To succeed in business in China, it is vital for both employers and employees to have a strong understanding of the business culture.
As a global PEO (Professional Employment Organization) it is our goal to be familiar and updated with the business culture in the country we work with and in. By sharing our knowledge about Chinese work culture, we want to support your global expansion plans. Therefore, we will address all the aspects of the work culture in China to start your expansion well-informed.
Work Culture in China
China’s economy is the second largest in the world and, according to the International Monetary Fund (IMF), it is continuing to develop. The population of one-and-a-half billion has a growing consumer base which attracts multi-nationals and an increasing level of expansion from international companies establishing a foothold.
The IMF predicted a nominal Gross Domestic Product of 15.6 trillion US dollars for China by the end of 2021 compared with US$20.5 for the United States of America, but the World Bank predicts a faster growth rate for China over the US.
China’s exports reached a record high in 2021, driving a US$535 billion surplus and building on US$2.5 trillion of exports in 2020 which made it the world’s largest exporting nation outside the European Union bloc. Raw minerals processing including metals, fuel, coal, fertilizers are at the heart of China’s industrial base along with manufacturing machinery, textiles, and armaments.
The potential is huge. But so are the challenges of operating in this huge market – and not simply those surrounding compliance with employment, payroll and tax regulations imposed by the state, provinces, and territories.
Chinese work culture demands major adjustments for most incoming foreign companies. Operating successfully will depend on making those adjustments. Chinese people take a philosophy of focused, hard-working diligence all the way from the schoolroom to the workplace. Respect for their family members is very much the philosophy that is applied to their working lives.
It is time to ‘get down to business’ so here are a few tips on taking the right steps; and avoiding the pitfalls!
- Language: China’s business language is Mandarin; taking an interpreter to a business meeting is advised
- Contact: If exchanging emails, keep language simple and direct. Clever or funny remarks may be ‘lost in translation’
- Business Meetings: ‘Respect’ is the key world for business dealings, both in personal interaction and operating within strict company hierarchies. The most important person will enter the meeting room first and introductions will continue in that order. Avoid embarrassing exchanges at all costs
- Negotiations: Building trust is another vital element in developing the business relationship as part of the negotiating process
- Punctuality: It is always best to be on time!
- Greetings: These usually begin with formal introductions to the most senior members of the company, but small talk about family is also an important element in building the relationship. Foreigners should be ready to respond to the question: What do you think of China?’ This is all part of ‘guanxi’ … building connections and networking to build a platform of trusted contacts
- Business Cards: Present them as if offering a gift, with both hands. A Chinese translation on one side will be appreciated. Exchanging cards is an important part of the process
- Dress Code: Play safe and dress formally for initial meetings. Big corporations and state organizations may stay formal whereas, in common with many western countries, hi-tech operations are often informal
- Sealing the Deal: It is vital to have worked out who are the decision makers from your business meetings
- Entertaining: It is usual to conduct business in a restaurant over lunch or dinner. Entertaining plays a central role in conducting business in China and is part of creating a harmonious relationship
- Gift-giving: Something small and thoughtful will be a talking point and a good way of breaking the ice
China Minimum Wage
There is no over-riding national minimum. However, individual provinces, territories and municipal authorities are expected to revise their own rates every few years and record them with the State Council, reflecting local conditions.
In August 2021 Beijing, for example, increased the monthly minimum from CNY 2,200 to CNY 2,320 (€313, US$362). Shanghai already had the highest monthly minimum of CNY 2,590 (€350, US$404).
Thirteen provinces also increased minimum wages – Heilongjiang, Hubei, Jiangsu, Jiangxi, Ningxia, Shanxi, Shaanxi, Tibet, Xinjiang, Zhejiang, Shandong, Jilin, Hainan, with the prospect that more would follow this trend.
Provinces and territories regularly adjust minimum levels to reflect changes in the cost of living and other economic factors.
Probation Period in China
Probation or trial periods are generally included in an employee’s work contract, for instance:
- 3 months – 1 year: 1 month or less
- 1 – 3 years: 2 months or less
- No fixed term contract: 6 months or less
There is no probation for contracts less than three months or for part-time workers, or for a fixed-term contract. Only one probation period is allowed per employee. Chinese Labor Law states that employees cannot be summarily dismissed without good reason during their trial period. During the trial period, the employees’ wages shall be at least 80% of the contracted salary or 80% of the company’s set wage for the job and no less than the minimum wage set by the local authority.
Working Hours in China
Under the Labor Law and Employee Working Time Regulation, the standard working week comprises 40 hours a week and eight daily, typically from Monday to Friday. The working day is usually between 8am and 6pm with up to two hours break for lunch. This is generally termed the standard working hour system.
The comprehensive calculated hours’ system works on an average weekly rate over a period of time (quarterly, monthly) but this must still not exceed the 40 hours. Flexitime applies to certain job positions such as sales personnel, managers, or executives, in order to complete an assignment.
Agreement must be obtained from the relevant employment authority to operate flexible working hours.
As with most aspects of Chinese employment, there are regional variations. There is no statutory legislation covering rest breaks during the working day or minimum free hours between working days although employees are entitled to at least one free day.
Overtime in China
Hours worked over the ‘standard working hour system’ of eight hours per day and 40 hours per week are classified as overtime and employees receive 150% of their normal pay. Saturday or Sunday work is paid at twice the normal salary, while work on public holidays earns three times the usual pay.
Maximum overtime is three hours per day and 36 hours a month. The Comprehensive Hours Working Hour System allows employers to contract workers to 10 hours day, after which limit overtime begins, but each case needs official approval from employment authorities.
The Flexible Working Hours System precludes high-earning managerial and executive staff from overtime, but this needs approval from the Labor Council.
