CHINA GUIDE
EMPLOY IN CHINA WITH EASE
- Access and hire global talent & deploy them anywhere in the world
- Remove restriction from only hiring from local markets
- Enter any international market without the requirement of opening a local entity
Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.
Expanding to countries such as China – which is characterized by a productive and robust workforce, multifaceted employment and tax laws, a strong infrastructure network, and leading sectors in agriculture, energy, manufacturing, mining, and services – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.
Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.
Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.
Quick Links
China – The Economy
The People’s Republic of China has a developing market-oriented economy that incorporates economic planning through industrial policies and strategic five-year plans. The economy consists of state-owned enterprises (SOEs) and mixed-ownership enterprises, as well as a large domestic private sector and openness to foreign businesses in a system officially described as a socialist market economy.
State-owned enterprises accounted for over 60% of China’s market capitalization in 2019 and generated 40% of China’s GDP of US$15.97 trillion dollars (101.36 trillion yuan) in 2020, with domestic and foreign private businesses and investment accounting for the remaining 60%. As of the end of 2019, the total assets of all China’s SOEs, including those operating in the financial sector, reached US$78.08 trillion. Ninety-one of these SOEs belong to the 2020 Fortune Global 500 companies.
China has the world’s second largest economy when measured by nominal GDP, and the world’s largest economy since 2014 when measured by Purchasing Power Parity (PPP). It has been the second largest by nominal GDP since 2010, with data relying on fluctuating market exchange rates. It recently overtook the economy of the European Union in 2021.
The government began its economic reforms in 1978 under the leadership of Deng Xiaoping. As a result, China has the world’s fastest-growing major economy, with growth rates averaging 10% over 30 years. China has four of the world’s top ten most competitive financial centers (Shanghai, Hong Kong, Beijing, and Shenzhen), more than any other country. China also has three of the world’s ten largest stock exchanges (Shanghai, Hong Kong, and Shenzhen), both by market capitalization and by trade volume.
China is the wealthiest nation in the world. As of 2018, China was first in the world in total number of billionaires and second in millionaires – there were 658 Chinese billionaires and 3.5 million millionaires. According to the 2019 Global Wealth Report by Credit Suisse Group, China surpassed the US in the wealth of the top ten percent of the world’s population.
China is the world’s largest manufacturing economy and exporter of goods. It is also the world’s fastest-growing consumer market and second-largest importer of goods. China’s largest trading partners are the United States, the European Union, Japan, Hong Kong, South Korea, India, Taiwan, Australia, Vietnam, Malaysia, and Brazil. With 778 million workers, the Chinese labor force was the world’s largest as of 2020.
It ranks 31st among the “very easy” countries in the Ease of doing business index and 28th on the Global Competitiveness Report. China ranks No.1 globally in patents, utility models, trademarks, industrial designs, and creative goods exports. It also has two (Shenzhen-Hong Kong-Guangzhou and Beijing in the 2nd and 3rd spots respectively) of the global top 5 science and technology clusters, which is more than any other country. As of March 2022, China has over 500 million 5G users and 1.45 million base stations installed.
Small and Medium-Sized Companies
Small and Medium Enterprises (SMEs) are the driving force behind the economic growth of China, making up about 97% of all enterprises in the country. They play a vital role in providing employment opportunities, keeping the market active through enticing fresh business while maintaining competitiveness against larger firms.
In China, the definition of an SME is quite complex and different to what other countries may classify it as. Compared to most countries that look at a company’s number of employees to qualify it as an SME, China uses the SME Promotion Law to categorize which businesses are SMEs. Under this law, the classification depends on the industry, assets, number of employees, and sales.
Since 2019, small businesses have been responsible for employing 80% of the non-government workforce.
