Shanghai delays implementation of the unpopular expats social security scheme

As a follow-up on my posting two weeks ago regarding the new law that requires foreigners to pay social security tax in China, local authorities in Beijing has published detailed implementation guidelines and set out how the money should be paid into pension fund. However Shanghai’s labor authorities have yet to draw up a similar document. It means that Shanghai based companies and their foreign employees do not have to start contributing, just yet.

There are more than 600,000 expats working in mainland China, employed by everything from global industrial giants to small restaurants, forcing them to participate the social security system would pump about RMB 3 billion (about $48 million) into the pension fund accounts.  Most of these expats are in mainland China for just a few years and unlikely to collect Chinese pension.  

I am somewhat surprised that Shanghai is delaying the order from central government.  But I am happy to see that Shanghai is pro-business and is acting in the interest of foreign businesses and their expat employees and allaying their concerns about a worsening investment climate in the world’s fastest-growing economy.  The city’s municipal government is keen to avoid worsening the pressures faced by foreign businesses amid the global economic downturn.

We shall wait and see what would happen in other major cities, and how long Shanghai would be able to delay the implementation.

Foreigners Can "Enjoy" Social Security Benefits in China, but Higher Cost to Send Expats to China

The Standing Committee of the National People's Congress passed China's Social Security Law which has taken effect on July 1 2011. It is the first comprehensive law that focuses on the PRC social security matters. The law not only provides new administrative measures to improve China's social security system but also provides guidance on foreign nationals' participation in China's social security system. Under the new law, foreign employees and their employers need to pay social security, foreign nationals will receive medical, retirement, unemployment and maternity benefits similar to those for Chinese citizens.  

This new law has caused a stir among foreigners working in China. Despite of the concerns and disagreement from foreigners and their employers, the Chinese government has moved quickly to implement the new law.

There are many unanswered questions.  For instances, a foreigner who loses the job in China instantly loses the right to live in the country, how would that person benefit from the unemployment insurance he or she has been paying for?  For those self-employed foreign individuals in China without formal employment relationships with Chinese legal entities, would the law apply to these foreign nationals?  For foreign individuals with employment in their home country but assigned to work in China (e.g. a US expat working in China), it may create duplication in social security contributions since those employees normally would need to make social security contributions in their home countries. Would there be a special waiver for situations like this?  Most foreigners work in China for less than five years, will the employer's and employee's contributions be refundable when the foreign national departs China?

From now on, multinational companies doing business China as well as Chinese companies directly hire foreign nationals should factor the additional cost into the total employment cost when they are to hire any foreign individuals.