Just received an email from a friend stating/asking the following (note that I have changed some elements of the email to strip it of any even potentially identifying information):

I am heading off again to work for a few years at our China Rep Office.  My new employment contract with the head office says that [foreign country] law will apply.  Will it?  And what if there is a conflict between [the foreign country] law and China’s laws, which will control?

We get this question far too frequently and we have seen way too many employment contracts written as though U.S. law (it was actually not a U.S. company in the above instance) applies all around the world. The reality is that if you are working for a Chinese company in China (be it a Rep Office, a WFOE, a JV, or whatever), Chinese law is going to apply to your employment relationship.  I know of no country that would allow otherwise.  I mean, imagine if a United States subsidiary of a Pakistani company were to claim in a U.S. court that it should not be required to pay overtime because their contract with the employee calls for Pakistani law and Pakistani law does not provide for that, or that it can discriminate against women because there is no such law prohibiting that in Pakistan?  Even if the employee at issue were a Pakistani citizen, there is absolutely no way in the world a U.S. court would go along with any of those arguments.  In fact, the argument is so bizarre I am not even aware of anyone ever having made it.

Any employer-employee relationship between a Chinese company and an employee working in China is going to be governed by China law, no matter what the contract says.  So in China there would be no conflict of laws because Chinese law would simply apply. This is why we also advocate for drafting China employment contracts and employee manuals with Chinese as the official language.  Chinese courts and Chinese administrative bodies are the only rightful jurisdiction for China labor law disputes stemming from employment in China (yes, this is true for expats too) and so it only makes sense to have these documents in the language they are sure to understand.

Here is a more interesting/complicated related question: what would happen if a U.S. company had a contract with a U.S. citizen and that contract provided that the U.S. citizen would go work at the U.S. company’s WFOE for a few years and that contract called for application of U.S. law.  Now as I have said above, no Chinese court would apply anything but Chinese law to this relationship, but what would happen if the U.S. citizen were to flip around and sue the U.S. company in a U.S. court for failing to abide by some particular U.S. law?  I do not know the answer to this question (any U.S. employment lawyers out there), but I can tell you that if it were to benefit my client, I would argue that Chinese law applies and I think I would prevail on that.  But, I can also tell you that if it were to benefit my client, I would argue that U.S. law applies.

Anyone know how a U.S. court would rule?

I will be participating in a Huffington Post Live show on China TODAY.  The show starts at 1 pm EST/10 am PST and it is going to be on the following:

  • Why do American businesspeople “love” Chinese officials. Is this because the key to financial success is finding that government in?
  • Why do expat leaders leave China?
  • How will China’s slowdown impact American businesses?
  • What about China as a currency manipulator?
  • What about the tense relationship between the United States and China?

I make no promises regarding brilliance or erudition, but I assure you that I will be contrarian enough to generate at least some controversy.  So please be sure to listen, either live or at some later time.

And, of course, don’t hesitate to let us know what you think/thought.

Just read a great post on China HR by my friend Ben Shobert.  The post is wrongly titled, “The Unique Human Resource Challenges in China’s Healthcare Market.”   The post is wrongly titled because the challenges are universal to those doing business in China and are in no way confined to just the healthcare sector.  Beyond that though, Shobert nails it.

Shobert starts his post by talking about how difficult it is to find good people for China’s healthcare industry, to which I say “join the club.”  He then goes on to set out the six lessons he has gleaned from extensive interviews with healthcare executives on the ground in China on managing China HR.  What Shobert calls “six lessons for senior care operators, developers and investors as they build their Chinese businesses” but what I call the basics of China HR.

Either way, here goes:

1. Limit the Role of the Expat. Shobert notes that the facilities that have struggled in China have had expats “front and center.”  He goes on to say that he has yet “to speak with a player in the senior care field who does not wish they could find a local Chinese senior executive or facility manager who ‘knew the business.”  He then notes that the next hope is “to find a good expat who knows China and can navigate the cultural challenges of building an organization up from scratch.”  But the lesson is that the sooner you can transition to domestic talent, the better as having expats leading your China business in perpetuity “sends a message to your staff about their upward career mobility.”  Shobert then rightly calls for the following expat-local hiring balance:

The top levels of your Chinese organization are symbolically powerful, and it is in your interests to have a strategy intentionally designed to move western expats out of the top back home once your operations have stabilized. Susie Bates, a UK HR practitioner who has been operating in China for the past 30 years, has worked with the United Healthcare group and has seen first-hand the HR challenges specific to healthcare businesses in China.  On the point of limiting the role of expats, she offered this thought, “My recommendation for companies entering this newly blooming sector is that each key role is assessed against an ‘import’ scenario, and where the skillset is undeniably unavailable in China, overseas hires need to be made with the proviso that anything up to 50% of the role be set against identifying, training and developing the next generation in that role.”  In other words, if expat help is necessary, make sure everyone knows it is short-term, and that an explicit deliverable of the assignment is to find a local replacement.