In China, small firms with fewer than 300 employees make up most of the economy. These enterprises contribute to almost 75% of all job creation and 68% of exports. New business creation reached a record-high in 2018, with an average of 18,000 companies being created on a daily basis. The major leap in growth in SMEs is due to the government’s continuous improvements in the commercial registration system. Aside from employment, SMEs are the key players in the technology sector. In the past few years, hundreds of thousands of technology SMEs have been registered, contributing to the continuous growth of the hi-tech manufacturing sector.
| Country | China/The People’s Republic of China |
| Capital | Beijing |
| No. of States/Provinces | 31 |
| Principal Cities | Shanghai, Beijing, Tianjin, Shenzhen, Guangzhou, Chengdu, Chongqing, Dongguan, Shenyang, and Wuhan |
| Language(s) | Chinese (Mandarin) |
| Local Currency | Renminbi (CNY) |
| Major Religion | Atheism, Chinese Folk Religion, Buddhism, Taoism |
| Date Format | year/month/day |
| Time Zone | China Standard Time (GMT+8) |
| Country Dial Code | +86 |
| Population | 1,449,038,890 |
| Border Countries | Afghanistan, Bhutan, India, Kazakhstan, Kyrgyzstan, Laos, Mongolia, Myanmar, Nepal, North Korea, Pakistan, Russia, Tajikistan, Vietnam |
| Tax Year | 1 January to 31 December |
| VAT % | 13% |
| Minimum Wage | Depends on the province |
| Taxpayer Identification Numbers | Tax Residence Certificate Tax Identification Number Social Security Number/Card VAT Number (Businesses) |
| Leading Sectors | aerospace, information technology, telecommunications, electronics, chemicals, mining, ore processing, iron, steel, aluminum and other metals, manufacturing, services, consumer products, agriculture, financial services, electric power |
| Main imports | integrated circuits, crude petroleum, iron ore, petroleum gas, and gold |
| Main exports | telephones, computers, integrated circuits, light fixtures, and models and stuffed animals |
| Main trading partners | United States, Hong Kong, Japan, South Korea, Vietnam, European Union, India, Taiwan, Brazil, ASEAN |
| Government Type | Unitary Marxist–Leninist one-party socialist republic |
| Current Prime Minister/President | Xi Jinping (CCP General Secretary President, and CMC Chairman) |
The Main Sectors of the Chinese Economy
The country focuses on the following key sectors, which all have a significant impact on the country’s economy:
- Manufacturing – Manufacturing is by far the biggest industry in China accounting for 46.8% of the country’s GDP which is attributed to China’s intense investment in its heavy industries.
China is the world’s number-one producer of cement, steel, and chemical fertilizers. Of the ten largest steel producers in the world, six are based in China with the country’s annual steel production of 683 million tons being the highest in the world. China also has the largest cotton textile output of any country with textile manufacturing accounting for 10% of the country’s gross industrial output.
China is the third largest producer of automobiles in the world behind the US and Japan with the annual automobile export being estimated to be $70 billion. Manufactured products account for about 94.3% of China’s $2.09 trillion total exports which include automobiles, ships, locomotives, textiles, fertilizers, and electronics. - Mining – The mining is among the major industries in the Chinese economy. The industry annually injects billions of dollars into the country’s GDP.
China’s gold production has been increasing in recent years and has doubled in the past decade. Most of China’s gold deposits are found in the eastern part of the country, in the Liaoning, Henan, Fujian and Shandong provinces. Most of the gold produced in China is consumed locally as China is the world’s fourth largest gold consumer. The local gold consumption in China is equivalent to 9.2% of the global gold consumption. Coal mining is another important sector in China’s mining industry.
China is the largest coal producer in the world. The country has the third largest coal reserves in the world, behind the United States and Russia with some estimates claiming the reserves can sustain the country for more than a century. China’s largest open-pit coal mine is situated in Haerwusu and has an estimated 1.73 billion tons of coal reserves. The majority of the coal produced is consumed domestically, with China being the world’s biggest coal consumer, with an annual consumption of about 3.2 billion tons.
China is also a global leader in the production of non-metal minerals. The country has an annual production rate of 97 million tons of phosphate rock. Other valuable minerals produced in China are tungsten, copper, tin, and iron ore, among others. - Agriculture – Agriculture is another major industry in China’s economy with the country being both the largest consumer and producer of agricultural products in the world.
China can feed its enormous population (estimated to be equivalent to 20% of the global population) despite having only 15% of its land is suitable for cultivation. For comparison, China has 30% more agricultural production than the United States despite having 15% less cropland area.
