Foreign business in China, in 7 questions
Those who have ever been foreigners in China know how easy it is to trample onto the country’s countless taboos, and how awkward the consequences can be. But recently, China-based expats themselves have become a taboo topic. How many foreigners are there? Are they ‘guests’ or contributors to the country’s global success story? Is relocation to China a privilege or challenge? Do foreigners have any right to complain? Are they arriving or leaving? If you need a great conversation-stopper while in China, these questions will work like magic. Therefore, when global mobility firm Maxxelli asked me to speak about China-based expats at their Shanghai event earlier this month, I decided to present data rather than opinions in response to a few key questions about China-based expats.
Business in China: EASY or HARD?
In 2018, China’s government dedicated a bureau to understanding how the World Bank creates its annual Ease of Doing Business Index and adjusting the country’s published economic indicators accordingly. For years, China had been around an unimpressive number 78 out of the world’s nearly 200 countries, but the bureau was right on the money. China soon leapt over 30 places to position 46, at a time when the main economic factors included in the Index did not undergo equally dramatic reform. For instance, foreign firms still need months to incorporate businesses in China, and continue to be excluded from a long list of strategic industries such as energy, telecommunications and defence. It is arguable that these efforts elevated China (nominally or actually) into a league of moderately difficult countries to do business, alongside the former Yugoslavia and Belgium. Its former position number 78 is currently held my Oman. Bottom line: Hard.
Expats in China: MANY or FEW?
The number of foreigners is an essential indicator of a country’s openness to the world economy, usually measured by the percentage of immigrant population. Middle Eastern monarchies at the top of that list are unlikely role models due to their minuscule native population. Most economically developed countries that welcome and benefit from globalisation range between 10 and 15 percent in the share of immigrant population, while everything below one percent is considered very low. In this respect, China is at the very bottom. The number of foreigners is not officially published, and estimates range between 600,000 (based on the latest reliable census in 2010) and 900,000 (estimated from a general growth rate since the 2010 census). But even a generous guess of a million foreigners would constitute 0.07 percent of China’s population, one of the lowest in the world. In absolute numbers, South Korea exceeds China with its million-plus foreigners. In relative numbers, even North Korea ranks ahead of China’s share of immigrant population. Bottom line: Few.
Expat numbers in China: UP or DOWN?
China’s expat circles abound with rumours of multinational firms divesting, expats leaving and international restaurants closing. But hearsay is of little value without data, and reliable data is scarce in China. The first quantified research I saw was the China Benelux Chamber’s 2019 Sino Benelux Business Survey, which reported a 6 percent year-on-year decrease of expat employees among its members since 2017. The McKinsey Institute’s research on China’s tumbling global exposure supports that conclusion with some big-picture context. Further data will soon be available as the China branches of multinational firms finalise their annual reports. Expect news of significant reductions in expat workforce for a number of reasons: a slowing local economy, newly emerging expat destinations, automation, emerging indigenous competitors and government programmes that tip the scale against foreign firms. Recall ‘Made in China 2025’, which Beijing abandoned only after significant damage to friendly relations with Germany and other developed nations. Bottom line: Down.
Destination China: HOT or NOT?
Each year, China-founded British bank HSBC publishes a list of the world’s 33 most desired expat destinations in its Expat Explorer Survey. Its closely watched top-five apex habitually includes both Asian and Western destinations. Oriental darlings include Singapore and Hong Kong, the Western champions usually feature Nordic and Mediterranean wonderlands, while New Zealand, a usual favourite, arguably attracts fans of both realms. Holding place number 26 in this 33-state champion league speaks for China’s attractiveness as an expat destination, especially bearing in mind its 46th place in the World Bank Ease of Doing Business Index. The HSBC ranking also includes factors that weaken China’s position, such as political openness, environmental safety, work-life balance and the ease of settling in entire families. Nevertheless, career prospects in the world’s largest country seem to make the hardship worthwhile for foreign business leaders. China, in other words, is a challenge that talented global businesspeople willingly take. Bottom line: Hot.
