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100 Country starter pack Business practicalities in China Audits are required under company law, accounting regulations and income tax laws in China, and audited financial statements should be filed with the tax authorities, together with the annual income tax returns. FIEs are required to provide the auditors with all of the enterprise’s documents, books and reports. The financial statements to be submitted for an annual audit include the balance sheet, income statement, statement of changes in owners’ equity, statement of cash flows and relevant supporting notes. Audited financial statements must be submitted to a number of government authorities, mainly: • The local offices of the State Administration of Industry and Commerce (SAIC) • The State Administration of Taxation (SAT) • The local Finance Bureau. Audited financial statements must be submitted to the relevant authorities within four to six months of the year’s end, depending on local government requirements. Accounting Standards for Small Enterprises The Accounting Standards for Small Enterprises (ASSE), issued by the Ministry of Finance in November 2011, is only applicable to small enterprises that have not yet adopted CAS 2006. It came into effect from January 1, 2013. The ASSE’s main objectives are to simplify the bookkeeping of small enterprises and to eliminate differences between the books and taxes as much as possible. The criteria for qualifying as a small enterprise, mainly in terms of the size and nature of the enterprises, are set out in a regulation issued jointly by five ministries under the State Council (including the Ministry of Finance and the Ministry of Industry and Information Technology). Moreover, small enterprises that fall into one of the following three categories are not allowed to adopt ASSE: • Small enterprises that issue publicly-traded shares or bonds • Small enterprises that are financial institutions or have the nature of financial institutions • Small enterprises that are parents or subsidiaries within a consolidated group (for this purpose, the parents or subsidiaries only refer to those companies incorporated within China). Under ASSE, accounting treatments are more in line with tax laws and regulations. For example, assets are stated at cost and provision for impairment is not allowed. 5.5 EMPLOYING WORKERS Labour market China’s labour market is constantly evolving and, like other aspects of doing business in China, will vary between cities and regions. Various factors are at play in this shifting landscape, such as increased access to education (both domestically and internationally), growing numbers of private enterprises entering an environment once dominated by state-owned ones, expanding foreign investment, the nation’s intensifying economic growth, and the development of more comprehensive labour laws. Once known for its abundance of incredibly cheap manufacturing labour along its eastern coast, China’s economic revival has led to improved wages, rising living costs and higher skill levels. In turn, these changes are driving China’s manufacturing sector inland to rural areas and western towns and cities that offer both cheap labour and lower set-up/running costs. The shift is also forcing China to compete with lower cost South Asian countries, such as Bangladesh, in a bid to continue attracting foreign investment in manufacturing. The working-age population is also continuing to decline, further cutting the supply of low skilled labour. Although China produces around seven million university and college graduates annually, competition for talent is fierce, particularly in larger, more developed cities. The Chinese Government is aware that large numbers of graduates do not have practical business skills or those aligned with the working requirements of large Chinese companies or multinational firms. It is therefore attempting to address this mismatch with its National Talent Development Plan. The WTO and major firms operating in China have also highlighted this as potentially compromising China’s ability to continue to attract foreign companies into high-skilled fields. Retention of talent within China has also been identified by local and foreign firms as one of the biggest challenges for companies operating in China. Companies that are able to attract, recruit and develop talent must then address the issue of how to secure it. Australian businesses planning to operate in China need to be aware that talented workers will not only be constantly approached and poached by competitors, but also by firms operating in entirely different industries. In more rural areas and in the case of less-educated talent, employees often will change jobs for as little as RMB100 per week more, so companies need to monitor what other employers are paying workers, while facilitating better communication with their own staff. It is more cost-effective trying to retain talent in the first place, and understanding the motives of those who resign, than simply letting them go. In the case of better-educated talent that is available in more developed cities, a key motivating factor for switching jobs is not only higher salaries, but also training and development opportunities.
Country starter pack Business practicalities in China 101 For this reason, organisations need to invest in career development structures and training with effective succession planning. A healthy work-life balance is also increasingly sought after by young managers in China, a reality that is best considered when hiring. Australian businesses may be surprised to learn that Chinese companies, and increasingly foreign ones who are localising their staff, often promote employees faster than most companies operating outside the country. A contributing factor for this is the lack of middle-aged managers in China’s labour market as a result of the Cultural Revolution, which led to an entire generation having little education and skills only suitable for labourintensive jobs. This means that Chinese managers are generally short on experience and knowledge compared with their international peers. The average age of a Chinese chief executive is just over 47 years, almost 10 years younger than bosses in Europe and the US. This also means that newly-promoted managers will often miss out on the guidance of experienced senior management, which can place additional pressure on them. Many of these managers end up leaving, as higher salaried jobs with less responsibility are easy to find elsewhere. This is another reason why the development of skills in managerial positions is crucial for businesses wanting to retain staff. Another issue facing Australian businesses wishing to expand or establish operations in China is the limited supply of experienced employees in rural and developing cities, and in the interior regions of the country. Relocating managers to these locations, which are likely far from family and where standards of living are comparatively low, requires a robust raft of incentives and benefits that could be in the form of hefty salaries and promotion. It is suggested to target and send managers originally from such locations as they may be more willing to relocate to be closer to their families. Finally, reverse transfers, or moving top performers from China to developed markets for a short period to improve their credentials or to undertake ‘cross training’, have become a very popular retention and development measure. Ultimately, the importance of ‘family’ should not be underestimated when hiring staff in China. Australian businesses will not be used to the sort of parental involvement in the careers of children, particularly with under-25s who may be working away from their home town. For example, some Australian expatriate general managers have reported receiving phones calls from angry parents when their child may have been given a performance management talk or is stressed by a work deadline. Chinese managers and employees will also resign if their family does not like the role they are in or their job title or placement, or if their family believes they could make more money elsewhere. It is, therefore, important to consider how a business can ensure any family concerns are addressed swiftly, including those around work-life balance. Tips to hiring, developing and retaining Chinese staff: 1. Family-focused benefits and perks can help retain workers with ageing parents or children. 2. Begin succession planning early. Identify promising staff and devote sufficient resources to their development, while integrating them into a global mobility program. 3. When selecting managers to send to developing cities within China, consider staff with local roots in those regions or ones requesting to develop their skills and go on secondment. 4. Training programmes must be culturally sensitive for locals and expatriates, as well as Chinese staff returning from overseas. 5. Make sure there’s a clear path for career development and advancement, as well as sufficient opportunities. Human resources and employment law China introduced workplace laws more than 20 years ago. The Labour Law of the People’s Republic of China of 1995, along with the subsequent Employment Contract Law (2008) and other employment-related amendments and rules that have been introduced over the past several years, underpins employment laws applying to both private and public sectors. Foreign-owned enterprises and joint ventures are similarly covered. The 2008 legislation essentially encourages employers to enter into contracts with their employees either for nonfixed or long terms, that set outline clearly regulations for terminating employment. Amendments introduced in 2013 incorporated, among other things: • Specific penalties for companies not having signed employment contracts with employees
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