Notice Periods in China
Terminating employment is covered by China’s Labor Law and Contract Law and should be written into the employment contract. If there is a mutual agreement regarding termination between employee and employer, then notice and payment are not required.
However, if there is no consensus and under certain circumstances, the employer can give 30 days’ written notice (or one month’s salary) prior to termination. Notice is not required in cases of misconduct, but union consultation may be involved, and company policy should be prominently displayed or dismissal for misconduct may be problematic.
During the probationary / trial period three days’ notice is required.
Redundancy, Termination / Severance in China
Termination laws cover all employees. The statutory permitted reasons are by mutual agreement, by either the employer or employee or automatically at the end of a fixed-term contract. Employers can summarily dismiss an employee for misconduct as defined by law or may be allowed to terminate with 30 days’ notice or payment in lieu.
However, if the employer has not displayed a disciplinary policy, it can be problematic to dismiss for misconduct. Trade unions must be informed of unilateral dismissals. Termination is prohibited or restricted in the case of:
- Work-related illness or injury
- Cumulative sick leave depending on seniority
- Employees who have worked for the same employer for more than 15 years and are within five years of statutory retirement age
Strict laws on trade union consultation apply to simultaneous redundancies applying to 20 or more individuals or 10% of the workforce.
Under the Labor Contract Law, severance is based on one month’s average salary for each year of service, with more than six months service in any year counted as a full year and less than six months as a half-year. Severance is capped at three times the average for the relevant province or city if the individual’s salary exceeds that average.
Severance is limited to 12 months’ salary regardless of how many years’ employment. Payments are taxed as income.
Pension Plans in China
The public or state pension scheme is funded from social security contributions, by the individual and the company and is mandatory for all employees including foreigners. Generally, employees must contribute for a minimum of 15 years before they reach retirement age. Different industries retire their employees at different ages. Blue collar workers tend to retire at 55 for men and 50 for women whereas white collar employees work until they are 60 and 55 respectively.
Employers contribute around 16% and employees 8% to the State or ‘first pillar’ of the pension system. Occupational pensions or ‘second pillar’ schemes exist on a small scale which is indexed by provincial wage rates rather than at state level. However, the ‘third pillar’ or private pension system is growing rapidly in the face of an ageing population.
Public Holidays in China
Public holiday pay is usually written into the employment contract and employees working on these days receive 300% of their normal daily salary. The Chinese National Holidays usually last for longer than one day. However, the holiday schedule is decided at the beginning of the year by the State Council and can include weekends.
- New Year’s Day January 1 (up to three days)
- Chinese New Year January 31 – Feb 6 (Spring Festival)
- Qingming Festival April 3 -5 (Tomb Sweeping Day)
- Labor Day Holiday April 30 – May 4
- Dragon Boat Festival June 3 – 5*
- Mid-Autumn Festival Sept 10 – 12* (Mooncake Festival)
- National Day Oct 1 - 7*
(* likely dates)
There are other regional minority holidays.
Sick Leave in China
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.
Vacations / Holidays in China
Paid holiday leave is mandatory and is calculated on the total number of years the employee has worked, which can include different employers. Annual leave must be taken in the current year and unused vacation cannot be carried forward. An employee's paid leave is progressive, depending on the length of their service:
- 0-2 years: 0 day
- 2-10 years: 5 days
- 10-20 years: 10 days
- Over 20 years: 15 days
However, if the employer has not arranged for employees to take leave, an ‘encashment’ should be paid. This will be for an extra 200% of their normal salary for the accrued annual leave not taken. Chinese National public paid holidays are generous and are usually stipulated at the beginning of each year but may also be written into the employment contract and can also vary according to each region.
Maternity / Paternity Benefit in China
Maternity / Paternity / Parental Leave: The State Council governs these nationally, while each regional or territorial People’s Congress may apply different limits. As there is no mandatory national minimum, the International Labor Organization 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 a total of 190 days and Heilongjiang and Gansu 180. Extra allowances can apply in the case of difficult births or miscarriages; also, for extra leave such as lactation or pre-delivery leave and for breast feeding and pre-natal check-ups.
Similarly, paternity leave may vary between regions against the mandated national minimum of 14 days. There is no national policy on childcare / parental leave although some regions have implemented parental leave and increased ‘nursing leave in 2021.
The Maternity Benefit is managed by the relevant Social Security Bureau 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 jurisdiction, although there is no limit in Beijing or Shanghai. If an employer fails to pay insurance to finance the Maternity Fund, they must pay the employee themselves.
Bonuses in China
Bonuses are not mandatory but are important and almost a way of life. Paying a 13th month bonus or more is usual for most companies and are not dependent on either personal achievement or company productivity levels.
Some sectors award pay-outs for length of service or profit sharing and these can vary widely. Typically, technology, IT, and manufacturing award large bonuses whereas teaching, which is not product oriented, are likely to award small remunerations.
For the first year of employment, a bonus is typically paid pro rata. It is also not unusual to receive bonuses in instalments during the year, for instance before Chinese New Year and the Labor Day holiday.
Most importantly, if a bonus system has been negotiated, it should be confirmed, and terms written into the employment contract.
Do not suffer Culture Shock, Call us!
The complexities of Chinese tax, payroll and employment laws are part of a business system that poses questions for your international expansion. Bradford Jacobs removes the mysteries of all these issues – freeing your staff to concentrate on growing your business.
Our Professional Employer Organization (PEO) and Employer of Record (EOR) specialists solve all potential problems. Plus, our on-call HR advisers help with adjusting to the workplace environment and understanding a new culture.
Contact us today for more information on how we can help your business thrive in China!