How CHINA ATTRACTS expats
My advice to hopeful expats: Don’t move to China for work-life balance. The top-tier cities where most expats live never sleep, and neither will you. Instead, China attracts foreigners with the promise of an upward career leap, and stays true to its word. Due to the virtual lack of a local middle-class with established skills, most expat managers receive a China posting with a significant scale-up of professional responsibilities, the number of people supervised, project size and strategic insight. Also, they can save more money than in most destinations: in this year’s HSBC Expat Explorer Survey, only Switzerland and the United Arab Emirates offer a higher rate of disposable income to expats than China. Finally, surveys show that executives draw satisfaction from the challenge itself. My interviews for an upcoming book on China-based multinational executives support this point: several interviewees quote Sinatra that “If you can make it there, you can make it anywhere”. Bottom line: Career prospects.
How CHINA REPELS expats
Like in any hurdle race, the obstacles and risks are tangible. Human resource managers, executive search firms and chambers of commerce report consistent and recently increasing tendencies of high-potential expats refusing China postings. Reasons are varied and only some of them stem from China itself. Starting with those that do, air quality concerns top lists of problems like the one published each year by the European Union Chamber of Commerce in China. Pollution is one thing everyone knows about China whether or not they plan to relocate there, but there are several others. Visa procedures are obscure and capricious. Although locals swear that China doesn’t need access to global apps any more (they have WeChat), foreigners resent the absence of most international social media and news sites, and the slow internet speed that state monitoring requires. International schools, only partially covered by many recent expat contracts, are pricy, and the quality of local education is no option for expat families even if their China-born kids speak Mandarin. Bottom line: Quality of life.
Outlook for multinationals: GOOD or BAD?
Predictions about China’s international prospects range from jubilant to apocalyptic. Both sides have a point: in recent decades, China’s global engagement leapt from virtual zero to decent, then started to decline, according to recent studies by McKinsey. China has surpassed its post-mayhem reconstruction phase and now joins worldwide trends including the inward turn endearingly labelled ‘slowbalisation’ by economists. But there are two vital factors defining foreign business in China despite ‘slowbalisation’ and Beijing’s protectionist policies. First, how essential multinational companies have become for the daily lives of Chinese people, especially in deeply personal aspects of consumption like food, clothes and skincare. Second, that global firms specialise in spotting market gaps and filling them fast. Problems that repel expats from China also present multibillion-dollar business opportunities, reminds Shaun Rein in a book on the topic. Pollution boosts sales of purification equipment, medicine and food. A struggling education system powers the multimillion migration of Mainland students. Chinese people are willing to pay foreign firms a surcharge for locally unavailable information. Bottom line: Good.
That doesn’t mean that Deng Xiao Ping-style ‘reform and opening’ will continue or return (depending on your present assessment). ‘Slowbalisation’ continues regardless of China’s reforms or protectionism. That calls for a new kind of multinational expat: neither the technical middle-manager of yesteryears, nor the bright-eyed Mandarin speaking innovators targeted by Beijing’s new visa policies. The necessary profile must include strengths from both profiles while avoiding their drawbacks. Typical ‘old China hands’ brought lots of experience but only stayed for a couple of years. They rubbed shoulders with mechanics and millionaires from Hong Kong to Heilongjiang, but spoke no Chinese. New arrivals often speak Mandarin, but mostly with the privileged urban elite of top-tier cities where they reside and work. They also bring fewer years of experience. Leading multinationals in China already commission people with the right competencies. People with either existing language skills or the talent to learn Chinese fast. People who can network far and wide across social divisions. People with enough business experience to maintain the critical attitude necessary for tough decisions. Helping firms find and develop such expat leaders is what fills most of my working hours.
This article is based on the speech 'Expat Executive Experiences in China', which I delivered at the Maxxelli Mobility Connect Forum in Shanghai in September 2020:
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