About 300 million people work in China’s agricultural industry, the majority of whom are small-scale farmers. The most important crop produced in China is rice which is cultivated on millions of acres of land. The country which was traditionally known for its aquaculture is also the largest producer of poultry, eggs, and pigs. - Energy – Energy is an important pillar of China’s economy and is one of the country’s largest industries. China is the leading country in electricity production since 2011 when the country’s production exceeded that of the United States. China’s annual electricity production reached 5,920 Tw-h in 2016. Most of the country’s electricity is produced from coal, a mineral that China has in plenty, with the third largest coal reserves in the world.
Hydropower is the second-most important electricity source in China, accounting for 20.1% of the total electricity production in 2016. However, the country is grappling with the problem of lacking a unified national grid system for proper distribution of the electricity.
The vast size of the country is also a problem due to voltage drops experienced as electricity is transmitted across long distances. - Services – China’s services sector represents more than 54% of the economic output in 2020. To put this in comparison, in 2010, the services industry represented slightly more than 44% of GDP. Consumption of goods is a major factor and driver of growth, representing more than 39% of China’s GDP in 2020. Those goods include jewelry, home appliances, garments, autos, office supplies, and furniture.
However, China’s retail sales jumped by more than 13% from January to November 2021, versus the same period one year earlier. Retail sales represent consumer spending within the economy. In comparison, the United States posted retail sales of 18.2% from November 2020 to November 2021.
Compliance Highlights
Key Tax and Labor Authorities in China
- State Taxation Administration – The State Taxation Administrationof the People’s Republic of China have a number of responsibilities, including drafting tax laws, regulations, and detailed implementing rules; providing advice on the making of tax policies; making joint efforts with the MOF to report and instruct on implementation measures; interpreting tax laws and policies in the process of enforcement and reporting afterwards to the MOF for record-filing.
- The Ministry of Human Resources and Social Security – The Ministry of Human Resources and Social Security of People’s Republic of China is a ministry under the State Council, which is responsible for national labor policies, standards, regulations and managing the national social security. This includes labor force management, labor relationship readjustment, social insurance management and legal construction of labor.
Labor Contracts Law
Foreign companies hiring employees in China must operate within a strict framework of legislation that provides comprehensive safeguards for the workforce. Trade union and collective agreements may also apply at the contract stage. Once staff have been sourced, interviewed, and selected, international companies must register employees with the Social Security Bureau, their local Housing Fund, and the State Taxation Administration.
These considerations come into play during the first stages of hiring and onboarding, when employers are drawing up contracts with their new employees.
Labor Contract Law regulations that apply to all contracts include:
- Providing a written contract for full-time employees within one month of first day at work, with the risk of having to pay double salary after the one-month limit
- Contracts should be in Chinese and translated into a foreign language by legally accredited organizations, or risk being legally invalid
- Details of the employee’s confirmed address and ID number
- The terms of employment
- Location and obligations of the role
- Employees’ rights and working conditions
- Terms for compensation, severance, and any disciplinary procedures
- Any probationary period must be included. If the contract is between three and 12 months, the trial period cannot exceed one month; two months for between a one and three-year contract and six months for over three years
- Employer and employee should keep a copy and any changes must be agreed by both parties
If the employer fails to provide a fixed-term contract within a year of the employee starting work, it defaults to an open-ended contract.
The main contract types in China include:
Open-ended or Indefinite Employment Contracts: These contracts are for continuous employment without stipulating any end date.
Fixed-term employment contracts: This applies where the employer and employee agree an end date for the contract. If an employee continues to work after the contract expires, by default they are then on an open-ended contract. Similarly, if the employer fails to institute a written contract within a year, a full-time contract applies. After an employee completes two fixed-term contracts the employer should agree to an open-ended contract if the employee requests.
Specific Project Employment Contracts: These expire on completion of a specified project.
Probation Periods in Employment Contracts: Trial periods are commonly included in employment contracts, with time limits, and they can only be used once with the same employee. Probationary periods are restricted to one month for contracts of less than 12 months, two months for contracts between one and three years and six months for contracts exceeding three years.
