The steady rise of domestic wages in China year over year is a statistical reality. A similar increase in wages for foreign workers (expats) has followed a similar pattern but is much harder to quantify because of the variety of perks and incentives that accompany expat compensation that doesn’t exist with Chinese domestic workers.
The reliable statistics presented here is information gathered directly from expats already working in China in various Tier 1 cities with those salaries reported being processed to represent the average across the population surveyed. The numbers are higher in Beijing, Shanghai, and Hong Kong and lower in the inland cities and provinces. This table serves as a baseline from 2012 in which we can compare numbers that exist today.
Table of expat salaries in China (2011 to 2012): Courtesy of www.ExpatArrivals.com
The Chinese market is a strong draw for expats looking for a stable, and for some, lucrative job position due to the strength and vitality of the Chinese market. That does, however, create a tense competitive atmosphere for winning one of those jobs with mastery of the local language being a crucial factor in deciding who wins the competition. It should also be noted that native Chinese competition is on the rise as more and more Chinese nationals are being educated at U.S. and Western European universities which make them more competitive in the hunt for those jobs.
Current Trends in Compensation in China
The fact of the matter is that expat compensation packages are steadily on the rise as economic conditions change in China. The cost of housing and other basic living expenses is climbing which in turn drives salaries up. China also faces increased pressure from other Asia-Pacific economies in competing for the top international (expat) talent which again, drives up prices. The cost of the total expatriate pay package in China is the second highest in the Asia Pacific region as shown in the chart below based on an ECA International survey in July 2016.
This status is a rise from fourth place last year to second place in 2016 as the result of a five percent increase in compensation over the preceding twelve months. The typical measure used to compare cost is the situation of middle managers. We can use this fact to compare the middle manager compensation costs to our baseline numbers from 2012 using the Sales and Marketing mid-level manager as the point of comparison.
It should be noted here that many international corporations in China are looking to move their operations inland to Tier 2 cities and other less expensive provinces. If all Tier 1 and Tier 2 cities were factored into the cost analysis, the cost of an expat compensation package would drop from USD 290,000 to USD 231,000. This is a significant decrease although the cost to develop the new site would add a large non-recurring cost initially before the price would drop to the lower levels.
Conclusions and Final Thoughts
The impact native Chinese are having on the expat market in China has been mentioned briefly in this article. This is picking up speed, and as a result, the niche for expat services in China is reducing quickly. In the 2012-2013 school year for Chinese students studying abroad, 235.000 took part mostly because of the opportunity to earn more money in their native country if their skill level matched or exceeded those of the expat looking to make use of their experience and education in the competitive fight. Combine the rising talent and expertise of the native Chinese middle manager with the language barrier many expats face and you can see the trend for expats being employed in China getting smaller and smaller.
The market for expats in China, however, will not disappear. Western international companies will always seek a comfort factor in having middle managers and executives in their Chinese operations that speak their native language as well as basic Mandarin. Look for these international firms to raise their game by having expat middle managers and execs trained in Mandarin at a much higher level of expertise to counter the native Chinese competition for those same jobs.