Good advice for any industry.

2.  Where to Find the Talent

Shobert’s advice here is to “recruit from several different schools, not all of which are where the best students go.  Find out which ones are most adaptable to your model and culture.”  Not being an HR person myself, I’m just not sure this differs much from just trying to get the best people you can while making sure they will be a good fit for your particular company.

3.  A Balanced Compensation System

Pay well, but try not to pay the most in your industry.  Incentivize your employees. Offer perks and do not underestimate the importance of the annual staff party.

Okay, but as an employer, here is my serious question.  Do employees in China (or anyone else) really want things like staff parties and company lunches or health club memberships or would they not just prefer the money? Which is going to provide more ROI for a company?  Or is it not really an either/or situation?

4.  A Clear Ladder to Climb

Not surprisingly, “everyone” with whom Shobert spoke “consistently emphasized” the benefit of companies in China providing their employees with “a clear ladder to climb.” One interviewee stated you need to “make certain employees understand their upward career path, and always dangle the next carrot in front of them.”  Shobert than notes something that I too have noted:

This lesson may seem so obvious that it does not need to be offered, but in my experience, this has been one of the more common frustrations Chinese employees offer as the cause for their exit.  I attribute this mistake to the tendency by western companies to assume that the large numbers of potential workers in China insulates them from having to put in place best practices like having a clear career ladder for their domestic employees.  While having a big population to draw from is accurate, the pool gets much smaller when you talk about qualified staff.  The more you want and need to hold onto existing talent in China, the more important having a clear career path available to them, against which they are being measured and managed for becomes.

5.  The Training Quid pro Quo

Shobert’s fifth lesson, is what he calls the “Training Quid pro Quo”  and that is that training and development need to be provided to employees in a way that if the employee leaves the company early, the company gets back at least some of its costs:  “A standard model is a ratio-tied pay-back if the employee leaves early – e.g. within 3 months of completion 90% paid back; 6 months 75%; etc. etc.”  This is actually legal in China and is one of the few (actually the only one that pops into my head right now) instances where a company can seek money back from a departing employee.

6.  Build the Facility as Much for Staff as Customers

Think about your own people in building your facility:

[T]hink about the location of your facility in terms of where your staff is going to be living.  If your facility is hard to get to, that is going to present a major retention problem as the industry evolves.  In a country like China where a hotven find a way to offer company training via podcasts with incentives for staff to listen and complete quizzes, adding further value to these incentives.

Being the lawyer that I am, I would add one more thing. Be sure that all of your employees (including your expats) have written and signed employment contracts, in Chinese, and be sure that you have a comprehensive employee manual, in Chinese, explaining company policy and each and every grounds for firing.

What do you think?

Did a post the other day, entitled, Will The Last Expat In China Please Turn Off The Lights?  It was on how it seems so many well-known/well-respected expats are leaving China and writing about it.  Got a lot of really good comments to that post, but the most recent one really stood it.  It is from “Harold Janson” and while I find it far too harsh and even inaccurate in many respects, I do think it raises some interesting and controversial issues. Most importantly, I think it is well worth a read and so I am running it below.

I’ve been here for a solid 12 years.  Married, own an apartment have a nice sporty car and am starting a family.  I missed out on the 80s and the fun of FEC, but oh the memories China and I share.  Yes, prices have risen, property has gotten expensive and the little annoyances have never improved.  There is a series of letters by an American in Shanghai that was written a good 100 years ago. It should be required reading for every single expat in China as a primer.  Simple fact is that some things never change, no matter how much you want them to, no matter how much you push and scream for them to change, they just simply will not.  Or they change, but not for the better as far as you are concerned.  And this is China.  Accept it, adapt to it or give up and run away.

