Salary Trends in China Present New Business Opportunities

Though the global economy is headed for a recessesion this does not mean that financial loss should be accepted as inevitable. In the wake of China's rapid development many 2nd and 3rd tier cities have been running to catch up to the explosive economic growth of Beijing and Shanghai. Savvy business leaders should take this crisis as their opportunity to reinvent the way that they conduct business with the China, improving overall annual returns now and into the future.

To gain further insight into the potential impact of the global economic crisis on China's job market and economy I have analyzed Meijob.com, a local online job search engine with over 1M registered users and 800,000 job positions advertised by over 100,000 recruiters across China. The relative size and monthly updates by recruiters and job seekers provides a consistently wide enough picture to track current salaries and predict future trends.

Major trends:

Annual Salary Decline: 11% in the last 12 months

General trends show that over the last 12 months salaries have been decreasing in China. The average decline from an annual salary of $5,344 hovers at 11%, or $4,977. December showed that the monthly salary was 415 USD or 2,849 RMB.

This is good news for recruiters who will be able to find better employees over the next few months. In an interview I had with one of China's most promising entrepreneurs, Shaun Rein, the Founder and Managing Director of the China Market Research Group (CMR) he said:

I remain cautiously optimistic about China's economy in the short-term and very optimistic over the long-term. Industries such as export, auto and real estate can expect to face difficult times over the next 6-12 months. While sectors like digital marketing and online games should continue to remain strong throughout 2009. Young consumers we have interviewed indicate they are optimistic but are becoming more realistic about their salaries. Salary levels for entry-level positions will be lower than last year and salary increases will be more reasonable than in years past when many workers expected 10-25% salary increases.

Over recent years, many of the companies we have interviewed indicated that their primary long-term operational concern within China was finding and retaining strong employees.

Beijing, Dalian or Jinan?

Among cities in China, Shanghai, Beijing and Shenzhen lead with an average annual salary of $6,687, $6,481 and $5,872 respectively. The common employee in these cities can expect around an additional 30% more. Companies can reduce costs by developing operations in 2nd and 3rd tier cities. Alibaba (ALBCF.PK), a successful internet company, has already picked up on this cost-cutting move by relocating most of its team into Hangzhou. Growth and recruitment will continue in other well known internet companies like Sina (SINA), Sohu (SOHU), Baidu (BIDU), Shanda (SNDA), Netease (NTES), and Tencent (TCEHF.PK) but shifting operations to mid-tier cities would provide them with improved opportunities in cost reduction.

Software engineers in China regularly earn 44% more than the average. They will earn an annual salary of $7,200, while in Beijing they can expect to earn an additional 30% or $9,360. Companies seeking to hire software engineers can save up to 40% of salary costs by hiring in cities like Dalian, the software outsourcing center of China where the average salary is $7,056 or Jinan, with 5M people and few hours by train from Beijing with an average salary of $5,760. Office space in these areas can also help to dramatically reduce costs, in particular now that they have reached peak levels, as demonstrated in Beijing following the Olympics.

Similarly, multinational companies like Yahoo (YHOO), Google (GOOG) and Microsoft (MSFT) can reduce their marketing staff costs by moving teams to attractive coastal cities like Suzhou and Qingdao. Marketing professionals in China can generally expect to earn $7,543 a year, more than software engineers and 50% more than the county's average annual salary, while a marketing professional in Shanghai can expect to earn an additional 34% more or 10,107$ a year. Salary costs alone can be reduced 34% or $6,713 by developing large components of the overall marketing team in cities like Qingdao, where similar office space can be obtained for 40% less than that of 1st tier cities. MNC can also gain the side benefit of an increase in moral and motivation due to the improved environment and relaxing atmosphere of many of these iconic cities.

Stock position: None.

Comments

[Income Tax:]

I didn't know the salary is that low in China. Compared to US salary on www.salarylist.com One employee here average is about $45K, almost 7 times than in China

Jan 08 07:30 AM

[canb888:]

Good article. I must add that benefits could also add to the compensation costs significantly. Beijing and the first tier cities have much higher benefit costs for medical, unemployment insurance, housing funds, etc. For example, Jinan have lower percentage of salary for medical insurance premium cost while Beijing's premium rate is 33% higher than Jinan on a higher base and higher ceiling. Unless your company needs to contact the central government frequently, there is not much point of being in Beijing. The benefits of being in Shanghai may not be justifiable either.

Average annual salary for a city means very little because they are pulled down by small private enterprises and some borderline companies who pay very low. Our average in Beijing for local staff is USD33k per person per year (including bonus) for an office staff of 35 of which our lowest paid receptionist costs about USD10k per year (including benefits and bonus). I know we are not the highest paying foreign company here. The city average is almost irrelevant for foreign companies, only good as an indicator.

Jan 08 10:26 AM

[nkrym:]

superb article, could be extremely helpful for those involved with outsourcing to china

Jan 08 03:41 PM

[catvision:]

Do not fully agree with you about the cost redction view. You defintely could reduce you cost to move to these you r mentioned cities, but you also need to consider the potential cost increase in these cities, e.g. in Hangzhou, engineers are from the cities around Shanghai, so they are easily attracted to Shanghai, then you lost people and got to find new people. So need to consider attrition rate. And also in some cities, you may not easily to find people with your required skill etc. So you can just to make decsion based on the salary costs.

Jan 12 10:28 PM

[Barak:]

I agree partially with what catvision has to say.
I think that attrition can be avoided by using the right tools in China as well as any other place in the world. The same tools can be applied in Beijing, Jinan & Hangzhou. If people leave the company it will not be because of the salary but due to the lack of opportunities for career enhancement inside the company.

Regarding resources, I believe that in most of the 2nd and 3rd tier cities in China, there are a lot of resources. One must know which recruiting techniques to use.

Cheers, Barak

Jan 13 09:32 PM

[Tradebiz:]

which recruiting techniques to use.

Sep 04 09:46 AM

[User 491037:]

Your article making an assumption that the productivity of the employees are the same among all cities compared to BeiJing, ShangHai and ShenZhen. But, is it the case? If not, how you measure the overall cost reduction to offer the same productivities?

Sep 24 11:29 AM