The Labor Contract Law applies mandatory rules to contracts. These include:
- Employers must provide a written contract for full-time employees within one month of their first day at work, or risk having to pay double after the month expires
- Contracts should be in Chinese and, if necessary, translated into a foreign language by officially accredited translators
- Contract types can be open-ended and indefinite; fixed term with an agreed end date; or tied to a specific project
- The contract must contain details of the employee’s ID, home address
- Basic terms of employment should cover location and role responsibilities, rights and working conditions, details of compensation, severance and disciplinary procedures, any provision for probationary periods
- Employer and employee should have copies of the contract and agree any amendments in writing
Collective Bargaining Agreements and Collective Contracts: The All-China Federation of Trade Unions (ACFTU) is the sole legal representative of workers in China. Implementing collective agreements varies between provinces and administrative cities.
Businesses can conclude collective contracts with their relevant trade union or workers representatives if they have no trade union. Individual contracts can improve terms of a collective contract but cannot undercut them.
Payroll – Tax Contributions and Benefits
Income Tax:
Chinese nationals or foreign employees based in China must pay Individual Income Tax (IIT). Foreigners or companies living in China for more than 183 days in a calendar year are taxed on their worldwide income. Further complications arise from taxable income being divided into nine categories and different classes of income can attract different percentage rates.
China does not have joint tax returns for married couples, each being taxed individually.
Health and Social Insurance: Social security contributions are mandatory in China and apply to foreign workers as well as Chinese nationals, who pay into five main funds covering medical insurance, pensions, industrial injury, unemployment, and maternity benefits.
Contributions vary between provinces, territories and autonomous regions with employers’ contributions ranging between 27%-29%, and employees around 10%. Additionally, employers and employees (not mandatory for foreigners) contribute to the housing fund. Contributions are capped at monthly salary of CNY 28,017 (€3,780, US$4,377)
Sickness Benefit: Paid sick leave covers illness and non-work-related injuries and is based on employees’ length of service. Benefits range from 60% to 100% of salary with paid sickness leave up to 24 months. For example, for under six months’ sick leave an employee with less than two years’ unbroken service receives 60% of salary.
Benefit climbs to 100% for employees with more than eight years’ continuous service. For sick leave exceeding six months, employees with less than 12 months’ service receive 40% of their salary, between one and three years 50% and between three and six years 60%.
Illness or injury must be certified by a doctor or hospital. Regulations are set by the Social Security Administrative Department of the State Council.
Paid Vacations: Paid holiday leave is mandatory, but entitlement is strictly limited to the total number of years employed, not necessarily with the same employer. Holidays must be taken in the current year and unused vacation cannot be carried forward.
Public Holidays in China: Being paid for public holidays is usually written into the employment contract. Under standard employment arrangements, employees will receive 300 per cent of their normal rate of pay if they work on a statutory holiday.
Employers may find that employees return to their family homes for an extended period around Chinese New Year and may in some cases not return after the holiday.
In China, if a holiday falls mid-week, the weekend is ‘moved’ next to the holiday to give people more time off. This then means that workers work on the original weekend days.
Maternity Benefit: This is managed by the relevant Social Security Bureau for the province or region and is funded by the Maternity Insurance Fund. Benefit is calculated from the employee’s average monthly salary and the salaries of all employees over the previous 12 months.
The high amount is taken, but usually capped at three times the average salary in that Bureau’s region, although this does not apply in Beijing or Shanghai where there is no limit.
If an employer fails to pay insurance to finance the Maternity Fund, they must pay the employee themselves.
Maternity / Paternity / Parental Leave: The State Council governs these nationally, while each regional or territorial People’s Congress may apply different limits to allowances. As there is no mandatory national minimum, the international standard applies of 98 days with 15 days pre-natal and 83 days after the birth. Provinces may allow for more.
Guangdong, for example, allows an extra 80 days; Henan and Hainan allow for a total of 190 days and Heilongjiang and Gansu 180. Extra allowances can apply in the case of difficult births or miscarriages.
Similarly, paternity leave may vary between regions against the mandated national minimum of 14 paid days. There is no national policy on childcare/parental leave.
LOOKING TO EXPAND INTO CHINA?
For more information, download our free guide or get in touch with our consultants here