Saturday, 7 January 2012

Shanghai flies the flag for expats in pension scheme row

Fearing loss of foreign investment, the municipal government stalls over implementing unpopular rule

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Guanyu 道 said...

Shanghai flies the flag for expats in pension scheme row

Fearing loss of foreign investment, the municipal government stalls over implementing unpopular rule

Daniel Ren
07 January 2012

Shanghai is delaying the implementation of an unpopular order from the central government that requires expatriate workers to join the local pension system.

The Ministry of Human Resources and Social Security’s announcement in October that all expat workers would have to contribute to mainland pension schemes sparked strong opposition from expat employees and foreign-funded businesses.

Foreign workers, who are mostly on the mainland for just a few years and unlikely to collect mainland pensions, are supposed to pay 1,300 yuan (HK$1,600) into a social security fund each month, with their employers contributing more than 4,000 yuan a month.

Business executives are disappointed but say they have no choice but to comply.

However, Shanghai’s municipal government, keen to avoid worsening the pressures faced by foreign businesses amid a global slowdown, is emerging as their saviour, at least temporarily.

Local authorities in Beijing published detailed guidelines soon after the policy was unveiled by the ministry, setting out how the money should be paid into pension fund accounts, but Shanghai’s labour 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.

Bureaucratic inertia is not to blame. Three company executives close to the local regulators say that Shanghai deliberately slowed down the compilation of the guidelines in response to the anger of foreign businesses.

A member of the European Union Chamber of Commerce says Shanghai party boss Yu Zhengsheng and city mayor Han Zheng have privately expressed concerns about the policy, which could put a large dent in foreign investors’ interest in the mainland’s commercial capital when they are already complaining about the high cost of doing business.

Foreign direct investment has played a key role in driving Shanghai’s economic growth over the past two decades. Overseas-funded firms contribute a quarter of the city’s gross domestic product.

However, Yu and Han have no power to overrule the ministry of human resources.

Xu Yanjun, deputy head of the ministry’s National Social Security Management Centre, said in early October that foreigners working on the mainland would need to register with the authorities and, regardless of when they completed that process, start making contributions by October 15. Those registering late would have to make back payments.

Shanghai responded with a wait-and-see approach. It’s not known whether Shanghai officials have lobbied the central government to scrap the rule.

There are more than 600,000 expats working on the mainland and forcing them to participate would pump an extra 3 billion yuan into pension fund accounts. There are about 65,000 foreigners working in Shanghai, employed by everything from global industrial giants to small restaurants.

Shanghai’s labour authorities have cited technical difficulties for setting up a payment collection system, but officials say it is just an excuse for their failure to implement the rule.

As a Chinese proverb says: “Where there is a measure from the top, there is a countermeasure at the bottom.”

The saying is usually used to describe sloppy and irresponsible officials who attempt to take advantage of a lack of supervision by higher-ranked bureaucrats in order to dodge burdensome tasks.

But Shanghai’s countermeasure appears to be in the interests of thousands of foreign businesses and their expat employees, allaying their concerns about a worsening investment climate in the world’s fastest-growing major economy.

“Long-delayed” is a negative term that appears perennially in news stories about reforms announced by Beijing that never come to pass.

Shanghai now has a chance to give it a more positive spin.