Do I expect the best schools in the world for my future crotch goblins? No, of course not.  They will be getting a Hukou and slapped into the private schools nearby which are reasonably priced and this will be supplemented by being good parents who give a damn.  The resources are just there for the picking to be honest and they are not expensive.  Want to teach your kid all about electronics? Taobao and the local shops have EVERYTHING you could possibly need.  Art classes in school not up to your expectations? Make connections with a professional artist who can use an eager assistant and some cash… loads of starving artists who would jump at it.  I have done work with the international schools and they are honestly a joke, loads of cash, loads of resources, but they are daycare facilities for lazy expats and the kids don’t come out all that great in the end.  Quite a few just go with homeschooling if the kid has a foreign passport.  When it comes down to it, if you are so busy that you have no time for your own kid and don’t earn enough to pay for an international daycare school, then yep, your time here is at an end.

Now, my job is flexible as all hell, I can technically live whereever the hell I want to without any real impact.  I can work from my apartment in Beijing as easily as I can work from our house in Shaanxi as easily as I can work from a beach in Thailand.  I choose to live here and continue to choose to live here, not in spite of the random crap that has to be dealt with, but because of all the great stuff living here provides.

So, some whine about the pollution.  I dont care to be honest, it’s better than it was when I first came.  So much better.  Gone is the black smog-line on white tiled buildings.  Gone is the “death zone” between floors 11-15.

Whine about the water.  It starts out fine, the problem is what happens to it once it reaches your faucet.  Surely you can afford 20 kuai for a bottle of nongfu? Or a few hundred for a decent filter system.  It’s also not some magical new thing and people have been boiling and drinking it forever without dying from it.

Whine about the food scandals.  If anything, it’s a GREAT thing that they are being exposed, do you honestly believe for even an instant that this has not been going on forever? Exposure and press means it’s being cracked down on at least to some degree rather than ignored entirely.  What’s that you say? Buying food out of the back of that van parked by the river to save 3 mao isn’t a great idea?  Gasp!

Whine about the prices going up.  So on one hand you want to see infinite growth, and on the other you want to see prices stay the same cheap forever, well, that doesn’t happen.  I’m sorry, but those days of eating out for 20 kuai are gone.  Just like those days of fen being useful are gone forever.

Whine about the traffic.  Blame here is half-half.  Half on the foreign companies marketing cars as the new “must have” and half on Chinese for being first generation drivers.  As a driver in Beijing, I can flat out state for a fact that the majority of traffic jams are caused by utter stupidity, not lack of infrastructure.  In my family, I am 5th generation driver who was taught by a 4th generation driver.  This is a country that until literally 8 years ago had no laws that said you had to pay attention to stop lights and that turning on lights at night going through villages was illegal. The vast majority of drivers here have only picked it up over the last 15 or so years, so yes, it’s chaos, this will not change overnight.  Laws need to be refined, attitudes need to adapt.

Whine about the economy.  A “hard landing” is 7% growth.  Think about that for a moment before you keep reading.  All that “wasteful spending” in the end has resulted in some magnificent achievements that will stand regardless of what happens.  Yell about ghost malls which popped up once developers were banned from squatting.  They later refined the squatting practice and turned it into golf courses and “parks” which counted as “green space” for the neighboring communities and made local government look good on paper.  Malls are cheap use of large amounts of land for later, actual development.  Ghost cities.  They are not unsold, the problem is that the buyers were all investors with hot money to dump into something and by doing so inflated the prices to a point where locals had no real shot at it.  No longer possible now due to housing purchase restrictions, which is why all that capital is flying overseas to snap up property that can generate rent and produce some possible capital gains.  Rich people losing money isn’t something the government (or society) really cares about.

More on the economy.  China is stockpiling resources and acquiring hard assets.  After every bust there is a boom again and those who prepare for it best end up on top when it happens.  Economies pouring trillions into sustaining a failing status quo . . . . well, that’s not such a hot thing to think about.  Over here we have a lot of people in charge who really want to stay in charge and as such they will do pretty much anything they can to ensure they stay in charge.  China still has many many more tools in the box and bullets in the gun left.  Elsewhere? Not so much.  Please pay careful note to the way China is developing markets in South America and Africa, they are not simply “exploiting resources”, they are building future markets and bringing stability to places that HAVE been exploited and marginalized since forever.

