6 October 2011 | Paul Snell

The cost to foreigners and their employers working in China is set to rise this month as a new law takes effect.

From 15 October, expats working in China will have to start contributing to the nation’s social insurance scheme. Social insurance is the Chinese version of national insurance or social security.

The law was approved by the Chinese government in June, but there was uncertainty whether participation would be mandatory or optional due to the way it was worded and the potential for mistranslation. But measures published last month confirmed taking part would be compulsory (although residents of Hong Kong, Taiwan and Macau working in China are not classed as ‘foreigners’ for this law).

Foreign workers will now have to make contributions to cover pension, medical care, work injury, unemployment and maternity insurance. The rates at which contributions must be made are set locally, so the cost to businesses will depend on where staff are located. Employers need to register foreign staff within 30 days of them receiving a permit.

If the person stops working in China before being eligible to receive their pension, they will be allowed to retain it in case they return, or receive a lump sum.

In addition to the cost burden, the burden of responsibility also falls on the employer. Failure to register an employee can result in a fine of up to three times the amount of the overdue contribution, and the individual responsible could be fined between ¥500 to ¥3,000 (£50 to £300). Missing payments will mean the company is charged 0.05 per cent of the sum owed per day until it is paid.

This will consequently increase the cost for any firm who plans to send buyers to China to be closer to their suppliers. Vendors, too, will face higher costs, and combined with the strong wage inflation in the country, these could be passed on to purchasers in the form of increased prices.
The Australian Chamber of Commerce has published a guide to the changes for companies.