC) told China Economic Weekly that while they completely welcome this regulation, they do have a number of concerns about it: "China's social insurance scheme does not have uniform national standards. It's divided into provincial, prefecture-level and county-level schemes. How much an employee contributes in Beijing is not the same as how much one contributes in Hunan. This is very troubling for foreign companies in China, as they do not know how much they need to contribute each month, where the money is supposed to be sent, or when they are supposed to start paying. Moreover, it’s already November, and it’s quickly nearing the end of the year. Businesses who wrote their budget at the beginning of this year haven’t set aside funds for these contributions. It is the general consensus of the members of EUCCC that before China require foreign employees to contribute to a Social Insurance Scheme, that the guidelines for the scheme are very clear.”

Other Concerns

Provisional Measures stipulates that foreign employees in China who participate in the Social Insurance Scheme will enjoy the same benefits as Chinese employees. Yet, besides the pension, it does not specify how foreigners can take advantage of their other benefits.

In its current form, the social security legislation does not explicitly state how foreigners can take advantage of their unemployment insurance, maternity insurance, work-related injury insurance or basic medical insurance. For example, when a foreign employee's position is terminated or their employment permit is cancelled, they will often leave the country. But under the current legislation, people who leave the country are ineligible for China's domestic unemployment insurance benefits.

Even the pension portion has become a topic of contention: using Shanghai as an example, PwC calculated that if you retired in 2010, you’d receive a 2,000 RMB monthly pension (same as for Chinese employees), which compared with other developed countries, is a pittance.

Speeding up the “mutual exemption agreement” process

China is not alone in requiring foreign employees to contribute to their Social Insurance Scheme; in fact, most countries do it. And nobody likes being forced to pay into someone else’s system.

In July 2001, China and Germany signed the "People's Republic of China and the Federal Republic of Germany Social Security Agreement". This agreement stipulated that Chinese-funded companies and Chinese employees in Germany and German-funded companies and German employees in China would be exempt from the other’s pension and unemployment insurance obligations, and that they would both avoid collecting duplicate insurance fees. Similarly, in February 2003, China and South Korea signed the "People's Republic of China and Republic of Korea Pension Payment Interim Measures Agreement." So far, these are the only two countries to have signed mutual exemption agreements with China.

For a long time now, China's foreign labour output has been massive, with many Chinese corporations investing overseas and sending their employees there to work at the new companies. But most countries require foreign employees to pay into their Social Security, which has caused the labour costs for Chinese corporations to increase exponentially. Whenever Chinese employers bring up the “double payment” reason while requesting a reduction in Social Security costs, other countries tell them that China doesn’t have a mutual exemption agreement with them.

There is no doubt that when Provisional Measures appeared, it compelled some countries to start pushing for bilateral mutual exemption agreements with China, something that China has wanted itself for a long time.

(Ed. note: Fingers crossed that your country signs one!)
 

Source: huanqiu 

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Keywords: China Social Insurance scheme for foreigners problems China’s Social Insurance scheme for foreigners China Social Insurance Provisional Measures China mutual exemption agreements