Naked Officials.  This is actually a great thing in so many ways.  It pretty much ensures the end of the line for generational dynasties as far as government goes.  Sure, they’ll come back and be handed the keys to industry, but at least they will have actual skills to apply.  The next generation will see the spark of the next great boom.  And for the useless ones, well, they get to go be playboys overseas driving around in super cars and pissing away daddy’s ill-gotten money, at least we won’t have to deal with them over here anymore… good luck rest of the world!

The “me” culture and money money money.  What the hell did you expect to happen? The west wanted a market to dump their shit on and wanted a market that could afford it.  That was the entire basis of “opening China”.  You get a whole lotta “new money” that acts like “new money”, shock, surprise.  This spending is also the only thing that is keeping a large number of foreign blue chips in business anymore, as if they had to rely on revenue from their traditional markets, they’d have died out long ago.  The old petty corruption didn’t vanish when the figures grew larger, it just grew right along with them. Money buys power, power begets money.  The only difference here is that it’s more out in the open and obvious, while in the US, it’s all codified and legitimized in various ways.

Oh no, still no democracy.  1.? billion people, foreign interests running rampant, big money at play and wildly hot tempers when something doesn’t turn out as expected.  Sorry, but I prefer long-term planning and stability to everyone gets to choose the prettiest liar whose only thought is “how will I get elected again”.  Let those in the upper echelons fight it out amongst themselves in private, it really does not matter and there is infinitely better vetting and merit-based review than any voting will ever provide for.  Polarizing China is not a smart idea.

Speaking of politics… politics.  China’s growing a pair (finally), or at least realizing they can throw their weight around some.  It’s the Great Game all over again in many regards.  Soft power investments are paying off and attempts to harm the Chinese economy are not a smart idea… as it’s quite literally the only thing keeping many other nations and MNCs afloat right now.  If you track the oh-so-familiar buzz words in international media, you can pretty much pick apart who is on what side at least marginally.  It’s pretty entertaining to watch unfold and there are big things coming relatively soon.  One side making power plays, while the other side whines and moans about losing the game they designed to only allow for themselves to win.

Inflation… aka, the “bbbbut I’m not rich anymore” syndrome.  Sure, you came a long time ago, back when your precious forex was king.  You were pampered in a villa or compound and your “expertise” provided a wage that beyond comprehension for most.  Life was grand, taxi fare was a joke, fine dining was cheaper than fast food back home and personal servants were a dime a dozen.  You hung out and got shit-faced with other expats in run-down grungy bar-streets on beer that was cheaper than water.  Getting a hold of various imports made you the “go to guy” in your circle.   Hell, you didn’t even have to speak Chinese, just live in that bubble and your company got you a translator… after all, it’s not like they are going to trust the locals to manage their operations.  Well, that colonial life is nearing an end, sorry.  Chinese are coming back from overseas and are more qualified than you ever were, willing to work for far less and are far less demanding.  You never bothered to buy property, after all, rent was cheap and the company paid it.  You find yourself now in a hilarious situation where the economy boomed all around you and you were too trapped in your little bubble to notice.  Oh, and that side-project you were working on? Yea, it finally got shut down by the government because you never bothered to be legal about it.

How about now? Fairly easy to get pretty much everything, gone is the exciting thrill of the hunt for random shit to pamper your existence.  Vanishing are the quaint hutongs of Beijing that lack bathrooms and rustic living (most residents WANT to be developed so they can cash out on the property and have a modern life).  And suddenly you find that eating out is no longer cheaper than eating-in, it’s almost as if people demand more money for things in a world where your day job is reliant on pushing overpriced crap to the public.

Food inflation is not due to China, it’s due to global markets and that whole “one price” bullshit.  Also due to futures manipulation going on overseas, which is another whole ball of wax.  Wait and see what happens when China finally says enough and reinstates price controls and restricts exports of strategic resources.  Also, that money doesn’t just vanish, it’s transferring a whole shitload of wealth to the countryside…. those who fail to take advantage will be replaced with those who do.  You know, the quaint countryside of massive inefficiency, do you dare consider what will happen when it stops being so inefficient?  I’ll tell you what happens, things get magical.  In my wife’s small little farming village hometown, we have >personally< invested around $500k over the last 5 years in pushing for better practices and more economically productive labor.  Before we started, the average yearly income was around 6000 RMB per year, it’s pushing 60,000 now and it’s sustainable.  Small scale, only about 100 families, but it entirely reversed the flow of youth running to the cities there and neighboring villages are studying the hell out of what we did to make it happen.  I’m not an NGO, I’m not a profit-seeker, this isn’t even my field of expertise, it was a side project at best and it’s fun to see actual results happen.  And not, it was not altruistic, we have our own operations ongoing within the family and the proceeds from that are more than enough, boosted by economies of scale provided by the other families.  Fairly win-win in the end.

In summation, you only are gonna get out what you put into this place, and rarely, if ever will the two balance out, if the only thing you have to contribute is vague and intangible, that’s probably what you will get out of it at best.  Sorry English teachers, in the end you are useless sacks of white flesh.  Sorry expat bubble community, if the only thing you can do is cater to the expat community, don’t expect to see anything come from China.  Sorry trading companies, your reliance on cheap crap being made here that you can mark up 50x cost didn’t really benefit anyone in the end and those factories are being pushed up the value chain and cutting you the fuck out of the equation.  Sorry foreign consultants, an entire generation of Chinese are coming back from overseas and can do your job better.

If anything is going on here, it’s a shift, a rather large one, a rather difficult one, but a shift none the less.  Those who can’t hack it are smart to get out, because they will not survive.  You can see that shift rather clearly if you look at the composition of companies here.  Fewer companies with foreign management, far more with Chinese management.  You may feel it’s unfair, the government is denying you the ability to succeed through red tape and regulation and whatever your excuse is.  After all, you’ve been doing the same thing you’ve been doing for the past 20 years and suddenly it’s not working anymore.  Oops, China’s getting it’s shit together.  Labor laws are becoming a real thing, your business model is dying and you cannot adapt.  This exact shift happened to our own industry starting about 5 years ago.  We spent a decade offshoring our bitch-work to India for cheap while we made out like bandits.  Indian outsourcers kinda sorta got their shit together and realized they could have so much more of the pie, seeing as they were doing all the hard work already.  They shifted gears and are now becoming players on the scene, and they do it for cheap.  We have been forced to rethink our entire industry as they gobbled up a huge chunk of it.  This process is still ongoing.  Those that resist and cry about their clients being stolen ultimately just go under and fail, those that dream up excuses fail.  Those that innovate and reach are being rewarded with fat contracts and huge buyouts.

Summation numero 2: Far too many expats came here pampered and treated like royalty, and this made up for what was, in their minds, lacking or deficient.  They are now no longer royalty and those nagging issues either stayed the same or amplified from their view without the royal treatment to make up for it.  As the western economies are either dead or dying, there is also a large influx of Generation Worthless trying to carve out a living by rushing over here, and yes, they are annoying as all hell and piece by little piece helping to tear down that image you spent the last decade plus to build.  You went from 同志 to 外国朋友 to 老外 to 死老外 because of them, after all, you didn’t change, China changed and you don’t like it anymore.  So better find an excuse to get out of dodge and make it sound like you didn’t fail and have zero qualifications to deal with China.

As far as the “great expat exodus”, let me know when permanent resident card holders start fleeing en mass, not because I want to join in, but because that in and of itself is an amazing signal that there is a void to be filled.  Those who stay on through the tough times and make themselves useful have a history of receiving the greatest rewards later.

So what do you think?  Please don’t hold back, not that anyone would or ever does….

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Every few months I read a post that beautifully encapsulates and sums up a festering hot button China issue.  I read such a post today on the Richard Burger’s Peking Duck blog.  Burger himself describes his post (on Facebook) as “A bit of a hodgepodge of a post, but the topic of Westerners’ losing their attraction to China is a fascinating one.”  I agree.

The post is entitled, Leaving China, Westernizing, Playing Victim, etc., and to grossly summarize it, many prominent Westerners who have spent many years in China and know China well have become fed up with it and are leaving in very vocal ways.

I honestly do not know if this disquiet is a growing trend or if this is just a one time blip of articulate people leaving and writing about it, but either way, the post and the links within it are well worth a read.

What are you seeing out there?  And whose fault is it anyway?  Expats who were too idealistic? Expats who are too inflexible? Expats who misunderstood China or where it was going? China itself? Has China changed or is it a lack of change?  Or is this really just a small meaningless blip?